is then deciding on what lending source would be best. As an example, while the ADU is being built, you may want to consider a HELOC (Home Equity Line of Credit) loan. This type of loan acts, to a degree, like a credit card with a substantial credit limit. However, what it means is that you only start paying interest on any money you have paid out for materials and labor, and only at the end of construction would it then pay to change to a fixed-term mortgage, which would also pay off your HELOC loan. Proceeds from sale of parent’s property Of course, the title for the ADU does not have to be in your name, so if you have an elderly mother, father, or both who want to come and live with you but still retain their independence, an ADU is the ideal option. There is no reason why they could not finance the ADU. However, in the case of the ADU being placed in the name of the parent you may also need to subdivide the land the ADU is built on as a separate parcel, and this may or may not be allowed by your city/county, so please check. Mortgage taken out by son or daughter for an ADU with title in their name This is one of the best ways to help a son or daughter get on the property ladder and enable them to live in something larger than a shoe box. The greatest advantage of an ADU is that there is no additional cost of the plot of land it will be built on, making it even more affordable. So, rather than you having to sort out how much you can borrow, it will be up to your son or daughter instead. The title (ownership) of the ADU will have to be in their name is it will be the security for the loan. Thus, as the title of the ADU will be placed in the name of your son or daughter, you may also need to subdivide the land the ADU is built on as a separate parcel, and this may or may not be allowed by your city/county, so again please check. Of course, if they are not quite ready to commit to a mortgage, you could look at building the ADU yourself and then renting it out to your son or daughter, even at a “family rate.” In conclusion, before choosing the design of your ADU, speak to an accountant and also to a mortgage broker, like Meredith Munger, so that you have your financing in place from the onset, as this will help you assess both the size of the ADU you can afford and the specification level.
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