What is ADU financing?
Most types of ADU financing provide homeowners with a lump sum of money that can be repaid monthly with interest. Building an ADU can increase home value making them well worth the investment. However, it can be expensive to build an ADU. Most homeowners prefer to use ADU financing rather than taking money out of savings. Some types of ADU financing may be more difficult to qualify for than others. If you are looking for a quick and easy ADU financing option you should consider a personal loan.
How does ADU financing work?
ADU financing provides homeowners the funds they need while allowing them to make affordable monthly payments. The specific details on how ADU financing works can vary depending on the type of loan you use. Below, we will educate readers on various ADU financing options and how they work. We highly recommend using a personal loan for ADU financing, Personal loans offer competitive interest rates and long repayment terms. In addition, personal loans are much less risky for homeowners than most other options.
ADU Financing Options
The design, location, materials, and other factors can impact the cost of building an ADU. On average most ADU’s cost about $100 to $200 per square foot. This means if you are building a 350 square foot ADU you can expect it to cost about $35,000 to $70,000. While paying cash is the cheapest way to pay for an ADU, you may not have the cash or you may not want to use the cash to build an ADU. Financing an ADU allows homeowners to make affordable monthly payments. Secured ADU loans may have lower interest rates but unsecured ADU loans may be easier to qualify for. Let’s take a look at different ADU financing options. . .
Personal Loans (PrimeRates)
Personal loans are unsecured loans that homeowners can use for ADU financing. Most lenders offer personal loans up to $100,000 with rates starting at just 4.99% and terms up to 12 years. Compared to other options, personal loans can be easier to qualify for and do not require collateral. In addition, all credit types can qualify for personal loans. In most cases, personal loans are issued in a lump sum that is repaid monthly with interest. Banks, credit unions, and online lenders can offer personal loans. Banks and credit unions usually have more strict requirements and longer approval processes. This can make online lenders more attractive. Not to mention, the competitive rates and terms online lenders can offer. Some may be hesitant to use an online lender due to a lack of confidence in the internet. If you are considering a personal loan for ADU financing you should visit PrimeRates. PrimeRates offers a secure online platform that can connect homeowners to reputable lenders. Borrowers can compare personal loan offers without affecting their credit score.
A home equity line of credit (HELOC) loan offers homeowners low interest rates but can be challenging to qualify for. For starters, homeowners need at least 20% equity in their home. Homeowners should have a minimum credit score of 620 or higher to qualify for a HELOC. Most lenders only loan 75% to 90% of the available equity. For example, if you owe $200,000 on your mortgage and your home is worth $450,000, you could potentially get a HELOC for $187,500 to $225,000. If you need money quickly a HELOC loan may not be the best option. Most lenders have a lengthy approval provess for HELOC loans. HELOC loans provide access to a specified amount of money. However, homeowners should only be charged interest on the amount of money they use. Homeowners can obtain HELOC loans with interest rates as low as 2.49%. Since the lender has collateral, there is less risk for the lender. Borrowers assume more risk when using a secured loan or line of credit. If you default on a HELOC loan you risk losing your home.
Home Equity Loan
Home equity loans are similar to HELOC loans. Home equity loans are secured loans issued as a lump sum. Similar to a home equity line of credit, home equity loans require homeowners to borrow against the equity in their home. Most lenders will loan between 80% to 85% of your home’s equity. You may hear home equity loans referred to as a second mortgage. This is because it’s secured by your property. However, if you default on your mortgage or home equity loan, the home equity loan will most likely be second in line for payoff. Home equity loans are similar to personal loans in the sense that you are issued a lump sum of money that you repay monthly with interest. Home equity loans can be much riskier than personal loans. If you default in a home equity loan you can risk losing your home.
Cash Out Refi
Homeowners can use a cash out refinance to finance an ADU. Similar to HELOC’s and home equity loans, cash out refinances also require homeowners to have a certain amount of equity in their home. If you use a cash out refinance you will refinance your mortgage and borrow money at the same time. When you complete your refinance, you will receive a check. The balance of your new mortgage will be higher than your old one. The difference between the old mortgage and new mortgage balance should be the amount of the check you received, plus any closing costs in the loan. Most lenders will require you to retain at least 20% equity in your home after refinancing. If interest rates have dropped since you took out your first mortgage, you may be able to lower your interest rate while borrowing money. One downside to cash out refinances is that you will most likely have to pay closing costs on the entire loan amount.
Construction loans may be a bit more complicated than other options but they can be used for ADU financing. Lenders that offer construction loans generally offer 80% to 95% of the “completed value” of your project. Most lenders require homeowners to submit completed plans, schedule, contractor information and budgets, and more. Home construction loans are usually short-term and higher interest rate loan options. Other options may offer more affordable and flexible payment options.
What are the requirements to qualify for ADU financing?
Requirements can vary depending on the type of ADU financing you choose. Some of the basic requirements for a personal loan from one of PrimeRates lending partners are. . .
- Credit score of 620 or higher
- Consistent income
- Reasonable debt-to-income ratio
How to Find Best ADU Financing Deals
If you value saving time and money while getting the best deal, you should visit PrimeRates. PrimeRates can help homeowners obtain the best ADU financing deals. PrimeRates can connect borrowers to multiple personalized ADU loan offers within minutes.
How to apply for ADU financing
Once you have reviewed and selected the best ADU financing option, you are ready to apply for a loan. Personal loans can be one of the easiest financing options to qualify for. In addition, if you do not have enough equity in your home, a personal loan may be one of the only options. PrimeRates partners with lenders that specialize in personal loans for ADU financing. Homeowners can submit one application through PrimeRates without affecting their credit score. Within minutes homeowners can receive multiple ADU financing offers. PrimeRates lending partners know they are facing competition encouraging them to make very competitive offers for PrimeRates applicants. Here are 3 easy steps to apply for ADU financing loans through PrimeRates. . .
#1. Submit easy online application
#2. Select the best ADU loan offer
#3. Receive funds quickly
In conclusion, there are a variety of options when it comes to ADU financing. Personal loans are a top choice for ADU financing. PrimeRates lending partners can offer ADU financing up to $100,000 with terms up to 12 years. Homeowners can compare ADU financing offers without affecting their credit score. PrimeRates partners with credible lending partners that can help all credit types obtain ADU loans.
Get pre-qualified for ADU financing. . . apply online today!