Know The ADU Financing Options In California

Are you planning to build an ADU in your property in California? If so, it is imperative to collaborate with an expert ADU professional who will brief you about ADU Ordinance and all the available financing options.

Constructing a granny flat or an ADU is more costly than most homeowners realize. Finding an initial capital to cover all the costs can be tough if you do not know what is available to you. With grants, new laws and ADU finance options, ADUs have become more attainable for most people. 

Here are some of the ADU loans options available for homeowners in California

1. Government grants: Many states have created financial grants and local to help home owners build ADUs to overcome housing shortage in California. They offer many grants and loan options to make the development easier for middle-class homeowners. For instance, California Health and Safety code, Section 65583 requires cities and countries to develop plans to boost the development of ADUs to rent out to low to moderate income households. 

2. Home equity loans and HELOCs: These are the most common ways people finance their ADUs. A home equity loan is a consumer loan that allows one to borrow against the equity of the home. The borrower has to own 10% to 20% of home and have the property deemed valuable enough for loan. This loan provides the borrower a fixed amount of cash with fixed repayable schedule. HELOC is same to home equity loans except instead of fixed cash amount, they utilize revolving lines of credit with shorter repayment terms. 

3. Cash-out refinancing: Cash –out refinancing is best option for all those looking to change mortgage providers, get lower interest rate on their mortgage or club their new ADU project expenses into an existing home loan. This loan option replaces the current mortgage loan with a bigger loan. The borrower will get a lump-sum payment that is repaid over time with your monthly mortgage payment.

4. Construction or renovation loan: This is a great ADU finance option and loan works by having an appraiser assess the current property value and the expected value once ADU is constructed. The bank will give a certain percentage of the expected difference over the period of time for one to construct the ADU.  The inspectors will certify the progress of each step of ADU development and the banks will disperse money. 

Wrap up

The best way to decide the best option of ADU Financing California is to consult an ADU professional who will guide you toward a trustworthy lender familiar with ADU construction. 


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