“Watch your finance like a hawk”
H. Jackson Brown, Jr.
For the majority of people who don’t have the cash on hand to pay for an ADU, financing is a great option. Mighty Buildings has built partnerships with a number of trusted banks, credit unions, and financing companies to help find the right option for our customers. Each of these partners has a unique finance program that they bring to Mighty Buildings. That makes us unique.
Mighty Buildings and our partners have dedicated professionals to help guide you through the process from start to finish. We’ve worked to ensure that every Mighty Buildings department works together to ensure that your experience is seamless and timely from your first contact with our sales team to the final touches on the installation.
One of the most popular ways to finance an ADU is a Home Equity Line of Credit (HELOC) which uses cash from the refinancing of your primary residence.
A HELOC is something you can take out on your primary residence only, it’s essentially a second mortgage on a portion (or all) of the equity that you’ve built up in your home. HELOCs can be used for everything from a new pool, paying off debt, vacation, education, or your very own ADU!
Generally, these loans are adjustable rate loans but through our partners we also have fixed rate options. Typically, they can be 10, 15, 25 or even 30 years loans. They are really good for smaller or short-term loan amounts, less than $200,000, something that would be perfect for a Mighty Studio but not necessarily the right product for a Mighty Trio or some of our other larger units. We can also work with you to have a partner lend up to about 80% of the value of your home.
A second option is a cash-out refinance. Basically, refinancing the existing mortgage of your home with a brand-new mortgage taking out the equity in the form of a cash out or cash advance which you would use that portion to pay for the new ADU. These loans are always going to be fixed-rate, they are often 30-year loans but you can also do a 15 as well - usually a shorter term will have a lower rate. They have favorable closing costs, the rates are very competitive, and they have principal and interest payments like most fixed-rate loans. You know exactly what your payments will be from the beginning to the end and the payment will not change over the loan term. You have to remember that these loans will be about 80% to 85% of the lendable equity in your home and that you’ll be able to access that amount. Each one of these loans (HELOC & Cash-Out Refinance) is a great way to go and these encompass about 75% every ADU you have purchased is through one of those two loans.
Mighty Buildings’ partners also provide construction lending as well. This gives you the ability to essentially take a draw period for the first 6 months and make interest-only payments as your ADU is being built. When the bank does the appraisal they will have the appraiser give the value of the home after the ADU has been installed. For those who don’t have enough lendable equity built up, this is a great way to get additional equity out of your existing property. After the draw period ends and the ADU has been installed, it rolls into a simple traditional 15 or 30 years fixed rate mortgage.
The last option is a personal loan. These have become very popular over the last few years and you can normally borrow up to ~$100,000. This is a good option if you don’t have quite enough equity or are maybe $60,000-70,000 short. Taking a personal loan at a favorable rate is a good way to cover the difference and allow you to get the ADU that you’re looking for.
Any one of these products works well by itself or combined with another product.
If you have any additional questions, please give Mighty Buildings a call and talk to a specialist, we’re happy to walk you through any of the options available to you.