With the rising demand for additional housing and rental income opportunities, Accessory Dwelling Units (ADUs) have become an attractive option for homeowners in Windsor, Ontario. Whether you’re looking to generate passive income, provide housing for a family member, or increase the overall value of your property, securing financing for an ADU construction project is a crucial step. At Mortgage Powered Financial Group, we have access to a wide range of lending solutions to help make your ADU project a reality.
Financing Your ADU Construction
There are multiple ways to fund an ADU build, depending on your financial situation and property equity. As a mortgage brokerage, we work with A lenders (banks and credit unions), B lenders (alternative lenders), and private lenders, each offering different financing options:
- A and B Lenders: Homeowners with strong credit and income can access financing through:
- Home equity lines of credit (HELOCs)
- Refinances or equity take-out mortgages
- Second mortgages to leverage existing property equity
- Private Lenders and Mortgage Investment Corporations (MICs): These lenders, including Erie Shores Capital, provide flexible financing for ADU construction in stages (draws). This ensures funds are available as construction progresses without requiring homeowners to front large sums of money.
Private Lending vs. Traditional Lending for ADU Construction
When deciding between traditional lenders and private lending options, it’s important to understand the key differences in how funds are advanced:
Banks and Credit Unions:
- Lend based on the total cost of construction.
- Typically offer financing up to 80% of the construction cost. For example, if an ADU costs $150,000 to build but adds $200,000 in property value, the bank may lend only 80% of the cost ($120,000 total), leaving the homeowner to cover the remaining $30,000.
Private Lenders and MICs:
- More flexible with how funds are advanced, typically in draws.
- Can lend up to 80% of the post-construction value. In the same example, instead of lending 80% of the cost ($120,000), a private lender could lend 80% of the added value ($160,000), providing the homeowner with more funds.
While private lenders and MICs often charge higher interest rates and Fees, their flexibility makes them a strong option for borrowers needing more capital upfront or who may not qualify under strict bank guidelines.
The Importance of an Exit Strategy
When using private lenders for ADU construction, an effective exit strategy is crucial. Private mortgages are intended as short-term solutions, typically lasting up to a year. Borrowers should have a plan to refinance into a traditional mortgage or sell the property upon completion. As mortgage brokers, our role is to ensure:
- Borrowers can qualify for refinancing with an A or B lender once the ADU is complete.
- The private mortgage has terms that allow for early payout without excessive penalties if the borrower plans to sell.
How We Can Help
At Mortgage Powered Financial Group, we specialize in securing the right financing solutions for ADU construction projects. Whether you need an equity take-out, a second mortgage, or a private construction loan, we have access to a range of lenders that can meet your needs. By planning the right financing structure from the start, we help ensure a smooth transition from construction to long-term financing.
If you’re considering building an ADU in Windsor, Ontario, contact me today to explore your financing options and start your project with confidence!
