ADU Financing Options
What Is ADU Finance

ADU Financing Options

Building an ADU is an exciting investment, and there are several ways to finance your project depending on your property, budget, and long-term goals. At Puget Sound ADU Builders we’ve established relationships with finance partners to support lending solutions for property owners building a single ADU, as well as for property owners who are building multiple ADUs and qualify for construction and alternative loans.  Below is a guide to help you understand which type of loan may fit your situation best.

Our Mortgage Products

Traditional Mortgage Products

(Re)Finance First Mortgage

For homeowners already planning to refinance, this option allows you to roll your ADU construction costs into a new home loan with predictable 15- or 30-year fixed payments.

  • Best for: Homeowners refinancing an existing mortgage
  • Loan-to-Value (LTV): Up to 97% (with qualifying programs)
  • Credit Score: 660+
  • Key Benefit: Stable monthly payments and potential to use ADU rental income to help qualify
  • Traditional Mortgages typically offer the lowest rates of all loan products.  Property owners who already have an existing mortgage on their property may have lower rates than what is currently available.  If this is the case, other loan products are likely a better option.

Fannie Mae HomeStyle® & Freddie Mac CHOICE Renovation® Mortgage Renovation Loan

A single mortgage that covers both your home and your ADU project. Ideal if you’re purchasing a property that needs work or refinancing to add improvements.

  • Best for: Homeowners adding or improving an ADU
  • LTV (Loan to Value Ratio): Up to 95% (97% for first-time buyers with HomeReady® & HomePossible®)
  • Credit Score: 620+
  • Key Benefit: Combines home purchase or refinance and renovation costs into one loan.
Home Based Products

Home-Equity-Based Products

HELOC (Home Equity Line of Credit)

HELOC (Home Equity Line of Credit)

A flexible line of credit that allows you to draw funds as needed during construction and pay interest only on what you use.

  • Best for: Homeowners with existing equity who want flexibility
  • Typical Terms: 5–10 year draw, 20–25 year repayment
  • LTV (Loan to Value Ratio): ~80%
  • Key Benefit: Ideal for phased construction; interest-only payments during draws.
Home Equity Loan (Closed-End Second Loan)

Home Equity Loan (Closed-End Second Loan)

A fixed-rate second mortgage that provides a one-time lump sum for your ADU project.

  • Best for: Homeowners with 15–20%+ equity who prefer fixed payments
  • Loan Size: Up to $750K
  • LTV (Loan to Value Ratio): 80–85% combined (up to 95% with strong credit)
  • Key Benefit: Predictable, fixed monthly payments
Investor Loan

Investor Loan Products

Construction Loans (Construction-to-Permanent Loan)

A Construction Loan helps finance your project from the foundation to completion — whether you’re building new, adding an ADU, or taking on a major remodel.  Once the build is complete, the loan often converts into a permanent mortgage — called a construction-to-permanent loan — so you don’t have to refinance later. Because the lender carries more risk while the structure is being built, underwriting and inspections are more detailed than a typical mortgage.  Construction loans are ideal when you’re building new homes, adding ADUs, or developing multiple units, and want a single financing path from groundbreaking to occupancy.

This loan covers both the construction and long-term financing of your ADU in a single process.

  • Best for: Building a new ADU or doing a major remodel
  • Terms: 6–18 month construction (up to 24), then converts to a 15- or 30-year mortgage with a lower rate
  • Credit Score: 680+
  • Key Benefit: One loan from start to finish — interest-only during construction, then automatically converts to a mortgage

Note: Construction loans are generally available only on lots without an existing dwelling.

Real Estate Investor & Equity Based Loans
Investor

Real Estate Investor & Equity Based Loans

Build faster with flexible funding. Private and equity-based loans give real estate investors quick access to capital for multi-unit or infill projects, including ADUs, cottage clusters, and small multiplexes. These loans are based primarily on the equity and potential of the property, not just borrower credit. They feature streamlined underwriting, simple terms, and fast approvals — making them a practical choice for developers and experienced homeowners pursuing multiple ADU projects. Once construction is complete, your finished units or condos can be refinanced into a traditional mortgage for long-term stability and lower rates.

  • Best for: Builders and investors funding multiple units or short-term ADU projects
  • Terms: 12–36 months, interest-only with balloon payment at maturity
  • LTV (Loan to Value Ratio): 65–80% depending on deal strength
  • Rates: Typically 9–11% with 1–4 points in fees
  • Key Benefit: Fast approvals, flexible underwriting, and funding based on project equity

Upon completion of construction, these loans can typically be refinanced into a traditional mortgage for long-term stability.