ADU Financing in San Diego: A Guide to Loans and Costs

ADU financing

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ADU Financing: A Guide to Loans and Costs

Building an Accessory Dwelling Unit (ADU) of your own is an effective way to create space for aging parents, additional family members, or to generate extra income. However, understanding the financing options and costs associated with ADU construction can feel overwhelming. 

There are tons of options, and yet how do you know which option is best for you? 

While our experts at ADU Geeks are always available to walk you through the expected, and sometimes unexpected costs, we put this comprehensive guide together to tell you what you need to know. 

From understanding the significance of financing your ADU project to what your finance options are, you will feel confident as you move towards building the unit of your dreams. 

*ADU Geeks is not a lender or financial advisor. 


The Significance of Financing in ADU Construction

Obtaining the right financing for the construction of your Accessory Dwelling Unit (ADU) is crucial to ensuring you complete the job. Here are the following reasons you’ll want to have sufficient funds before you put your plan to action.

  • Construction Costs: ADUs require funds for construction, including materials, labor, permits, and architectural designs. Financing options allow you to secure the necessary funds to cover these expenses.
  • Affordability: You could achieve the financial benefits of building your ADU without having sufficient savings or cash on hand. Loans, grants, or other financial assistance programs can help cover the upfront costs and spread them out over a period of time.
  • Return on Investment: ADUs can be a smart investment that generates rental income or increases the overall value of the property. Financing enables you to build your ADU as an investment, with the expectation of recouping the construction costs over time.
  • Flexibility: Financing options provide flexibility in how you approach the construction of your ADU. You can choose different loan types, repayment terms, and interest rates to align with your long-term goals.

While ADU Geeks does not offer financing for the construction of your ADU, we are always here to point you in the right direction—so you choose the best option for your specific goals. 


The Cost of Building an ADU in San Diego

ADU financing


Pre-Building Costs

The costs associated with the pre-build of an Accessory Dwelling Unit (ADU) in San Diego, CA can vary depending on several factors, including the size, design, materials used, and the specific requirements of the project. For example, the planning process alone requires design and architectural plans, which can range from $5,000 to $15,000 or more, depending on the complexity of the project.

Once the plans are in place, you have to obtain the appropriate ADU permits. You can expect to pay around $5,000 to $10,000 for permits and fees, including plan check fees, development impact fees, and utility connection fees. Once the permits are in hand, the construction phase can begin! 


Construction Costs

The building costs themselves depend on the size of the ADU, the quality of materials used, and the labor involved. On average, the construction costs for an ADU in San Diego can range from around $300 to $450 per square foot

You may need to make adjustments to your existing infrastructure to accommodate the ADU, such as extending electrical, plumbing, and HVAC systems. The costs for these infrastructure modifications can vary, but could range from $5,000 to $20,000 or more.

There are usually other costs to consider, such as landscaping, interior finishes, appliances, and any necessary upgrades to meet accessibility requirements. These costs will depend on your preferences and specific project needs.


Financing Options for Your San Diego ADU

The good news about building your ADU in San Diego is that there are several financing options, including incentives available. The most common options are:

Home Equity Loans and HELOCs: Homeowners in San Diego often opt for home equity loans or Home Equity Lines of Credit (HELOCs) to finance their ADU projects. These loans allow you to tap into the equity you’ve built in your existing property. With favorable interest rates, these options provide flexibility and convenience for ADU financing.

Construction Loans: Construction loans are specifically designed to finance new construction projects, such as ADUs. They provide funds in stages as the construction progresses, ensuring you have access to funds when needed. Construction loans usually have higher interest rates and shorter repayment terms, but they can be an effective financing tool for ADU construction.

Government Financing Programs: San Diego offers various government financing programs to support ADU development. For example, the Federal Housing Administration (FHA) 203(k) loan program allows homeowners to secure a single loan for both the primary residence and ADU construction. Additionally, the California Housing Finance Agency (CalHFA) offers ADU financing options, such as the Accessory Dwelling Unit (ADU) Loan Program.

ADU-Specific Financing Options: In response to the growing popularity of ADUs, several financial institutions and private lenders in San Diego now offer specialized ADU loans. These loans cater specifically to ADU construction and provide competitive interest rates and favorable terms.


Understanding ADU Loans in San Diego

Like the majority of loans available, there are pros and cons to obtaining an ADU loan to fund the construction of your dream unit. Here’s the good and bad of what you can expect. 


Pros of Getting an ADU Loan

There are plenty of positive reasons to obtain an ADU loan. Some of those reasons include:

Getting dedicated financing. ADU loans are specifically tailored for ADU construction, meaning the terms and conditions are often more suitable than alternative financing options.

Enjoying favorable interest rates. ADU loans may offer competitive interest rates compared to personal loans or credit cards, potentially resulting in lower overall borrowing costs.

Having flexible repayment options. Depending on the loan program, you might have flexibility in choosing your repayment terms based on your specific circumstances. .

Generating rental income. Your ADU can generate rental income, which can help offset your loan payments and potentially contribute to a positive cash flow.


