What kind of financing should I get to build ADU on primary home?

[Michael Sueoka]

Hello! I'm hoping to buy a primary home in Los Angeles (30% down) where we can add an ADU (as a rental) and also remodel the primary home (the remodel will be light cosmetic work).

What would be the best way to go about financing the addition of the ADU and the remodel of the main house?

[Whitney Hill]

Sounds like a good candidate for a renovation loan, 203K or Homestyle, depending on what you're building for the ADU.

Renovation loans allow you to finance a renovation project (including ADUs) into the mortgage. There are two types of renovation loans that can be used for ADUs… FHA 203K allows for attached ADUs or conversions. Fannie Mae Homestyle allows for construction of detached ADUs. Both loans have a limit of $701,500 and may be based on the "future value" of the property after adding the ADU, which will be based on appraisals (not rental income). Renovation loans typically offer up to 95% financing of a primary residence or 85% of an investment property.

Meredith is a good place to learn more about the process as Paul mentioned!