Financing Your ADU in New York — Options for Homeowners
You’ve done the math. You’ve checked the zoning. You’ve even chosen the tile for the bathroom in your future ADU.
There’s only one small issue - you don’t have the funds in your bank account to make your dream a reality.
Here are several ways you can fund your Accessory Dwelling Unit (ADU) in NYC:
1. Cash-Out Refinance
When you’ve owned your NYC home for a while, a cash-out refinance can be a powerful tool. It works like this - you refinance your mortgage for more than what you currently owe, and the extra amount is given to you in cash. That cash becomes your budget to build the ADU.
Benefits:
Lower interest rates than other loan types
Combine your existing mortgage and ADU cost into one monthly payment
Interest may be tax-deductible (consult your accountant)
Real-life example:
If you own a $1.2 million brownstone in Brooklyn with a $400,000 mortgage, you could potentially access $150,000–$250,000 through a tax-free cash-out refinance. Under current IRS rules, up to $750,000 of mortgage debt is deductible.
2. Home Equity Line of Credit (HELOC)
A Home Equity Line of Credit, or HELOC, is essentially a credit card backed by the equity in your home.
You apply for a credit limit - for example, $150,000 - and withdraw money as you need it during construction.
The best part? You don’t pay interest until you draw down on the line of credit. Also, HELOC lenders usually offer up to 10 years of interest-only payments, which helps boost operating cashflow for ADU rental properties.
Pro tip: Apply before you begin designing your ADU. Approval can take 30–60 days, and an appraisal is required.
3. Home Equity Loan (HELoan)
A Home Equity Loan, or HELoan, is similar to a HELOC in that you’re borrowing against the equity in your home without refinancing your mortgage. With a HELoan, you receive loan proceeds in one lump sum, with interest accruing as soon as you receive the funds.
HELoans have fixed interest rates for the life of the loan, and monthly payments include both principal and interest, similar to traditional mortgage loans.
4. Construction Loan
Because ADUs are considered additions rather than full homes, they typically don’t qualify for traditional construction loans. However, several local credit unions and community lenders now offer renovation-specific loans that include ADUs.
Banks like Citizens, Chase, and Wells Fargo offer home improvement loans in the $100K–$150K range, often at fixed rates.
Typical requirements include:
Credit score of 680+
Debt-to-income (DTI) ratio under 43%
Construction plans and contractor bids
These loans may not be ideal for a $300K build, but they can easily fund a garage conversion or small basement ADU.
5. Personal Loans & Credit Cards
Proceed with caution. Interest rates for personal loans hover around 10–20% in 2025, while credit cards can reach 22–29%.
At those rates, financing a $150K ADU could add $50K+ in interest over five years - a major cost increase.
Before You Borrow - Three Must-Do’s
✅ Establish a Budget - Consult a qualified contractor who specializes in ADUs for a feasibility study. Around 25–40% of NYC homeowners underestimate total costs.
✅ Determine Your Equity - Zillow or broker estimates are a start, but if you’re refinancing, get an official appraisal.
✅ Speak to Your Lender Early - Not all banks classify ADUs the same way. Some see them as “improvements”, others as “additions.” This affects loan terms and eligibility.
Final Thoughts
In a city where a closet can rent for $1,800 a month, converting unused space into a legal, income-generating residence can be a great move.
Start planning your financial path to an ADU today and turn that extra space into one of the smartest investments you can make in New York City.