Accessory Dwelling Units

How to finance an ADU

Have you been considering adding a space to your house or property? Perhaps a loved one requires a dwelling or you’re looking for a way to make some passive income? If so, you may be the perfect candidate for an Accessory Dwelling Unit. 

What is an ADU?

The reality is, California’s current housing supply is simply not in sync with its demand. In the last decade, less than half of the homes required to keep up with the increase in population were built. Because of that, many homeowners in California have seized this opportunity to modify their properties to accommodate additional living spaces. An accessory dwelling unit, or ADU, is a fully independent living space constructed within an existing occupied property. An ADU can be attached to the main home, detached, like a guest house, or converted, like an attached garage turned into a studio-like apartment.

ADUs are a win-win in California’s modern day housing market. Constructing ADUs allows homeowners to create a new stream of passive income in the form of rent, while also helping alleviate the deficit in housing availability for California renters. ADUs, often referred to as “in-law units,” are also a great option for extended families who want to be close to one another while still maintaining privacy.

Finance an ADU with a HELOC

Interested in starting your ADU project but don’t know how to subsidize the construction or remodel? Luckily, there are many options for homeowners. For those with little to no equity in their home, a construction loan may be an option. Construction loans typically have higher interest rates and other requirements that are dependent on the completion of the project. Currently, Southland does not offer construction loans. 

However, Southland’s Home Equity Line of Credit, or HELOC, may be the perfect solution if you have equity in your home. In short, a HELOC is a low-cost alternative to a high-interest consumer loan or credit card. How does it work? Homeowners may borrow up to 90% of their home’s appraised value to do pretty much anything—from home improvements, to taking a vacation to paying off debt. In the case of building an ADU, a HELOC is an affordable and flexible financial route to take, particularly for people who have owned their homes for a long period of time.

One of the most significant features of a HELOC is that it is a revolving line of credit with a 10-year draw period with interest-only minimum payments. Southland’s HELOC offers many features, including a Visa HELOC Access card to make purchases using your HELOC funds, and interest that may be tax deductible. Some other features include a fixed rate for the first five years of the loan, flexible monthly payments, no origination fees or points, and credit line amounts up to $500,000.

You can enjoy a low, fixed rate for the first five years of your HELOC loan. To apply for a HELOC, visit our website and submit an application, or contact us to discuss your options.

Finance an ADU with a credit card, personal loan or line of credit

Lastly, if you intend to use a combination of funding sources for your ADU, a credit card, personal loan, or line of credit may help you close your funding gap. Southland offers a variety of credit card options to fit whatever your financial needs are. If you are hesitant to put your ADU expenses on a credit card, keep in mind that generally speaking, the rent generated from the ADU will pay off the construction or renovation costs in just a matter of years, making it a great long-term investment for many people. Personal loans or lines of credit are a great low interest alternative to credit cards and may be useful if you need just a little extra to complete your project.

It's easy to apply for a credit card, personal loan, or line of credit online. Simply complete our online application to get started.

All of these options can be combined to fit your individual financial needs. If you have any questions about your financing options, stop by any Southland Credit Union branch and talk to one of our experts!

Loans are subject to credit qualification, other fees and conditions may apply. Rates are subject to change without notice. Other rates and advance policies may apply based on your individual credit profile. *APR=Annual Percentage Rate. The initial interest rate is fixed for the first five years of the loan and then adjusts to the fully indexed variable rate at the beginning of the sixty-first month. Current HELOC Rate is based on Prime Rate + the margin (0% for up to 70% CLTV, 0.75% for 70.1-80% CLTV, and 1.75% for 80.1-90% CLTV). LTV = Loan to Value and CLTV = Combined Loans to Value, a ratio used to determine the equity available on your home. Other rates may apply based on credit.  Annual cap of 5% over fully indexed rate.  The rate cannot drop below 5.25% or exceed 15%.  The rate shown assumes that you have a FICO of 700 or above. Investment HELOC Rate is based on Prime Rate + the margin (1.75% for up to 70% CLTV). Other rates may apply based on credit profile. Prime is based on the Wall Street Journal Prime Rate + margin based on credit score. All HELOCs are variable rate loans. Rates can change monthly on the first of the month. Rate cannot change by more than 5% in any one year. 10-year interest only terms followed by a 15-year amortized payback period. Closing costs for the HELOC are currently waived (subject to change). $50 annual fee is waived on HELOCs with a minimum outstanding of $10,000 for 30 days during the year. Credit limit determined in part by the equity in the real property, which is used as security for the loan. Maximum loan amount is subject to credit qualification and appraised property value. Membership is subject to eligibility. Real Estate Loans are subject to credit approval. All new accounts will be verified through ChexSystems and are subject to credit approval and verification of equity. Rates and terms are subject to change without notice. Early closure cost reimbursement may apply— If the HELOC is paid off and closed during the first 3 years of the loan, you will be charged a $750 early termination fee to reimburse Southland Credit Union all third-party fees incurred at closing. NMLS #685526. Mortgage interest tax deduction may be subject to income restrictions. Consult a licensed tax advisor regarding your ability to take this deduction.