Getting your home upgraded and remolded is just as exciting as when you first bought your house. Remodeling your house allows you the opportunity to improve your current living conditions as well as either remove things that have been bothering you or add something new to your property. One of the rising trends that many people have been getting on their property is accessory dwelling units, ADUs for short.
As the name implies, an ADU is a small living space placed on your property. It can be used for a variety of purposes and is always a welcomed addition to any household. However, an ADU isn’t cheap and is a big investment that not everyone can afford. However, financing an ADU isn’t that difficult as there are several things you can do to finance it. Let’s go over different ways how to finance an ADU and decide the best one for you.
- Home Equity Loan
The first financing option you can take to finance an ADU is a home equity loan. This type of loan is commonly known as a second mortgage as is usually what many homeowners take to finance any home remodeling. This type of loan works in conjuncture with your mortgage as your home’s equity will serve as the collateral.
This type of loan only gives a fixed amount of money and varies based on your home’s appraised value. Getting this type of loan is ideal for ADU if you have the extra finances to add to the loaned amount.
- ADU Construction Loan
This type of loan is extremely straightforward and can be used for the exact purpose of building an ADU. Construction loans are typically used for home improvement projects such as repairing broken portions of your home or for building a house from the ground up. However, it can also be used for an ADU which is generally a better use for it as it is cheaper than building a new house from the ground up and better use of a loan than doing simple house repairs.
- Home Equity Line Credit (HELOC)
Somewhat similar to the home equity loan, a HELOC can be seen as credit from your home’s equity. This is a popular financing option that many people use for a variety of household improvements as you only have to pay the interest of the amount you have used. However, it is also a bit risky as HELOC’s interest rates are in constant flux which can cause damage to your finances if you aren’t prepared.
- Personal Loans
Another financing option, albeit risky, that you can take is a personal loan or credit. This financing option is the least preferred because of the unsecured nature of the loan which leads to higher interest rates. It also requires you to have a good credit score to have your loan approved.
However, it does come with its benefits such as not needing to provide collateral as well as having to loan immediately approved as long as you have already prepared the requirements for it.