Cons of getting an ADU loan

Like any loan option, there are always things to consider when borrowing funds. In this case, the cons are:

Taking on additional debt. Obtaining a loan means adding to your existing debt load, which can impact your ability to qualify for other loans or credit in the future.

The potential for additional costs. ADU loans may involve fees, closing costs, or origination fees, which can add to the overall cost of borrowing.

There are usually risks. Like any loan, there is a risk of defaulting on payments, potentially leading to foreclosure if you are unable to repay the loan as agreed.

You have to qualify first. ADU loans may have specific eligibility criteria, including creditworthiness, income requirements, and the ability to demonstrate the feasibility of the ADU project.


Eligibility Criteria:

Eligibility criteria and application process for ADU loans in San Diego can vary depending on the lender or loan program. However, this is what you’ll need to qualify:

  • Adequate credit score and credit history.
  • Proof of income and ability to repay the loan.
  • Equity in your primary residence or other collateral, depending on the loan type.
  • Compliance with local building codes and regulations for ADU construction.


Application Process:

When applying for your construction loan, this is the process you’ll likely follow. Keep in mind that this may change depending on the finance options you choose. 

Research and compare loan options from various lenders or financial institutions that offer ADU loans.

Gather the necessary documentation, including income verification, proof of ownership, construction plans, and any other required paperwork.

Complete the loan application form and submit it along with the required documents to the chosen lender.

Wait for the lender to review your application, assess your eligibility, and may request additional information or documentation.

If approved, you will receive a loan offer outlining the terms, conditions, and interest rate. Once you accept the loan offer, the funds will be disbursed, and you can begin the ADU construction process.

Budgeting and Planning for Your ADU Project

ADU financing

Creating a realistic budget for building an ADU involves careful planning and consideration of a few different things. Here are some steps to help you plan your ADU, and create a solid budget that accounts for unexpected costs:

  • Define Your Project Scope: Determine the size, layout, and features of your ADU. This will help you estimate the materials, labor, and construction costs.
  • Research Construction Costs: Research the current construction costs, including materials, labor, permits, and fees. You can get quotes from contractors or use online resources to estimate costs per square foot.
  • Consider Site Preparation: Assess your property to determine if any site preparation is required, such as clearing, grading, or utility connections. These costs can vary depending on your property’s condition and location.
  • Include Architectural and Design Fees: If you plan to work with an architect or designer, include their fees in your budget. The complexity and size of your ADU will affect these costs.
  • Permitting and Regulatory Costs: Research the specific permitting requirements in your area and include the associated fees in your budget. Factor in any inspections, impact fees, or zoning requirements that may apply.
  • Construction Contingency: Set aside a contingency amount, typically 10% to 20% of the total budget, to account for unexpected expenses or changes during the construction process.
  • Utilities and Infrastructure: Consider any modifications or extensions needed for electrical, plumbing, HVAC, or other utility connections. These costs may vary depending on your property’s existing infrastructure and the distance from the main utility lines.
  • Interior Finishes and Appliances: Consider the cost of interior finishes, such as flooring, cabinetry, fixtures, and appliances. These costs can vary based on your preferences and the quality of materials you choose.
  • Landscaping and Exterior Features: Budget for landscaping, fencing, patios, or other exterior features you may want to include around your ADU.
  • Professional Services and Inspections: Account for any professional services you may need, such as engineering consultations, energy efficiency assessments, or additional inspections required during construction.
  • Miscellaneous Expenses: Consider other miscellaneous expenses, such as construction site insurance, temporary storage, or rental costs during construction if you need to relocate temporarily.

Building your ADU can be a feasible and rewarding endeavor, thanks to the various loan options available. By exploring financing options such as home equity loans, construction loans, government programs, or personal loans, you can get the funds you need to maximize the potential of your property.

The best way to streamline the process of building your ADU from start to finish is to work with experts who can guide through each and every step. 

As the leading ADU experts in San Diego, ADU Geeks helps you navigate the process of obtaining the proper financing, moves through the complexities of local regulations and permits, guides the construction phase from start to finish, and designs the finishing touches so your place is move-in ready . 

Schedule a consultation today. Your ADU is within reach—and ADU Geeks is here to make it happen.


Get Started Today

Many homeowners and investors find the time commitment, pile of paperwork, and overall process to be discouraging. Yet, with ADU Geeks, you can confidently embark on your project knowing that you have a dedicated partner who will streamline the permit process and help you unlock the full potential of your property.

ADU Geeks is ready and willing to take your ADU project from conception to completion.

Put us on your team and we’ll walk you through the entire process, including site prep, design, permitting, and construction.

Best of all, you have a front-row seat to watch your new ADU come to life.

Book a consultation call with us today. It’s free, it takes only 15 minutes of your day, and, when we’re done, we’ll be able to figure out what ADU option works best for you, your family, and your property.

Do you have questions?

We love questions.

Make sure you bring them up during your 15-minute call so we can address all of your concerns. We’re looking forward to hearing from you and setting you up for the retirement home you deserve.

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.


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