ADU FINANCING
Financing Options for Your ADU Project
At ADU360, we understand that building an ADU is an investment in your home and future. To help you make your dream project a reality, we offer flexible financing options through our trusted partner, Hearth.
Why Choose Financing Through Hearth?
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Fast and Easy Pre-Approval: Get personalized rates in just minutes without affecting your credit score. -
Flexible Terms: Choose from a variety of financing plans that work best for your budget.
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Transparent Costs: See exactly what your monthly payments and total costs will be before committing.
How It Works
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Enter Your Project Cost: Start by entering the estimated cost of your ADU project. -
Check Your Credit Score Range: Find financing options tailored to your credit score.
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Compare and Select: Choose from multiple loan offers that fit your needs.
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Secure Financing: Finalize your loan and start your ADU project without delay.
Planning Your ADU Budget
Creating a detailed budget is a key step in any ADU project to avoid unexpected costs and keep your plans on track. It’s important to account for all aspects of the project, including site preparation, utility connections, design, permitting, construction, and finishing touches, to ensure your vision aligns with your financial goals.
Rather than forcing your budget to fit the design, your design should be tailored to your budget. Open discussions about financial limits early in the process can prevent costly revisions later.
Begin by estimating the total cost of your ADU, factoring in pre-construction expenses like architectural planning, permits, and site preparation, alongside construction costs. This preliminary estimate serves as a foundation for financing decisions. As your project progresses, the Feasibility phase will refine the budget, uncovering any overlooked expenses and providing a clearer financial outlook.
Yes, it can. As of October 2023, the Federal Housing Administration (FHA) allows lenders to include ADU rental income when evaluating mortgage eligibility:
•For existing ADUs: Up to 75% of estimated rental income can be considered when qualifying for an FHA-insured mortgage.
•For new ADUs under construction: 50% of projected rental income may be included using FHA’s 203(k) Rehabilitation Mortgage Insurance program.
This update expands financing options, making ADUs an even more appealing investment. Additionally, as of November 2022, Freddie Mac offers a program for 1-3 unit properties that enables buyers to purchase or refinance (e.g., from a construction loan) while factoring in ADU rental income into the property’s value. No seasoning period is required, so refinancing can start as soon as a rental agreement is in place for the ADU.
Yes, we work alongside you and your lender to provide the necessary plans, scope of work, and budget required for construction loan approval.
Once the project begins, we handle loan documentation with the lender, including coordinating inspections and “draws.” Draws are payments released by the lender based on construction progress milestones. This means you only pay interest on the funds used so far, rather than the full loan amount upfront, making the process more cost-effective.
To obtain construction financing for an ADU, your lender will need key documentation, including the intended floor plan, elevations, scope of work, and a detailed budget outlining total construction costs. All of this is included in ADU360’s Feasibility Study, providing everything necessary to begin the financing process. These details give your lender a clear understanding of the project and its cost-effectiveness.
To ensure your financing covers the full scope of your ADU project, start with a comprehensive Feasibility Study. At ADU360, we provide a Price Lock Guarantee, meaning your project cost won’t increase unexpectedly after securing financing. This gives you confidence that your approved loan will fully cover the project, eliminating concerns about unforeseen cost increases.
Book an On-Site Feasibility Consultation
ADU360 is a Los Angeles based design & build construction firm that specializes in ADU developments.
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