How To Finance Your ADU in California?

Eano Home Renovation aims to help our clients in the best way we can, we have teamed up with some of the most trusted financing companies—Noah & Point—that'll make your dream accessory dwelling units possible. Each of our partners has a unique program that they bring to my buildings, this allows us to customize a program and be able to finance any one of our units to any client that really comes to us. Eano Home Renovation has a dedicated, experienced team of financial professionals as well within the company to help guide you through the process from start to finish. We have also worked to ensure that each one of Eano's channels works together with finance, sales, construction so that no department would hold up the ability to get your ADU in a timely fashion. With all that being said, let's talk about some of the finance programs specifically and what makes them unique.

So the two most popular ways for someone to finance an ADU would be through a Home Equity Line of Credit or HELOC or taking out a Cash-Out Refinance of your primary residence. So let's talk about each one:

HOME EQUITY LINE OF CREDIT (HELOC)

A home equity line of credit is something you can take out on your primary residence only. It's essentially a second mortgage. Think of it as you're adding a swimming pool to your backyard, but in this case, you're buying an ADU. You pull out equity that you've built within your property. You're just simply wanting to access it. Generally, these loans are adjustable-rate loans, but we also have fixed-rate options. Typically, they could be 10, 15, 25, or even 30-year loans. They're really good for smaller loan amounts, less than $200,000. So something that would be perfect for an ADU studio, but not necessarily the right product for a trio. For some of our larger units, we can also have the bank lend up to about 80% of the value of your home.

CASH-OUT REFINANCING

The second option is a cash-out refinance, basically refinancing the mortgage of your home to a brand new mortgage, taking out the equity in the form of a cash-out or cash advance, and you would use that portion to pay for the new ADU. These loans are always going to be at a fixed rate. They're going to have a 30-year loan. But you can also do a 15 as well. Generally, a shorter term is going to have a lower rate. They have favorable closing costs and the rates are very competitive. They have principal and interest payments, like most fixed-rate loans. You know exactly what your payments are going to be from beginning to end. And that payment will not change throughout the loan term. Again, these loans are going to be about 80% to 85% of the lendable equity in your home that you'll be able to access that amount. Each one of these loans is a great way to go, and these encompass about 75% of every ADU purchased is through one of those two loans.

If you think these two wouldn't suffice your ADU financing plans then you could try these other alternatives:

CONSTRUCTION LOAN

We have construction lending that gives you the ability to essentially take a draw period for the first six months and make interest-only payments as your California ADU was being built. Also, the bank, when they do the appraisal, will have the appraiser give the value of the home after the ADU has been installed. And so for those lender customers who don't have enough lendable equity, this is a great way to get additional equity out of your existing property. After the draw period in the 80s has been installed, it rolls into just a simple traditional mortgage, 15 or 30 years fixed.

PERSONAL LOAN

Lastly, a personal loan. They have become very popular over the last few years, and you can borrow generally up to about $100,000. This is a great way if you don't have quite enough equity, you're maybe %60,000 or $70,000 short. Taking a personal loan at a favorable rate could be a great way to make up the difference. And you can still get the California ADU that you're looking for. Any one of these products works well, standalone or with another product.

If you have any additional questions, you're more than welcome to give Eano Home Renovation a call. Talk to one of us and we're happy to walk you through any of the options that we have. Remembering that right now, rates are historic, historically low and loan terms are very favorable as our loan fees. So it's not a bad time to look at financing in ADU to generate some rental income in your backyard or to give you additional living space at a favorable price.

*All images used are from the internet.