How to Budget and Finance an ADU
Intimidated by the home financing process? Don’t worry – Ma Williams can help you every step of the way, answering questions and making sure you are getting the terms that suit your budget and your specific needs.
Obtaining the necessary financing for your manufactured home is easier than you might think. Several loan options are available for borrowers regardless of income or credit status.
For an ADU, there are the three more common financing methods.
Chattel financing (or home only financing)
This will work with properties that have a primary manufactured home and/or those that are budget conscious. These homes are manufactured homes and will be built to HUD code.
The Upside: costs are less for manufactured home, normally timeframe for permits and building is shorter and a simpler process.
The Downside: This financing will only cover the home. Any county fees or site prep will need to be paid cash out of pocket. Future financing for resale may become a problem and home may have to be removed.
Standard Financing (2 site built [IBC Code/Modular] homes on one property)
This will work with properties that have a site built home as the primary home and want both primary and second unit (ADU) to be “conforming” and built to the same code for lenders and appraisal purposes.
A second unit modular will require the refinance of the buyer’s existing mortgage. To determine value, an appraisal will require comparable sales with two site built/modular homes that have sold in the last six months.
The Upside: Traditional financing can be used for financing as well as subsequent future resale. All costs for home, site prep and any fees can be included.
The Downside: The price of a modular home is more than a manufactured. Building with a modular is also a more time consuming and involved process for permitting.
Cash out Refi (Utilize existing equity in property to finance either manufactured or modular)
All costs can be financed if there is enough equity is available for project costs.
The Upside and Downsides listed above will still apply to the type of ADU built.
