We are not a lender, but we have extensively research lending options for our buyers to bring you a number of financing options to find the best fit for your situation.
Below we will explore both traditional and non-traditional financing options.
With a cash-out refinance, you take out a new mortgage that’s for more than you owe on your existing home loan, but less than your home’s current value. You’ll receive the difference between the new amount borrowed and the loan balance at closing.
This is a revolving line of credit, typically at a variable interest rate. A lender approves credit up to a certain amount (usually up to 80 percent of the value of your primary home), and then you can borrow from that to pay for your unit and any related costs. Fees typically are lower, but they can be difficult to find.
This is a loan for a fixed amount, for a term typically shorter than the first mortgage. As with a first mortgage, you’ll have to pay closing costs and fees such as for an appraisal, credit report, and more; but your first mortgage and its rate stay intact.
Interest rates tend to be slightly higher than for refinancing (about 0.125 percent), you’ll have to pay closing costs, and it’s a short-term loan (usually a year or less). But often a renovation loan can be a one-time close, meaning that any remaining debt when the term is up is automatically converted to 30-year financing—so, there’s no reapplying or additional origination fees.
Unlike loans based on the existing equity in your primary home, a renovation loan to pay for an ADU is based on the price your home will be valued at once all the improvement work is finished. (Building an in-law unit is considered a home improvement.) If you have less than 30 to 40 percent equity in your primary home, this might be a good option to consider. Note, however, that the bank will want to approve the builder and will release funds over time as construction progresses—adding hassle and complexity for everyone involved.
Gather critical information from lending professional about your financing options for you build.
