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funding your dwelling
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4 main options
- Remodel Loan: This is a One Time Close Construction Loan that provides the funds for construction through draws during the initial period. During this construction period, you will pay interest only on the loan balance for each month. You pay only on the funds that have been drawn out of the loan up to that time. The loan will then become a permanent loan, automatically with no re-qualifying and the same rate as the initial period, when the project is completed. It is a refinance of the home where the new 1st loan is based on the payoff of any current liens, the cost of the Project and closing costs. The value of the home is based on the “After Completed Value” of your home which allows you to borrow enough funds to complete your home when there is not enough equity to draw out based on current value.
- Home Equity Line of Credit (HELOC): This loan is based on the equity you currently have in the home. It is the least costly and easiest loan to put in place. This loan is a second lien on your home and is based on the Prime Lending Rate plus a margin. It is an Adjustable Rate which moves with the market on a monthly basis. The initial payments are interest only based on the outstanding balance of the loan. After the first 10 years, it will adjust to a 15 year fully amortized loan.
- Cash Out Refinance: The Cash Out Refinance of your home will pay off your current home loan(s) and provide you with the additional cash based on the equity in your home. You will have the costs associated with a refinance and you will need to have enough equity in the home to be able to get the cash out. These numbers will vary depending on the loan amount and amount of cash out. The loan would be your typical Fixed Rate or ARM products available on refinances. The loan is a new 1st lien, including a fully amortized payment, when the refinance closes. The cost for this loan is more than a HELOC but less than the Renovation/Major Remodel loans.
- Home Equity Investment: This financing option allows you to finance your ADU with no monthly payments. Instead, cash-out a slice of your home equity to build your new backyard home. You pay back any time during the 30-year term through a refinance, home sale, or another source of funds. Unlike other financing structures, there are typically no restrictions on draw amounts. This makes it well suited for financing an ADU project without worrying about payment management.
