# ADU funding & financing Funding and financing an accessory dwelling will likely require thousands of dollars in "soft costs" (design and permit fees, for the most part) and "hard costs" (construction). There are many options to fund an ADU project, and will range from tens of thousands of dollars for a basement unit to hundreds of thousands of dollars for a backyard house. Borrowing money is not required – if you have enough cash; cash is an option for some property owners who want to build a basement unit. Costs for basement units can also have a large range, however, depending on the amount of work necessary. For example, to prevent flooding in the basement it may be advised to build a perimeter drain (with drain tiles) and a sump pump (and perhaps even an ejector pump). ## Borrowing options _Our borrowing options list is not exhaustive - if there's a lender or bank that you've worked with, ask them what products they have_ - **HELOC**. A home equity line of credit is an "as needed" loan that's backed by the equity that you have in your house. A lender will set a maximum amount for the loan, but you only pay interest on the portion of the loan that you withdraw. Check your equity: Your mortgage lender or servicer probably has a tool to estimate the current value of your property. If not, check Redfin or Zillow. - **Renovation loan**. This product is offered by many lenders that pays for renovations and additions, but not ground up new construction backyard houses. The value of the loan is a portion of the future appraised value (the projected value of the property after the renovation project is complete). ### Lenders Each lender specializes or offers different loan products, and there is very little overlap. - **CIBC** Loans are to experienced developers for improving vacant, foreclosed, or abandoned single-family houses, and cover up to 75% LTV based on the value of the post-construction project. Learn more about CIBC's [Housing Initiative](https://us.cibc.com/en/about-us/community/transform.html). - **Neighborhood Housing Services of Chicago**. The main lending product is a purchase & rehab loan, but NHS also administers the city's ADU development grant (up to $10,000 for pre-development, and up to $70,000 for construction). - **Community Investment Corporation**. CIC's loans cover acquisition and rehab for a single 5+ unit building or for a portfolio of at least five units. - **Guaranteed Rate**. The main lending product is an FHA-conforming renovation loan, which involves a HUD consultant who prepares a scope of work. The lending amount will be based on the value of the post-construction project that was done according to the scope of work (up to 110% LTV). The FHA requires a self-sufficiency test for 3-4 unit buildings. Freddie Mac will <a href="https://sf.freddiemac.com/faqs/accessory-dwelling-unit-faq" target="_blank">allow lenders to consider an ADU construction</a> in ChoiceRenovation loans (check with your lender if they offer a conforming ChoiceRenovation loan product). ### Construction cost statistics *as of August 22, 2022, in Chicago* **Basement**: the average reported cost on issued permits for a single basement unit project was $97,606. The median cost was $75,000; the min cost was $10,000. **Backyard/coach house**: the average reported costs on issued permits for a backyard house was $168,498. The median cost was $150,000; max cost was $300,000. _Note that the pricing for some projects have a scope of work that includes more than the ADU portion, so reported costs and statistics may not purely represent the cost of the ADU; reported costs on the permits are not validated by anyone._ ## Financial incentives ### Grants - *This program is without funding (August 2024)* The City of Chicago has a $3 million grant program to pay for some soft costs and lend on hard costs for property owners who want to build an ADU (both interior and backyard house types). [Neighborhood Housing Services is administering this program](https://nhschicago.org/fix/grant-programs/adurepairs). - Northwest Home Equity Assurance Program. Homeowners [in this area](https://www.chicagocityscape.com/place/chicagohomeequityassurance-northwest) can take out special loans at low interest rates to pay for renovations, including the addition of an interior ADU – [learn more](https://nwheap.com/). ### Appraisals and assessed values - We are still gathering information about the impact of ADUs, especially backyard houses, on assessed values. - Some lenders will underwrite a loan based on the projected rental income of an additional unit; ask your lender about whether they will. - A residential-only building with 7 or more units is classified as a commercial property and a residential-only building with 6 or fewer units is classified as a residential property. - The Casita Coalition [summarized an Appraisal Institute report](https://www.casitacoalition.org/casita-coalition-blog/insight-from-the-appraisal-institute-on-evaluating-adus) on the appraising of ADUs (2022). ## Finding contractors - Chicago Cityscape maintains an [ADU service provider directory](https://chicagocityscape.ngrok.io/adu/serviceproviders.php), which lists architects and builders ready to work in Chicago. - Use our [Member Directory](http://chicagocityscape.com/members.php) to find a contractor. Our [Building Permits Browser](https://chicagocityscape.ngrok.io/permits.php) also has an ADU quick filter to show all of the permits that are for ADUs, from which one could gather a list of service providers who have worked on a real ADU project. ### Notes for contractors - [ComEd has free training](https://slipstreaminc.org/ComEd-ASHP) for contractors to learn how to select, procure, and install air source heat pumps. - [Claim your profile on Chicago Cityscape](https://share.hsforms.com/1-x05JtzAQy-HV9BpLqJd7A4heqb) # Related articles - [[Finding contractors for home electrification]]