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What is an accessory dwelling unit?
An accessory dwelling unit, usually called an ADU, is a secondary housing unit that shares a lot with the primary home on the property. ADUs are helpful if you need extra space for family, visitors, or to generate extra income with a rental.
If you have extra room on your property and you’re interested in an accessory dwelling unit (ADU), here’s what you need to know.
ADUs are separate from the primary dwelling
ADUs, also known as granny flat, in-law suite, carriage house or secondary suite, can’t be bought or sold as a separate home since they are legally on the same property as the primary home. Whoever owns the house owns the ADU. These units can be:
- A garage conversion
- Above a garage or workshop
- A basement conversion
- Internal, where part of the primary house beside the basement has been converted
- A “bump-out” built on to the primary residence
Understanding your options
ADUs are a great option for multi-generational living. Owners can either rent out the ADU and live in their primary home or live in the ADU and rent out the house. Some owners use it as a standalone space for hobbies or a home office.
Adding value to your property
Like home improvements such as updating your kitchen, ADUs can be a great way to add value. However, this also means that you may see an increase in property taxes, so be sure you have the budget to handle these additional costs, including maintenance and utilities.
Things to know before you start
You will need a permit to build an ADU—especially if it’s meant to be inhabited by guests. According to Freddie Mac, it must have a bathroom, kitchenette, living area, and separate entrance. It also needs the same safety features and fire protections as the main home.
Zoning will depend on your state and local laws. If you sell your home with an ADU, meeting legal requirements will prevent the complications of an unpermitted ADU on the property.
Talk to your lender about financing
Before building an ADU, do your research and talk to your trusted lender at SmartMortgage.com, a division of Guild Mortgage. There are financing solutions for renovating your home to create an addition, some of which include:
- Tapping your equity through cash-out refinances, home equity lines of credit (HELOC), or home equity loans
- Renovation loans
- Grant programs (check your local state grants)
- Personal loans
Your lender will always walk you through your choices to ensure that they best fit your needs.