What type of loan is best for …

[Stephanie W.]

Hi, we have close to 900k$ in home equity and we want want to access that for building an ADU, rent and continue the cycle of real estate investment… what type of loan is best for it ? Thank you

[Steve Clifford]

Hey Stephanie,

Wow $900K in equity is great! You'll be able to build quite an impressive ADU!

The way I see it is that you have two choices:

1.) A Cash Out Refinance: This provides you with the option to access cash value for the equity you've built in your home. You'll need to go through the process of becoming pre-approved through a mortgage lender and more than likely get your home appraised if you have not done so already. Unfortunately, banks don't accept your Zestimate for the valuation of your home haha. From there, you can choose how much equity you'd like to translate over into cash. This usually takes about 30 days or so and is a second on your mortgage. You may end up paying a bit more on your monthly mortgage, but you'll be able to unlock the equity in your home and increase your home's equity that much further by building your ADU or DADU.

2.) HELOC (Home Equity Line of Credit): This is very different than a Cash out Refinance. A HELOC is best done through a local credit union (in my opinion). It provides you an open line of credit against the value of your home. This will provide you the ability to utilize the equity in your home, however, it's not a cash sum. It's a line of credit at a very low interest rate instead. This provides you the flexibility to do small changes over time and pay them off as cash becomes available.

Based on what you shared briefly, it sounds like a large lump cash sum would be most beneficial in your case. If I'm sitting in your shoes with $900K in equity, I'd take the Cash out Refinance any day. Feel free to contact me with any questions! I also know of a great lender who may be able to help you in the LA area if you're interested. Obviously, you're in no way obligated to use this person.