4 Ways To Finance an ADU
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Chattanooga Building Co

How to Finance an Accessory Dwelling Unit

Financing an ADU

Accessory Dwelling Units, also known as ADUs, are an amazing way to increase livable space in your Chattanooga household. The construction process is easy and stress-free while the entire project is much more affordable than building a home addition on site or moving to another property. 

However, you might still need some additional financial help for building your ADU. To make the process easier for you, we will discuss the best ways to finance your ADUs. Read on to learn more.

Home Equity Loans

This type of loan is also called a second mortgage. It is when a homeowner uses the home’s equity as collateral on their loan. In other words, you can finance your ADU by using the equity of the property you already own. The amount is determined by the property’s value, it has a fixed interest rate, and is given in monthly instalments to the borrower. 

HELOC

HELOC is an acronym for home equity line of credit. This falls under home equity loans. It enables homeowners to take money and repay with an interest rate later on. The difference between HELOC and typical home equity loans is that HELOC is more flexible. You can take out money more than once and it has a variable interest rate. 

People typically use HELOC and home equity loans for home improvement projects and for repaying already existing debt. The best thing about them is their low interest rate, especially when compared to other types of loans.  

Cash-Out Refinancing

Another option for financing your ADU is cash-out refinancing. This includes refinancing your mortgage and getting cash-out in return. Of course, the new cash-out payment will become a part of your regular loan repayment fee. 

In other words, you will be getting a loan for a sum that exceeds what you owe now, but that is smaller than your current home value. Cash-out refinancing is also a great solution if you want to switch providers or get a lower interest rate.

Construction Loans

If a cash-out or home equity loan isn’t enough for financing your ADU, you can always opt for a construction or renovation loan. The amount you’ll be given will depend on the projected ROI of the ADU. That is why the loan process includes an appraiser. 

The bank will do an appraiser to compare your current property value and the projected increase in value by the ADU. The difference is then given to the borrower in order to build the ADU. Of course, the bank will take out a percentage of that sum. Have in mind that not all banks provide this option.

What Is the Best Option?

While there are many ways you can finance your ADU, experts suggest HELOC as the best and more flexible option. The interest rates are low and borrowers have a little more freedom. 

However, every homeowner has different preferences and is in a unique financial situation. As one of the best ADU builders, at Chattanooga ADU we are in close partnership with high-quality financial institutions. Our clients get the best financial advice for financing and building their ADU in Chattanooga.

See our menu pricing and get the loan process today.

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