Financing
Our guide to help homeowners finance their ADU project.
How to Finance an ADU in Boston
A family settles into their forever home and starts thinking about how to make the most of their property. Maybe they’re considering an ADU to generate rental income, or to create a comfortable space for aging parents or in-laws. Whatever the motivation, they know it’s a smart investment, and they’re ready to take the next step.
Before moving forward, the most important part of the process is understanding how to pay for it. From home equity loans to construction financing, knowing your options early helps ensure a smooth, stress-free build.
However, financing your ADU in Massachusetts goes beyond choosing a loan, it’s about building a full-scope budget that covers design, permitting, site work, and construction. As Boston ADU builders, we often see homeowners surprised by unexpected costs that weren’t included in their financing.
To help families avoid these pitfalls we assist with calculating project costs, comparing ADU loan options, and securing financing that actually covers everything. Whether you’re building a rental unit or space for family, avoiding budget shortfalls starts with understanding the true costs.
1. Establish a budget
Every successful ADU project starts with a clear budget. It is crucial that all costs are accounted for including site work, utility connections, design, permits and construction.
At Horizon ADU, we design the project to fit your budget. That’s why we encourage early budget discussions which help avoid making costly changes later in the process.
We begin with a rough estimate during our discovery phase, then refine it during the feasibility phase, where we uncover all costs that could affect the project and ensure your financing aligns with the full scope.
2. Explore your options and get preapproved
Below is a list of resources to help find your best financing option. As ADUs are gaining in popularity, a number of banks have come out with ADU specific programs. These programs combine elements of a HELOC and construction loan and may allow you to stretch your budget more than a traditional method. However, each bank structures these differently so our recommendation is to call around and explore which fits best with your situation and goals.
We also outline the traditional ways ADUs have been financed, from a HELOC, construction loan, or refinance. HELOCs are typically the cheapest and easiest but depending on your situation, another option may be preferred.
Grant programs are also available through the city of Boston and the state, if you meet certain criteria.
ADU Specific Programs
These programs are newly developed specifically for ADUs. They are similar to a combination of a HELOC and construction loan. However, each bank has a different offering so we recommend exploring multiple options to find the best fit.
Grant Programs
Boston Programs:
Boston is offering three forms of financial assistance to homeowners who are below 135% of the area median income (AMI) and have less than $100k in financial asset excluding their primary home.
- ADU Technical Assistance Grant: Reimbursement of up to $7,500 toward design and permitting
- ADU Loan: A 0% loan of up to $50,000 to help with construction costs
- ADU Bank Loan Pilot Program: increased financial assistance for homeowners who wish to build an Accessory Dwelling Unit (ADU) on their property
- Apply for financing with Boston here:
Home Loan Modification Program:
Bank Financing Options
HELOC: Many of our clients choose a HELOC to finance their ADU project. A HELOC lets you borrow against the equity in your home and typically includes a draw period—when you can access funds as needed—and a repayment period. During the draw phase, you only pay interest on what you use, offering flexibility and lower upfront costs. Most HELOCs span around 10 years, making them a practical option for homeowners looking to invest in an ADU without refinancing their mortgage.
Cash-out Refinance: A cash-out refinance is another popular way to fund an ADU project. Like a HELOC, it’s based on the equity in your home—but instead of adding a second loan, it replaces your existing mortgage with a new one. You receive the difference in cash, which can then be used to finance your ADU.
This option can be especially advantageous if your home has built up significant equity and your current mortgage rate is higher than—or similar to—today’s market rates.
Renovation or Construction Loan: Unlike equity-based loans, renovation or construction loans don’t rely on your home’s current equity for approval. That makes them a great option if you have limited equity or prefer not to use your home as collateral.
However, these loans often come with more stringent credit and income requirements, and they typically carry higher interest rates—resulting in larger monthly payments compared to other financing options.
Alternative Options: