Non-traditional ADU financing options?

Question

Team - We plan to 'BUILD' an ADU in our backyard needed to know if there are any "Non-Traditional ADU financing options" out there? Eventually we plan to rent the ADU for Medium or Long Term rental, and not sure if DSCR loan will qualify for such an arrangement. Please let me know. Thank You!

Matthew Porcaro · Answer

This is correct, a lot of the FHA guidelines have changed in the last year making ADU financing a lot more acceptable and easier. You can do brand new builds on ADU's and you can use 50% of the future income from that ADU to increase your approval amount.

Fannie Mae HomeStyle does this as well.

Caveat is these are owner occupant loans.

Andres Murillo · Answer

I know a lot of folks have used 203k loans to finance ADU builds. They'll use an "after construction value" to base your LTV on. Plenty of lenders have access to this loan but aren't really marketing it as an "ADU Loan".

Hemant Karira · Answer

Yes please, I'd like to get more details please.

Jackson Ebersole · Answer

Hi Hemant,

Private lenders will fund the construction of your ADU. They will typically request an architect's letter that confirms that the project is as of right and requires no variance, which tends to be the case. That would be a 12 to 18 month bridge loan that you could later refinance into a 30 year DSCR loan.
Let me know if you have more specific questions on funding so we can help you out with the planning and funding of the project.

Regards,

Jackson.

Nicholas Coulter · Answer

Have you explored construction loans?

Hemant Karira · Answer

Thanks for your revert, @Nicolas Coulter - Apparently we do not prefer going the HELOC route and were hoping if there are other options out there? Please advise!

Nicholas Coulter · Answer

Likely the DSCR wont be an option. You can call local banks typically credit unions in the area to see if they have a construction loan product. If you have a decent equity position you can do a HELOC on the property to build the ADU.

Non-traditional ADU financing options?

Non-traditional ADU financing options?

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