
Refinancing after building an ADU
Hey all, I've got a SFH in Inglewood CA that I bought in 2019 because it had a massive old garage structure that could be converted to an ADU. I'm in the middle of that conversion now. I bought the property for $655k and putting in about $250k for the ADU (it's a 2-bed, 2-bath and needed new foundation and roof). I have a mortgage of about $490k, at 3.625%. Property should be worth about $1.3m once ADU is done and I would really like to be able to get my $250k ADU investment back out, which would require about 55-60% LTV. I have a few questions -
(1) could I get a 2nd lien so I can preserve the rate on my current mortgage?
and (2) should I even do it? If I can't just do a 2nd lien and instead refinance the whole thing at 6 - 6.5%, the marginal cost of pulling out that $250k is crazy because I'd be paying an extra 3% on the existing $490k. I did rough math, I'd be effectively paying 12% on that $250k. Ugh! Just doesn't pencil out unless I can preserve my current rate on the principal that would stay in place.
Thanks!

Hey Devin, congrats on building an ADU! It is not an easy process.
1) Yep you can do a HELOC or another line of credit that in 2nd position.
2) That is a tricky one. Sounds like you have done the math but the likelihood we get down to those rates again is relatively low. If you have the HELOC or something similar it would act like cash and would be a nice line of credit you can pay down if needed. I'd run the numbers and see where the breaking point is financing-wise to refinance it all in one.

I would talk to a lender and run the numbers, but my guess is a HELOC may be your best bet to get some money out for your next investment.
