ADU Financing Options in San Diego
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San Diego ADU Financing
The majority of homeowners and investors will take out a loan to build their granny flat. OneStop ADU has teamed up with some of the top lenders in San Diego that will match you with the best loan programs currently available. We have years of experience working with these vetted lenders and are confident that they will offer you the best options to suit your financial needs. OneStop ADU’s A to Z package includes having one of our approved lenders ensure that you have all the required documents to submit for loan underwriting.
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Cash-Out Refinance
A cash-out refinance will replace your current home loan with a new mortgage for more than the current amount owed. In order to qualify for this type of loan, you need to have more equity than your present loan amount.
Limits usually apply as to what percentage of your home’s value can be financed, typically 80% LTV. The difference goes to you in cash which can be used towards the construction of your new companion unit.
The benefit of this type of loan is that rates can be fixed, interest is typically lower for primary loans, and you receive a tax deduction.
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Home Equity Line of Credit (HELOC)
A home equity line of credit, sometimes referred to as a “second mortgage”, is an alternate way to finance your ADU construction. The benefit of a HELOC is that you can withdraw funds from your line of credit as needed, and interest is only paid on the amount taken.
Some of the drawbacks are that interest rates tend to be higher than primary mortgages, rates are always variable, and the interest is not tax deductible.
For example: Primary homes usually have an 80% LTV. If your home is appraised at $800K and your current loan is $450K, you could likely get a HELOC of $190K ($800K*0.80= $640K-$450K=$190K).
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Renovation Loan (Fannie Mae Homestyle)
Renovation loans are a type of construction loan that allows homeowners to finance their project based on future appraised value. This type of loan is beneficial if you do not have equity in your current home.
It usually takes 60-90 days to fund a renovation loan due to the collaboration required between the lender, homeowner, contractor, and HUD inspector. The post construction value of the property is determined by the appraiser using the design and contractor bids and appraisal of the existing dwelling.
The lender must then work with a HUD inspector who will oversee the work and pay the contractor as per the payment schedule. The bank does not give the funds outright to the homeowner.
The Fannie Mae Homestyle loan has a conforming limit of $879,750 for one unit and $1,126,250 for two units in 2022. The types of loans typically have higher interest rates and often are refinanced at the end of the project.
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Home Equity Conversion Mortgage (HECM, ages 62+)
A home equity conversion mortgage is better known as a “reverse mortgage”. In order to qualify, one of the homeowners must be 62 or older, the property must be your primary residence and you must have significant equity in the home.
The owner takes equity out of their home and can use those funds to finance their granny flat construction. Disbursements are usually monthly, given as a line of credit without fund control or a combination of both. The homeowner can borrow up to 42% of the home’s value at age 62, up to a maximum of 70% at age 86 or more. Third-party financial counseling is mandatory for those willing to take out a HECM loan.
Some of the benefits of a “reverse mortgage” are interest rates are not based on credit score and history and there is no minimum monthly payment. HECM loans are no recourse FHA loans and there is no time limit as long as you reside in the home. The maximum appraised value is set annually in November and is used to determine the loan amount. The latest value set in 2021 is $970,800.
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Construction Loan
A construction loan is yet another option for financing your ADU if you lack equity in your home or have an LTV close to the conforming limit.
These are usually temporary loans used to finance a build. Once construction is complete, you can refinance into a single loan that includes the primary dwelling.
Loan amounts are usually $150,000 or more, cover all construction costs, and carry interest-only payments. These types of loans tend to be more complex in particular for small loan sizes.
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Estimate your ADU Mortgage and Potential Gross Monthly Revenue
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Innovating ADU Design
Budgeting for Your ADU Build
Planning your budget is one of the most important parts of a successful ADU project. Knowing what to expect upfront helps you make better decisions about size, design, and features. At OneStop ADU, we provide clear, understandable pricing so there are no surprises.
Understand ADU Costs
Knowing what goes into your ADU cost helps you plan better. The total cost includes design and permit fees, materials, labor, site work, and required upgrades like solar and utilities. Every property is unique, so expenses can vary based on layout, size, and local requirements. We provide transparent and clear pricing without hidden fees so you know what to expect from start to finish.
