Know The Available Options For ADU Financing In California

Are you planning to build Granny Flats In California?If so, it is time to figure out how you will finance one. Building an Additional Dwelling Unit is more costly than most people to realize even though it is considered an affordable housing option.

Although there are many loan options specifically building ADUs in California, there are still quite a few options to consider.

• Local government grants and loans: These loans are offered by the states to provide financial incentives for building Granny flats with the aim to mitigate the housing crisis in California. They offer many grants and loan programs to make it easier for many middle-class home owners to build ADU in their property. California health and safety code, requires cities and countries to develop the plans to boost the development of the ADU and CalHFA’s ADU grant program is created that gives the home owners up to $ 40,000 for ADU pre-construction costs.

• Home equity loans and HELCOs: The most common ways people finance their ADUs is with home equity loans or HELOCs. Home equity loans allow the home owners to borrow money against the equity of your home. The criterion is that the home owner needs to own at least 10%-20% of your home and have their property deemed valuable enough for the loan. Home Equity line of credit or HELOC is same as home equity loans except HELOC utilize revolving credit line with shorter repayment terms.

• Cash-out refinancing: Cash-out refinancing replaces the current mortgage loan with a bigger loan. The borrower will get lump-sum payment that is repaid over the time with monthly mortgage payment.

• Renovation loan: An appraiser will assess the value of your property and expected value of the property once ADU is built. The bank will then give certain percentage of the expected difference for a period of time to help your construct your ADU.

• CDFI or local partnership: It is a loan program that allows the owner to use the projected rental income towards the qualifying income for the loan. The catch is after building an ADU, the owner must rent it out.

Wrap up

Talk with an ADU professional who will brief you about the varied types of ADU Loans available in California so that you can build your ADU in a hassle-free manner.