How to finance an ADU

Step 1: Learn, what financing solutions exist.

how to finance an adu

Use this chart to understand what financing works best for you. Read more here to understand the way this decision tree works.

Most homeowners tend to use a mix of these methods to finance their ADUs. Then, move to step 2 to understand the costs of these options.

Step 2: Costs of borrowing $100,000 overtime

The cost of the money borrowed using a house as collateral depends on several factors such as the type of financing used, the length of time the financing is kept, interest rate, if applicable, and home appreciation if shared appreciation or profit participation financing is used.

This “Cost of borrowing $100,000 overtime” video takes you on a time travel, plays for 60 seconds and shows the cost of financing for four ranges of time 1, 10, 20, and 30 years for each type of financing. Feel free to hit pause if it goes too fast:)

The cost for each instrument is shown for 15 seconds for each of these time periods, 2.5 seconds for each value of appreciation. Appreciations of 0%, 2,%, 3%, 4%, 5%, and 6% are used. The values of mortgages, HELOC, and reverse mortgages do not change with appreciation so their values remain fixed during these 15 sec periods. Their cost changes only with the length of the period the money is held. Read more

Created by Artur Urbanski for ADU Council