ADU costs
How to Finance an ADU
Most ADUs are paid for with some mix of savings and borrowing against the home. The right mix depends on your equity, your timeline and how the money has to flow during construction.
An ADU is paid for over months, not on one day. Design and engineering come first, then city and utility fees, then construction draws as the work progresses. That timing matters as much as the loan type, because some kinds of borrowing suit a lump sum and others suit money released in stages.
We are a builder, not a lender. We do not arrange or recommend financing. This page describes the general options in plain terms so you can have a better conversation with a lender, a financial adviser or both.
Start with the budget, not the loan
A lender will want to know what you are building and what it costs. A budget built from the property up, covering site and utility work, the unit itself and the soft costs, is the document that answers that. It also tells you how much you actually need to borrow. Our ADU budget planning guide explains how to build one, and the Utah ADU cost guide covers what drives the total.
The main ways homeowners pay for an ADU
| Option | How it works | Questions to ask |
|---|---|---|
| Savings | Cash on hand pays for part or all of the project. | How much should stay in reserve for contingency and for your household? |
| Home equity line of credit | A revolving line secured by the home. You draw what you need as bills come due. | Is the rate fixed or variable? When does repayment of principal start? |
| Home equity loan | A lump sum secured by the home, repaid on a fixed schedule. | Does a single lump sum match a project paid in stages? |
| Cash-out refinance | Replaces your mortgage with a larger one and pays out the difference. | How does the new loan's rate and term compare with your current mortgage? |
| Construction or renovation loan | Money released in draws as the work is completed and inspected, sometimes based on the expected value after the project. | What documents, inspections and contractor information does the lender require before each draw? |
| Local programs | City or agency loans with their own eligibility rules. | Is the property eligible, and is funding available now? |
Each option has costs of its own: closing costs, appraisal, interest during construction and, for some, fees per draw. A lender or adviser can compare these for your situation. We do not quote rates or terms.
Salt Lake City's Backyard Keys ADU loan program
The one ADU-specific loan program we have verified in our service area is Backyard Keys, run by the Salt Lake City Redevelopment Agency and administered by Community Development Corporation of Utah. As published by the RDA on the date we checked:
- Where: properties west of I-15, with priority for the 9-Line area.
- Who: owner-occupants, who complete Good Landlord training and financial counseling.
- Amount and rate: up to $200,000 at 3% fixed.
- Term: 5 years, with a 5-year extension option, amortized over 30 years.
- Fees: a $2,000 fee and a $200 annual compliance fee.
- Forgiveness: up to 10% for ADUs that are rent-restricted.
- Timing: applications are accepted on a rolling basis as funding becomes available.
We could not confirm how much funding is available right now. Read the program page linked in the sources and contact the RDA before planning around it. Salt Lake City's ADU rules also apply, including owner occupancy and a rental business license; see our Salt Lake City ADU page.
State programs
In 2021 the Legislature created a low-income ADU loan guarantee pilot program. That section no longer appears in the current Utah Code, and we found no current state statute creating an ADU loan or grant program. That does not rule out programs that exist outside statute, so ask your city and your lender what they know of.
What lenders commonly ask about an ADU
Requirements differ by lender and loan, but the questions tend to cover the same ground:
- Scope and plans: what is being built, with drawings.
- Budget: a line-item estimate, including soft costs and contingency.
- Contractor information: who is building it and under what contract.
- Permits: evidence that the project is approved, or when approval is expected.
- Value: for some loans, an appraisal of the property as it will be when finished.
Expect the lender to look at the property as a whole. City codes treat the ADU as part of the lot, not a separate home: Millcreek's code, for example, says an ADU "shall not be sold separately or subdivided" from the main dwelling or property.
Matching the money to the schedule
Soft costs come early and are usually paid before a construction loan would fund: feasibility, design, engineering, surveys where needed, and city application fees. Construction costs follow in stages. Many homeowners pay the early costs from savings and borrow for construction, but that is a decision to make with your lender. A clear schedule of payments, which we prepare during pre-construction planning, helps either way. See how an ADU project runs.
If rent is part of the repayment plan
Be conservative. Owner occupancy rules mean the ADU is usually the only rental on the lot, short-term rentals are prohibited in most cities here, and rental licenses carry their own costs. Read ADU rental income before counting on rent to cover a loan payment.
Questions about financing an ADU
Do you arrange financing for ADUs?
No. We do not arrange, broker or recommend loans. What we can do is give you and your lender the information they usually need: a defined scope, drawings, a budget built from your property's actual cost drivers, and a schedule of when money will be needed.
Can I count future rent to qualify for a loan?
Ask each lender. Whether projected ADU rent counts toward qualifying, and how, depends on the loan and the lender's rules. Do not assume it will, and remember that owner occupancy rules in most Salt Lake County cities mean the ADU is usually the only rental unit on the property.
Is there a Utah state ADU loan program?
We did not find one. A low-income ADU loan guarantee pilot was created by the Legislature in 2021, but that section no longer appears in the current Utah Code, and we found no current state statute creating an ADU loan or grant program. Programs can exist outside statute, so check with your city as well.
Who qualifies for Backyard Keys?
According to Salt Lake City's Redevelopment Agency, the program is for owner-occupants of properties west of I-15, with priority for the 9-Line area. Applicants complete Good Landlord training and financial counseling. Funding is offered on a rolling basis as it becomes available, so confirm current availability with the RDA directly.