As you begin the design phase, it is important to figure out how much you can spend, and how much of that will be financed. Any project inside of existing structures will cost at least $30,000. Any project that involves a new structure will cost at least $100,000. Adding a new 900 square foot building can easily run over $250,000. How much you are willing to pay, and how much you can be paid back from rent or a sale will set limits on your project

Discuss your plans with a financial advisor or accountant to help you discover which option is best for you. The financial professional will help you plan for all of your costs, including budgeting for financing to repair and maintain the property, changes in property taxes and insurance, income or property transfer tax, legal work, and any increases in utilities. 

Also, there is the question of how much to charge for rent. A rule of thumb is to charge 1% of the value of the property in rent to your tenant each month. So, for instance, if your ADU is worth $150,000, then charge $1,500 per month in rent. To find this figure, multiply the value of your ADU by 0.01. 

Some options for programs and financing are as follows:

• The Vermont Housing Improvement Program (VHIP) offers grants of up to $50,000 to homeowners wishing to add an Accessory Dwelling Unit to their home, or to rehabilitate an existing ADU. More information and how to apply are located here.
• The Vermont Housing Finance Agency has many pages, in several different languages, to help you finance your home or your ADU. 
• The most common way to finance construction, if equity is available in the home, is with a home equity line of credit (HELOC) Other loans are possible. The following examples are provided by Mascoma Bank for primary and second home owners. 
  • Home Equity Line of credit (HELOC) 
    • If you have enough equity in your home as it is today, HELOC is the simplest, lowest costs to borrow up to 80% of equity. 
    • Interest Rates vary
    • Contact your local credit union or bank for information
  • Vermont Federal Credit Union
  • Northfield Savings Bank
  • Construction Mortgage 
    • If there is little equity in the house, homeowner can borrow up to 80% of home value plus ADU project cost OR the appraisal value of the completed home, whichever is lesser. 
    • Interest Rate: 3.25%-3.5% today on a 30 yr term 
    • Estimated Set Up Costs: $5,000 
  • Home Improvement Loan 
    • If there is no equity in the home, homeowner can borrow up to $20,000, an unsecured loan for home improvement purposes. 
    • Interest Rate: 7.99%, 10-year term 
    • Costs: $69 
  • New England Federal Credit Union Fixed Rate Mortgage
  • Cash out Refinance Mortgage 
    • For someone who has a lot of equity in their home and needs a large amount of money for their project. 
    • Interest Rate: 3.25% 
    • Estimated Set Up Costs: $3,000 plus 
  • Source: Cody Dana, Mascoma Bank, Mortgage Loan Originator Phone: 802 451 0010 | [email protected] 
  • A less traditional product to explore is a product offered by Cross Country Mortgage and suggested by RJ Adler of Wheelpad: Renovation Refinance Loan 
    • Government guaranteed loan with FHA or Fannie May. Loan limit is over $350,000. More complex than HELOC. This loan requires HUD consultant involvement to oversee construction. Note: HUD has stricter requirements.
    • Loan can be 110% of future value if ADU is attached, 90 % if not attached. 
    • Interest Rate: FHA – 2.99% or Fannie May – 3.6% 
    • Estimated Set Up Fees: $3000, incl cost of consultant 
    • Source: Meredith Stower, Cross Country Mortgage. Phone: 619 478 6975 or [email protected]

Your next step is the PERMITTING phase.