Financing an ADU

Three individuals seated at a table, accompanied by a cactus plant, creating a relaxed and inviting atmosphere. Building an Accessory Dwelling Unit (ADU) can help increase affordable housing in San Antonio. While ADUs are usually less expensive to build than a full-size house, building and maintaining an ADU is still a major expense. The City of San Antonio offers information to help those who want to build a new ADU on their property. Find out about loans and the different financing tools lending providers offer below.

If you have questions about financing tools for renovating existing ADUs, reach out to the lending providers below.

Securing a Loan

  • Securing a loan requires working with a lender to borrow money. In return for the lender giving you money, you provide collateral. Collateral is something you own (like a house) that you will give to the loaning provider if you cannot pay your loan within the loan timeframe.
  • Lending providers will often ask you to bring your ID and proof of income when securing a loan. For details on what to bring, check with the lending provider.
  • It’s good to have an idea of how much money you need to borrow and how much you can pay each month towards the loan. Many lending providers have tools to help you calculate this.

Types of Loans

There are two types of loans that you might use to finance an ADU.

Home equity
This type of loan lets you use your home as collateral to borrow money. Lenders can only approve home equity loans that are up to 80% of your home equity value. This means that your down payment must be at least 20% of the home’s value.
Home improvement
This is not a specific kind of loan. Instead, you can use the money for home improvement, repair, or maintenance. This includes constructing a new ADU on your property.

If you’re not sure which loan is right for you, contact a lending provider for more guidance. Below is a list of lending providers. These providers also offer low-interest loans to residents who meet certain criteria.

Financing Entities & Tools

Fannie Mae Loan Tools

Financing a Home with an ADU

If you plan on purchasing a home with an ADU, you can use the expected income from the ADU to qualify for the home. If you currently have a roommate who expects to rent out the ADU, you might be able to use their rent to qualify for the home.

Accessory Unit Income

You are purchasing a home with an ADU and intend to use the income from the ADU to qualify for the home. You can do this by presenting eligible documents such as an executed lease agreement. This allows your renter to lease out the ADU after sale. Once presented, 75% of the monthly rent may count toward your qualifying income.

Boarder Income

You have a roommate who intends to continue to rent out space from you. Their income may count as qualifying income toward your new home. Fannie Mae will ask you to verify 12 months of rent that your roommate paid in your recent home. Their average monthly rent may determine this amount. This amount then can count toward your monthly income qualification. Boarder Income is limited to 30% of your total income qualification.

For more information visit Fannie Mae's ADU page.

Chase Bank Loan Tools

Cash-Out Refinance: This allows a homeowner to refinance their current mortgage by taking out a new mortgage.

Frost Bank Loan Tools

Progress Home Equity Loan

This loan offers a low-interest loan option for qualified borrowers that make less than 80% of the area median income(PDF, 86KB) (AMI).

Progress Mortgage Loans

The Frost Progress Mortgage Loan can make buying a home with an ADU accessible and affordable.

It is available to:

  • borrowers who make less than 80% of the AMI.
  • borrowers with subject properties located in a low-to-moderate-income census tract who make 80% - 110% of the AMI.

This program offers eligible applicants financial assistance in addition to loan options.

Other Lending Providers

Back to top