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Finally, A Loan Product That Works for Constructing ADUs

In most markets, financing the construction of ADU’s is notoriously difficult. When constructing an ADU, you need to have all the cash upfront to pay a contractor for the cost of construction. This proves to be a tremendous barrier for many people since ADUs can cost between $40K-$200K to build.

In contrast, when purchasing a new home, you may need as little as a 3.5% down payment using a conventional FHA loan. This means that you would need only $10K cash in hand to purchase a $300K home.

Here’s some reasons why it’s historically been so difficult to get a loan for constructing an ADU:

  1. National banks can’t determine the value of ADUs as a product, and they typically won’t lend against a product whose value they don’t understand.
  2. Banks can’t establish the value of a prospective ADU because it’s difficult to appraise the value of ADU’s.
  3. It’s difficult to appraise the value of ADUs in part because there are so few permitted ADUs in the market place; there aren’t many comparables for the appraiser to use to establish an opinion of market value for the ADU and the main house together.
  4. There’s so few ADUs in the market place because most cities/counties make it difficult or impossible to build them.

This domino-like set of circumstances amounts to this: If you want to build a permitted ADU, it’s nearly impossible to access capital from banks.

…well, at least that’s been the case up till now.

This is why I am happy to shine a spotlight on one local credit union in Portland that offers a loan product that DOES help individuals who wish to construct an ADU. The new flier below spells out how their rehab mortgage loan product can be used to build an ADU.

Advantis Credit Union, which serves residents of Oregon and Washington, offers this loan product as a pathway for those who wish add an ADU to their existing property, or to purchase a property AND construct an ADU.

As with any bank product, there are some strings attached. For example, you must construct the ADU within six months of receiving loan approval. But, on the whole, this is a fantastic loan product for homeowners who need help overcoming the daunting capital hurdle that ADU construction presents. And at roughly a half point higher than their 30 year loan rates, the current rehab loan interest rates are very competitive (~4.15%, as of January 26th, 2013).In cities that allow ADUs, local banks and credit unions are more likely than national banks to understand the market value of ADUs, and thus, they are more likely to have loan products that help homeowners build an ADU on their property.

Since financing ADUs has been historically difficult, it’s wonderful to see local banks like Advantis Credit Union recognizing this gap and filling it for their local clientele. You can read more about Advantis Rehab Loan product on their website.

About Kol Peterson

Kol is an ADU consultant, advocate and author of Backdoor Revolution: The Definitive Guide to ADU Development. Read more here: and learn about building your own at Email at

5 comments on “Finally, A Loan Product That Works for Constructing ADUs

  1. djkenny
    February 14, 2013

    This is great to see happening, thanks for sharing! Trouble I see is a few things. Firstly, a 15 year loan at over 4% is likely not affordable, especially if it requires 10-10% down. If they offered a say, 20 yr and 30 yr options… with lower interest the lower the term (3% 20 yr, 2% 15 yr, the 4% for the one mentioned) then it will be doable. For most, especially folks under water needed to pay the difference in losses PLUS that down payment needed? Not feasible.

  2. djkenny
    February 15, 2013

    Sorry, it can be hard to use my iphone at times. Here is what I “MEANT” to say, with some added thoughts. 😉

    This is great to see happening, thanks for sharing! Trouble I see is a few things. Firstly, a 15 year loan at over 4% is likely not affordable, especially if it requires 10-20% down. If they offered say, 20 yr and 30 yr options… with lower interest, the lower the term (i.e. 3% 20 yr, 2% 15 yr, the 4% for the 30 yr) then it will be (more) doable. It might work for folks who had a sudden jump in income, or, someone who has significant equity in a home so they could afford a 15 year at over 4%. Those lucky folks that bought before the boom, for instance. Currently there is 3.5% Interest for a standard Fixed 30 yr… so it’s competitive, but mostly because of the ADU product portion only (the interest rate is average). For most, especially folks under water needing to pay the difference in losses, PLUS that down payment needed to get into this product? Not feasible. I am certainly checking out this loan to see if they offer a 25 or 30 yr and that there is not a 10-20% down. Otherwise, it would cost less and be far more accessible, to simply keep a loan we can afford monthly, and just have an ADU built with cash and credit to rent out. Good to see banks creating more options, even if the terms are not doable for those without significant equity.

  3. Pingback: What are the barriers to ADU development? | Accessory Dwellings

  4. Marilyn Kempster
    December 16, 2019

    Do you know of similar programs in Northern California?

    • Kol Peterson
      December 16, 2019

      Marilyn, yes I do. Try Umpqua and Guaranteed Rate. They both serve CA and can do ADU renovation financing for ADUs.

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This entry was posted on January 28, 2013 by in Appraisals, Financing, News and tagged , , , .
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