Your Equity Builds It. Your Tenant Pays It Off.
Finance the construction or conversion of an accessory dwelling unit — a backyard cottage, garage apartment, or basement suite — using the equity you already have. One of the smartest ways to increase rental income and property value simultaneously.
All Types
ADU Types Financed
Cash-Out, HELOC, Reno
Financing Paths
75%–100%
Projected Rent Counted
As Low As 5%
Down Payment (Purchase)
Overview
Your Lot Is an Asset — Let's Unlock It
An accessory dwelling unit (ADU) is a secondary, self-contained living space built on the same lot as a primary residence. This includes detached backyard cottages, garage conversions, basement suites, and above-garage apartments. Oregon and California have both passed landmark ADU-friendly legislation in recent years — removing many historic zoning barriers and making it easier than ever to permit, build, and rent an ADU on nearly any residential lot.
At Lumen Mortgage, we help homeowners finance ADU construction and conversion through several flexible loan structures: cash-out refinancing, home equity lines of credit (HELOC), and renovation loans like Fannie Mae HomeStyle or FHA 203(k). We can also structure new-purchase loans that factor in projected ADU rental income — increasing your buying power from day one.
Whether you're building a unit for a family member, a long-term tenant, or short-term rental income, we'll identify the most cost-effective financing path for your specific situation and property type.
Who This Is For
Key Features
What Makes This Program Work
Cash-Out Refinance
If you have equity in your home, a cash-out refi converts that equity into construction funds — often at a lower rate than a construction loan or personal loan.
HELOC Financing
A home equity line of credit gives you flexible draw access to pay contractors as work progresses, with interest-only payments during the build phase.
Renovation Loan (HomeStyle / 203k)
Fannie Mae HomeStyle and FHA 203(k) renovation loans let you finance ADU construction or conversion into a single mortgage — ideal for purchase transactions.
Projected Rent Income Credit
Many loan programs allow up to 75% of projected ADU rental income to count toward your qualifying income — boosting your debt-to-income ratio and purchase power.
All ADU Types Eligible
Detached cottages, attached additions, garage conversions, basement suites, and above-garage apartments all qualify — as long as the unit has a separate entrance, kitchen, and bathroom.
Oregon & California ADU Laws
Both states have passed sweeping ADU legislation removing many historic zoning barriers. We know the local landscape and can help you navigate permitting alongside financing.
Multigenerational Loan Programs
Fannie Mae's ADU-specific lending guidelines recognize projected rental income from ADUs more favorably than standard investment property rules.
Fast, Direct Processing
Our team handles ADU loans start to finish — no third-party delays. We target 21–30 day closings once your plans and contractor bids are in place.
As-Improved Value Financing
Renovation loans and select HELOC programs calculate your borrowing limit against the projected appraised value of your property after the ADU is complete — not what it's worth today. That gap between current equity and future value can unlock significantly more financing than a standard cash-out refi alone.
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Interactive Tool
ADU Project Calculator
Model your ADU project from budget to cash flow. Compare All Cash vs. HELOC vs. cash-out refinance financing, estimate rental income, and see the projected return on your investment — before breaking ground.
ADU Project Calculator
Current Home Equity
· 60.0% LTV$300,000
Total Project Cost
$209,000
Gross Monthly Rent
$1,800
Paying full project cost in cash. To model financing, select the Refinance or Purch. / Const. tabs.
Cash Needed at Closing
$209,000
Project Summary
Total Cost
$209,000
Cash Invested
$209,000
Added Payment
$0
ADU Rent (eff.)
+$1,800
New Total Monthly Payment
$3,500/mo
Before ADU
$3,500/mo
Project Profitability Analysis
Cash-on-Cash
10.3%
annual cash ÷ cash in
10.3%
cash flow + appreciation + recapture
ROE
7.2%
Projected Home Value
$959,000
current value + project cost
Projected Equity
$509,000
after new financing
Cash Invested
$209,000
out-of-pocket basis
Existing Equity
$300,000
before ADU build
Ready to make your project a reality? Schedule an ADU Financing Consultation
Model build costs, interest-only draws, and permanent financing for new construction or major renovations.
Check your debt-to-income ratio against lender guidelines — essential for qualifying on any loan program.
Analyze rental property cash flow and debt-service coverage — the key metric for investor loan qualification.
Go Deeper on ADUs
Financing is one piece. Before you break ground, get familiar with the planning, design, and permitting side. Here are the ADU resources our borrowers trust most.
General ADU Resources
Oregon ADU Resources
Accessory Dwelling Strategies
accessorydwellingstrategies.com
Expert ADU consulting, feasibility analysis, and strategic planning resources for homeowners and investors navigating the ADU development process in Oregon.
Free Oregon ADU Plans
thataduguy.com
Download free, ready-to-use ADU plan sets designed specifically for Oregon properties — a great starting point before you engage an architect or designer.
Lumen Mortgage has no affiliation with these resources and receives no compensation for these referrals. We share them because informed borrowers make better decisions — and better projects make for better loans.
The Process
How It Works
Scenario Review & Equity Analysis
We review your current home value, existing mortgage balance, and equity position to identify the best financing structure — cash-out refi, HELOC, or renovation loan.
ADU Plans & Contractor Bids
You'll need permitted architectural plans and contractor bids before final loan approval. We guide you on what lenders require and how to structure the draw schedule.
Application & Appraisal
We order an appraisal based on your primary home's current value plus the as-improved ADU value. For renovation loans, this often increases your available loan amount meaningfully.
Underwriting & Approval
Our team reviews income, equity, plans, and contractor qualifications. Projected ADU rental income is factored in where eligible to strengthen your qualifying profile.
Close, Build & Rent
Funds are disbursed at closing (cash-out / HELOC) or in construction draws (renovation loans). Once your ADU has a certificate of occupancy, you're ready to rent — and start recovering your costs.
Requirements
General Qualifications
Ready to See If You Qualify?
Every borrower's situation is unique. Give us 15 minutes and we'll review your financial picture, identify every program you qualify for, and walk you through your options — at no cost and with no obligation.
Licensed in Oregon & California · NMLS #1498678
Related Programs
Renovation Loans
FHA 203(k) and HomeStyle renovation loans are ideal for ADU conversions and additions on a purchase transaction.
Refinance
A cash-out refinance is often the most cost-effective way for existing homeowners to fund ADU construction.
Construction Loans
Building a brand-new detached ADU cottage from the ground up? Our construction-to-permanent loans cover land and vertical build.
Investor Loans
If your ADU property is an investment, our investor and DSCR programs offer flexible qualifying with rental income.
FAQ
Common Questions
From the Blog
Further Reading
OregonADU Loans in Oregon: Financing Accessory Dwelling Units Under the Middle Housing Land Division Law
Oregon's Middle Housing Land Division law quietly changed the investment calculus for ADUs across the state. Here's how to finance a detached ADU, what DSCR lenders look for, and why lot-splitting is becoming the most underrated wealth-building strategy in Oregon real estate.
Loan TypesADUs for Multigenerational Households: Benefits, Considerations & Financing Options
More families are choosing to live under one roof — or at least on one property. An accessory dwelling unit lets you keep loved ones close while preserving the independence everyone needs. Here's how to think about the benefits, the planning process, and the financing.
What Our Clients Say
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Ready to Get Started?
Our loan officers will review your scenario, walk you through your options, and guide you from application to close — with full transparency at every step.