Understanding the available options for financing an ADU in Phoenix is essential to making your project a reality. From traditional home equity loans to specialized construction loans, there are various avenues to fund your ADU.
ADU costs vary based on several factors such as size and complexity. In the Phoenix market, an ADU can cost anywhere from $120,000 to $450,000 depending on your goals, so you will most likely need to consider some form of financing to move your project forward.
Remember that the larger the ADU you build, the more rental income you can generate. In Phoenix, a homeowner with a large lot can have an ADU of up to 3,000 square feet. The NextADU team is educated on local and state laws with the goal of helping you get the most rental income possible for your situation.
While there are other means of raising capital such as selling assets or tapping into savings accounts, the most frequent choices for ADU financing involve borrowing on the equity in your home.
A home equity loan is a type of second mortgage that allows you to borrow against the equity you’ve built in your home, providing a lump sum of money that can be used to finance your ADU project. With fixed interest rates and predictable monthly payments, this option offers stability and clear repayment terms. It’s a straightforward way to leverage your property’s value to fund your ADU construction.
A Home Equity Line of Credit (HELOC) provides flexible financing by allowing you to borrow against your home’s equity as needed, up to a predetermined limit. With variable interest rates and the ability to withdraw funds during the draw period, a HELOC offers versatility for managing the costs of your ADU project. This tool is ideal for homeowners who prefer access to funds over time rather than a lump sum.
Cash-out refinancing involves refinancing your existing mortgage for a higher amount than you currently owe, allowing you to take out the difference in cash. This option can provide significant funds for your ADU project while potentially securing a lower interest rate on your overall mortgage. It’s an effective way to tap into your home’s equity to fund major renovations or additions like an ADU.
A construction loan is a product from mortgage lenders specifically created to cover the costs of building a new structure, like an ADU. These loans typically have short-term durations and are disbursed in stages as the construction progresses. Once the project is completed, the loan can often be converted into a permanent mortgage, making it a practical choice for comprehensive ADU financing.
At NextADU, we want to work with you to turn your ADU ideas into a reality. After your initial consultation, we can provide an estimate that will give you a better sense of your needs and help you have intelligent conversations with financial institutions. Request an estimate today to start the process.
NextADU wants to help Phoenix property owners improve their homes with well-built accessory dwelling units. We use a streamlined process that makes the path from planning to construction quick and painless, providing a unit that will give homeowners the extra space they need for guests, tenants, or a home office. Whether detached or attached, our expert team will build an ADU that exceeds your expectations.
