01

Home Equity Loan or Home Equity Line of Credit (HELOC)

How it works:



This option allows you to borrow against the equity in your primary home

Pros:

• Typically offers lower interest rates than personal loans or credit cards

• Fixed interest rates for home equity loans or flexible borrowing with HELOCs

• You can borrow a large sum, depending on the equity in your home

Cons:

• Risk of losing your home if you default on the loan

• Interest rates can rise with HELOCs

02

Cash-Out Refinance

How it works:



This involves refinancing your mortgage for more than you currently owe, then taking the difference in cash. You can use this cash to finance the construction of your ADU

Pros:

• You can access a large amount of money with potentially lower interest rates than other loans

• The loan is secured by your property, which can result in better terms

Cons:

• Increases the size of your mortgage

• Your property is again at risk if you can’t repay the loan

03

Personal Loan

How it works:

You take out an unsecured loan from a bank, credit union, or online lender. This option doesn’t require home equity

Pros:

• No need to use your home as collateral

• Fast approval and funding
• Good option for those with good credit but little home equity

Cons:

• Higher interest rates compared to home equity loans or HELOCs

• Loan amounts may be smaller, which might not cover the full cost of the ADU

04

FHA 203(k) Loan (Renovation Loan)

How it works:



This government-backed loan allows you to finance both the purchase of a property and the cost of renovations, including ADUs. It can be used for existing properties or newly purchased ones.

Pros:

• Low down payment requirement (as low as 3.5%)

• Can cover both construction costs and home purchase costs

Cons:

• A more complicated application process

• Limited to certain types of properties and may not be available in all locations