ADU Financing in Colorado
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Madelyn Schmidt
NMLS: 1530295
267-668-2844
madelyn@renofi.com
renofi.com
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Nancy Kenny
NMLS: 322084
909-225-8787
Nancy@pmr.loans
primarymortgageresource.
ADU Financing Options
Securing funds for an Accessory Dwelling Unit (ADU) is not as challenging as it might appear. As you contemplate the idea of constructing an ADU on your property, a common concern among homeowners is, “Is it possible to finance this? If yes, what are the possibilities?” There’s a variety of financing options available such as home equity lines of credit, cash-out refinancing, construction loans, and more.
In today’s economic environment, our clients frequently opt for a Home Equity Line of Credit (HELOC). This is a credit facility based on the equity of your home, divided into two payment phases – a draw period and a repayment period. You’re only liable for interest on the utilized portion of the loan, which you can access to finance your project, usually over a span of about 10 years.
A cash-out refinance bears resemblance to a HELOC as it’s grounded on your present home equity. However, instead of being an addition to your existing mortgage, this method substitutes your current mortgage. The surplus amount, which you receive in cash, can be utilized to finance your ADU.
This strategy is particularly beneficial if your home has substantial equity and if the interest rate you’re currently paying aligns with or exceeds the prevailing market rate!
In contrast to loans that depend on existing equity, a renovation/construction loan doesn’t secure your home as collateral. So, if you’re looking to bypass that or if your home doesn’t hold much equity, this could be an excellent alternative.
Nonetheless, this type of loan usually comes with stricter credit and income prerequisites, along with a generally higher interest rate. This often results in a higher monthly payment compared to other financing options.
Apart from these conventional loans, there are several other alternatives you can explore, such as:
- Securing a personal loan or credit line
- Tapping into retirement funds or personal investments
- Selling another property or home
- Seeking financial assistance from family and friends
- Acquiring private money loans
- And additional options