Building an Accessory Dwelling Unit (ADU) can be an excellent way to create rental income, house a loved one, or expand your living space. But for many homeowners in Rhode Island and Massachusetts, the biggest question is: How do I pay for it?
With construction costs typically ranging from $150,000 to $350,000+, choosing the right financing strategy is critical. Below, we outline the most common financing options for ADUs, starting with RenoFi, one of our trusted partners.
🏠RenoFi Loans
We recommend RenoFi for many of our clients because their loan structure allows homeowners to borrow against the future value of their home—rather than being limited by how much equity they’ve already built.
How it works:
RenoFi offers second mortgages (either as a loan or line of credit) that let you borrow up to 90% of your home’s after-renovation value. This can significantly boost your borrowing power—especially useful if your ADU will increase your home’s worth.
Pros:
- Higher loan limits than a traditional HELOC or home equity loan
- No need to refinance your existing mortgage
- Designed specifically for home renovations like ADUs
- Fixed and variable options available
- Partnered with credit unions for competitive rates
Cons:
- Requires estimates and a project scope before approval
- Loan is tied to a clear renovation plan and timeline
Best for:
Homeowners who haven’t yet built up substantial equity or want to keep their current mortgage but still need access to significant funds.
🔗 Learn more or estimate your borrowing power: renofi.com
Home Equity Loan or HELOC
These second mortgages allow you to borrow against your current home equity. A home equity loan gives you a lump sum with a fixed interest rate, while a HELOC is a revolving line of credit with a variable rate.
Pros:
- Simple, familiar products available at most banks and credit unions
- No changes to your existing mortgage
- Flexible repayment options
Cons:
- Borrowing power limited by current equity (usually 80–85% of your home’s value minus your mortgage)
- HELOC rates can fluctuate
Best for:
Homeowners who have owned their home for a while and only need a modest loan amount.
Cash-Out Refinance
With a cash-out refi, you replace your current mortgage with a new, larger loan and take the difference as cash to fund your ADU.
Pros:
- Consolidates mortgage and construction financing into one loan
- Often comes with lower interest rates than unsecured loans
Cons:
- You’ll reset your mortgage term
- Must pay closing costs
- Requires strong credit and income qualifications
Best for:
Homeowners with substantial equity who are comfortable refinancing and want to lock in a long-term rate.
Local ADU Incentives & Grants
A few municipalities in Rhode Island and Massachusetts are starting to offer grants or low-interest loans to support ADU construction—particularly for aging-in-place or affordable rental housing.
Pros:
- Can offset project costs
- May offer technical support with permitting and construction
Cons:
- Often small amounts that don’t fully fund a project
- May come with affordability restrictions, owner occupancy, or rent caps
- Limited availability
Where to start:
Check your city or town’s housing office or planning department. Look for keywords like “ADU pilot,” “senior housing,” or “affordable housing grants.”
Which Option Is Right for You?
The best financing option depends on:
- How much home equity you currently have
- Your credit score and debt-to-income ratio
- Whether you want to keep your existing mortgage
- The size and complexity of your ADU project
RenoFi is often a strong fit for homeowners who are building equity but not quite there yet—and who want to fund an ADU without disturbing their existing mortgage. That said, more traditional tools like HELOCs or cash-out refis may be simpler if you’ve built strong equity and need less funding.
Need Help Navigating This?
Dwelly specializes in helping homeowners throughout Rhode Island and Massachusetts plan, design, and permit high-performance ADUs. If you’re not sure where to start—or want to be introduced to a RenoFi loan officer or other ADU-savvy lender—we’re happy to make the connection.
Let us know what stage you’re in, and we’ll help you map out your next steps.