ADU Loans

ADU lending options differ from normal home loans since they aren’t intended to be a primary residence. Although, the choices borrowers make still similarly depend on the interest rate environment.

Overall, about 60% of borrowers paid for their ADU using liquid assets and around 40% used a mortgage. Using cash is more common because ADUs are often made for older family members who may have just sold their homes and are pooling their money together.

Among those who took out a mortgage, 56% went with a HELOC or home equity loan, 35% did a cash-out refinance and 6% took out a renovation or construction loan.

Fannie Mae and Freddie Mac’s new ADU rule

A major development for ADUs comes at the federal level. Fannie Mae and Freddie Mac now allow homeowners to qualify for a loan based on their future projected ADU rental income.