ADU Plans and Pricing Overview
See our ADU floor plans to get detailed pricing for each model, or choose a custom ADU designed specifically for your property. We believe in transparency, so you’ll always know the expected cost before starting your project. Our pre-designed plans help you budget easier, while custom designs give you an option to create something fully unique. Our team can help you understand your options and find the perfect choice during a free consultation.
Lower Cost ADU: Consider Partial DIY
If you want to save some money a partial DIY approach might be the answer. After OneStop ADU completes the main structure and essential work, you can take over the finishing touches. This gives you freedom to personalize your ADU with your own flooring, paint, or fixtures while cutting overall costs. So you can save a bit, make your ADU even more uniquely yours, while not sacrificing quality where it matters most.
Top ADU Financing Options
- Cash-Out Refinance. Cash out refinance construction loan replaces your current mortgage with a new, larger one and uses the difference in cash to fund your ADU project. Best for homeowners with strong equity and stable interest rates.
- Home Equity Line of Credit (HELOC). Borrow against your home’s equity as needed and pay interest only on the amount used. Good for funding during construction.
- Renovation Loan (Fannie Mae Homestyle). Finance your ADU based on your home’s future appraised value. Ideal if you lack equity but want to invest in upgrades.
- Home Equity Conversion Mortgage (HECM, ages 62+). A reverse mortgage option for seniors to tap into home equity with no monthly payments.
- Construction Loan. Short-term financing that covers building costs, refinanced into a long-term construction loan for ADU after completion.
- Free Appraisal. Some lenders offer complimentary property appraisals to simplify the ADU loan process.
Steps to Securing an ADU Loan
ADU financing becomes much easier when you know what to expect. Working with a team like OneStop ADU helps you understand everything about financing an ADU and get matched with trusted lenders. In the next sections, we’ll show each step to help you secure the right loan for ADU.
1. Evaluate Your Finances for an ADU Loan
Before applying for accessory dwelling unit financing, review your financial situation. Check your credit score, gather income verification documents, and estimate your borrowing capacity. Knowing where you stand helps you choose the right ADU financing options. If family members plan to help with the project, discuss shared ownership or title details early.
2. Estimate Costs for Your ADU Project
Work with experienced ADU contractors early to get an idea of your project’s total cost. This step helps you understand your potential budget range before committing to detailed plans. A general estimate will show how much you might need to borrow or allocate, so it’ll be easier to match your design goals with your financial limits.
3. Gather Referrals and Explore Loan Options
Ask for ADU lender referrals from reliable sources like contractors, financial advisors, or homeowners who’ve completed similar projects. Trusted recommendations can help you find lenders who understand ADU financing. If your property isn’t owner-occupied, consider private money ADU loans like bridge loans, which are based on project cost rather than equity.
4. Choose the Right ADU Loan Program
After reviewing your financial situation and getting cost estimates, compare different ADU construction loan types to see which fits best. Look closely at ADU loan rates, repayment terms, and any extra fees. It’s smart to speak with several lenders so you can compare offers and find the most affordable and flexible option before starting your ADU construction.
5. Prepare Your Initial Loan Application
Start gathering the documents you’ll need for your ADU financing options. Lenders usually ask for income verification, credit reports, and other financial records to confirm your eligibility. The focus right now is on your financial stability rather than the full details of your ADU project. Have these documents ready to make the process smoother.
6. Begin ADU Design & Feasibility Assessment
Once your initial financing is approved, it’s time to move forward with the ADU design and feasibility stage. This step helps determine if your property can accommodate the ADU you want and what’s needed to make it happen. Our team conducts a FREE feasibility study for new clients. We assess site conditions, utility connections, and potential costs. We’ll also prepare design documents and evaluate the scope of work required for permits and construction.
7. Loan Appraisal and Approval Process
As your ADU project moves closer to the permitting phase, the lender will finalize your loans for ADU. They’ll typically request an appraisal to estimate your property’s future value once the ADU is complete. You’ll need to provide documents like ADU floor plans, a construction budget, and a payment schedule. If the appraisal meets the lender’s expectations and your financial records are in order, your ADU loan program will be approved. After that, the lender will outline the funding process so your project can move forward.
8. Loan Disbursement and Progress Monitoring
After your loan is approved, funds are released based on your specific program. For example, HELOCs usually provide one lump-sum payment, while construction ADU loans distribute funds in stages (called “draws”) as the project reaches key milestones. Lenders may also require inspections to confirm progress before releasing each installment.
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