ADU in SF Bay Area - loan question / advice

11 Replies

HI Bigger Pockets,

I'm looking to add an attached or detached ADU(granny unit) on my existing home here in San Mateo in SF Bay Area.

The rough estimated costs for contractor, labor and materials is between 280-320k. (about 6-800 sqft)

Is anyone on here familiar with or aware of any programs or products out there that would allow for financing this? And or has anyone been successful with this sort of a project?

Thanks in advance for any tips!


Ps. Last we talked we had a few blemishes on our credit report hopefully that does it make an impact but I want to see if there are any other products or programs out there that would not affect a loan like this. 

Hi Andy, do you already have plans submitted to the city? I'm in the Bay Area not far from you and in the process of converting our garage to an ADU. Message me if you need contractor referrals and a good lender for a HELOC.

Fire who ever said it will cost that much. Granted you are in the SF area and I am in LA, but $400 to $480 sqft? Is there some reason for this? Are you building on the side of a hill?

Don’t get me wrong, that is not astronomical. Here is a reference point; my business partner is a GC and builds high end to ultra high end homes in the greater LA area. $500 a sqft is his base cost to build on a normal flat lot.

Have you considered a prefab or off-site build ADU?

Last, don't use a HELOC.

@Andy C. I would tend to agree with and think that a HELOC is a good option. Others would be cash out refinance, and personal loans. I have not found a lender that specializes in ADU development loans, but I know that some of the pre-fab builders have financing available.

@David Hartman Can you please comment on why you're against the HELOC?

@Heather Wilkerson hi Heather I am familiar with Guaranteed Rate and have worked with them successfully before would you be able to direct message me CJ's contact info I will gladly reach out to him! TY.

@Cecilia Coyne hi Cecilia, I have not yet submitted plans and I'm in the thick of the entire process right now edit starting point. I am trying to figure out if there is a way to finance this thing as opposed to funding the entire amount from a HELOC. I'll send a direct PM TY!

@David Hartman hi David, great thoughts here. To be fair the cost Associated that I shared would have been for roughly 800 square feet and attached to the home. (versus detached)

That is my goal actually is to find a way to financing without dropping entire amount ie. 150-250k. I've looked into a few pre fab, and they're costing about that much actually. Not cheap!

@Matthew Forrest thanks for thoughts here.

I can't speak for David but I don't think that everyone on average can afford (even with refinancing home and heloc available - 150-200k).

San Mateo County has loosened their requirements and I do think that there will be a surge in interest to be able to take advantage of this opportunity for those that can afford it.

@Andy C.

Before I answer your question, I will ask this one question: Who is more likely to cover the borrowers back, the bank or the general contractor?

Many people are attracted to a HELOC as it has its advantages: easy approval process, low interest rate, open ended (aka revolving credit) loan, low cost to acquire, every one the block has one, etc. It is a long list.

It seems most people are interested in a HELOC and shy away from a construction loan. Yet they don't know why they shy away for the construction loan. I can't speak for other's but my guess is 2 parts - not know the protections in place and the fear of not knowing how to get one. There is an important part of the construction loan that is often missed. With a construction loan the bank is in charge of the wallet, not the borrower. They help you from getting ripped off.

For the consumer who has not managed a contractor or the consumer that has not managed any sub contractors during  a handful of large remodeling projects (or worse a stand alone structure), please use a construction loan. It costs more, but the bank holds the wallet and knows how to keep the contractor in check. The bank will help you and make sure you don’t go over budget, or pay out too much $$ to soon, or be weaseled into paying things that are the contractors costs. 

What I’m trying to say is the contractor is not your friend. They are doing what they do to make money. And there are to many gray areas that a contractor can use to make money.

The HELOC looks attractive for many reasons, and it also looks cheaper. Yet In the end this route will cost more- because the contractor will figure out a way to up the charges you pay out of your HELOC.

On the flip side the bank knows this game. They see it day in and day out. They have proven ways of keeping the contractor on time and on budget. And they can see when the contractor is not playing straight.

I'm sorry if this doesn’t come out well. I’m trying to answer the question before I fall asleep. I’m so tired I’m not even sure I’m writing in English. 🤣🤣🤣

@Andy C.

A few other considerations:

1. construction loan might be difficult if you are doing a prefabbed ADU

2. have you considered financing part of this through borrowing from your 401k/IRA account? I think due to COVID, you can borrow up to $100k from your 401k account before end of 2020 now.

3. I believe you can get the construction cost down...$280k for 800 sqft is a bit excessive...I did mine (also 800 sqft for $200k in San Jose). Let me know if you need to talk to more contractors who can do this for lower...

@Andy C. did you ever figure out the best way to finance your ADU construction? A lot of people have been asking me the same question and the only response I can give them is to either do a cashout-refi or a HELOC.

Since this requires the owners to tap into their equity, it isn't an option for new homeowners who want to add the ADU in their backyard.

@Chen Zhou /@David Hartman any tips for new homeowners who are interested in getting a construction loan to build an ADU? Thanks!