Financing an ADU: 203(k), HomeStyle, HELOC, cash-out
Four mortgage products and the lot conditions that make each one the right answer.
FHA 203(k) Renovation Mortgage
HUD's 203(k) program lets buyers wrap rehabilitation and ADU-construction costs into the purchase mortgage. Down payment as low as 3.5%, but mortgage insurance for the life of the loan and a slower close (60–90 days typical).
Best for: first-time buyers acquiring a larger lot specifically to add an ADU.
Fannie Mae HomeStyle Renovation
Conventional alternative to 203(k). Higher credit-score floor (typically 620+), down payment 5% on owner-occupied, no permanent mortgage insurance once loan-to-value drops below 80%.
Best for: existing owners refinancing to fund the ADU build.
Sources:Fannie Mae
HELOC and cash-out refi
If existing equity covers the project (~$300,000+ available), a home equity line of credit or cash-out refinance is faster, cheaper to close, and more flexible than a renovation loan. Trade-off is rate sensitivity — a cash-out refi resets your primary mortgage rate.
We see roughly 60% of our completed Seattle DADUs financed via HELOC or cash-out, 25% via HomeStyle, 10% all cash, and the remainder a mix of construction-perm and 203(k).
What lenders want to see
Permitted plans, signed builder contract, line-item budget, and an appraisal that values the as-completed property. Skipping the appraisal step is the most common reason a financing package falls through at close.
