What Is an ADU Loan?
An ADU (Accessory Dwelling Unit) loan finances the construction of a secondary housing unit on an existing residential property. ADUs go by many names: granny flats, in-law suites, backyard cottages, casitas, or laneway homes. They are fully independent living units with their own kitchen, bathroom, and entrance.
ADU lending has expanded significantly as cities and states relax zoning laws to address housing shortages. California, Oregon, Washington, and many other states have passed laws making ADU construction easier to permit and finance.
The income play: An ADU can generate $1,000-$3,000/month in rental income on property you already own. Some lenders (including HomeReady) allow you to count projected ADU rental income for qualification purposes.
Who ADU Loans Are For
- Homeowners who want to add rental income to their property
- Families building in-law suites or multigenerational housing
- Investors maximizing property value by adding units
- Borrowers in ADU-friendly states (CA, OR, WA, and others)
Key Features
Construction loans, renovation loans (HomeStyle, 203k), and cash-out refinances can all fund ADU builds. Some lenders offer standalone ADU construction loans from $50K-$500K. Permits required before funding. Projected rental income may be countable for qualification.