Thinking about adding an accessory dwelling unit to your Cary property but not sure how to fund it? You are not alone. Between changing rules, multiple loan types, and lender requirements, it can feel complex fast. In this guide, you will learn how common financing paths stack up for Cary homeowners, what lenders look for, and how to prepare so you can move forward with confidence. Let’s dive in.
Start with Cary’s rules
Before you compare loan options, confirm your project is feasible under the Town’s current standards. This protects your time and helps lenders underwrite your plan.
Confirm property eligibility
- Verify your zoning district and whether ADUs are permitted on your lot.
- Check ADU type allowances: attached, detached, or conversion of existing space.
- Review size, height, setback, parking, and occupancy limits.
- Ask about owner-occupancy requirements and any short-term rental restrictions.
Understand permits and timelines
- Identify required permits and inspections, including building, electrical, plumbing, and utility connections.
- Ask about separate meter rules and utility capacity, plus any impact or connection fees.
- Get a sense of typical review timelines based on current volume and project complexity.
Why this matters for financing
- Lenders prefer permitted scope and may condition funding on approvals.
- Your budget should include permits, fees, and utility work to avoid shortfalls.
- Rental rules can affect whether lenders count projected income in qualifying.
ADU financing options compared
Each option has tradeoffs in cost, speed, risk, and flexibility. Your best fit depends on equity, rate environment, project scope, and whether you want a single fixed payment or staged draws during construction.
HELOC
A home equity line of credit is a revolving line secured by a second lien. You draw what you need and often pay interest only on the balance during the draw period.
- Best for: flexible, phased projects when you have equity and want speed.
- Pros: typically closes in 2 to 6 weeks, lower upfront fees, pay interest only on amounts used.
- Cons: usually variable rate, second-lien position, combined LTV limits can cap borrowing.
- Qualification: strong credit and DTI; many lenders cap CLTV around 80 to 90 percent.
Cash-out refinance
You replace your first mortgage with a larger one and take the difference in cash to fund the ADU.
- Best for: larger projects when you want one fixed-rate mortgage.
- Pros: single loan with potential fixed rate, may allow a higher amount than a second lien.
- Cons: 30 to 60 day timeline, closing costs, and a higher market rate could raise your payment.
- Qualification: full underwriting and appraisal; max LTV depends on loan type and lender.
Home equity loan
A fixed-rate second mortgage that provides a lump sum at closing.
- Best for: well-scoped projects with firm budgets that benefit from predictable payments.
- Pros: fixed rate and payment, simpler than construction loans, often faster than a refi.
- Cons: second lien, less flexibility if costs change, shorter terms can mean higher monthly payments.
- Qualification: subject to CLTV caps, credit, and DTI.
Construction or construction-to-permanent
Short-term financing with draws tied to inspections. A single-close version converts to a permanent mortgage after completion.
- Best for: new detached ADUs or structural additions with detailed plans and contracts.
- Pros: purpose-built for construction, can fund hard costs and some soft costs, single-close avoids two sets of closing costs.
- Cons: more documentation, higher complexity, and longer setup of 4 to 8 weeks or more.
- Qualification: lenders review loan-to-cost and loan-to-value, contractor credentials, and detailed plans and budget.
Renovation-style mortgages
Government-backed programs like FHA 203(k) can finance purchase plus rehab for owner-occupants. These programs are primarily for renovating the primary residence and come with program standards.
- Applicability: more feasible for internal conversions than new detached units; lender discretion applies.
- Takeaway: check with program lenders and guidance to confirm eligibility if you consider this path.
Partner capital and JV structures
An equity partner contributes funds in exchange for ownership or profit share instead of taking on more household debt.
- Best for: investors with limited equity or those who prefer to avoid additional mortgages.
- Pros: reduces new debt and can add expertise from a partner.
- Cons: shared decision-making, legal complexity, tax and title considerations; ensure clear, written agreements.
Builder or specialty financing
Some builders coordinate financing or offer installment options, including for modular ADUs.
- Pros: a bundled approach can speed procurement.
- Cons: compare total costs and terms carefully.
How lenders underwrite ADU projects
Understanding how lenders think helps you set expectations and assemble a clean package.
Appraisals and value
- For construction loans, lenders look at the post-completion value based on your plans and available comparable sales. Limited local ADU comps can complicate valuation.
- For HELOCs and home equity loans, lenders often use current appraised value or an automated model. Some will order a full appraisal before final approval.
LTV and LTC
- Loan-to-value compares your total loan balance to property value. It drives how much equity you can tap in a refi or second lien.
- Loan-to-cost is used in construction lending. It compares the loan amount to your total project budget, including hard and some soft costs.
Income and DTI
- Many lenders require a history of rental income to include it fully in qualifying. Projected rent may be excluded or counted conservatively.
- Expect standard income, credit, and debt-to-income reviews, just like a typical mortgage.
Documentation and draws
- Be ready with contractor bids, plans, permit status, insurance, and recent financials.
- For construction loans, funds are released in stages after inspections. You may need to front some costs until draws clear.
Costs, taxes, insurance, and risk
A clear budget avoids surprises and speeds lender approval.
Typical ADU costs
- Interior or garage conversions often range from the tens of thousands into the $100,000 plus territory depending on scope.
- Detached small ADUs commonly sit in the $100,000 to $250,000 plus range.
- Larger or higher-end builds can exceed $300,000. Obtain Cary-specific bids and include contingency of 10 to 20 percent.
Financing costs to expect
- Interest rate type, origination and appraisal fees, closing costs, and for construction, draw inspection fees. Some construction loans include an interest reserve.
Taxes and insurance
- Interest on loans used to buy, build, or substantially improve the home securing the loan may be deductible, subject to federal rules and limits.
- Rental income is taxable. You may be able to deduct a share of expenses, including mortgage interest, insurance, utilities, and depreciation. Consult a CPA.
- Notify your insurance carrier before construction. You may need endorsements, higher dwelling coverage, or landlord coverage if renting the unit.
Collateral and risk
- Cash-out refinances and second liens increase mortgage obligations and foreclosure risk if payments lapse.
- Second liens are junior to your first mortgage. Understand repayment terms and rate risk before you commit.
A step-by-step plan for Cary homeowners
A clear sequence helps you keep momentum and align lenders, contractors, and the Town.
Phase 1: Pre-design and feasibility
- Review Cary’s current ADU standards to confirm eligibility.
- Pull Wake County parcel and tax data to verify lot details.
- Engage an architect or contractor with ADU experience for a conceptual plan and preliminary cost estimate.
- Check utility capacity and likely connection or meter requirements.
Phase 2: Budget and financing path
- Build a full budget with hard costs, soft costs, fees, and contingency.
- Map equity and loan scenarios using likely CLTV limits or LTC ranges.
- Match options to goals: speed and flexibility suggest HELOC, fixed long-term control suggests cash-out, structured new-build suggests construction-to-perm.
- Get prequalification feedback from two or three lenders, including a community bank or credit union with ADU familiarity.
Phase 3: Permitting and underwriting
- Align your permit timeline with lender milestones. Submit complete plans to minimize review cycles.
- Prepare documentation: plans, contractor contract, insurance, income docs, and appraisal access.
- Coordinate draw schedules with inspections to keep cash flowing to the job.
Phase 4: Build and closeout
- Track change orders, invoices, lien waivers, and inspection reports.
- Update your insurer when the structure is weather-tight and again at completion.
- After final inspection, confirm property records and tax assessment updates. If renting, set up lease, registration if required, and tax tracking.
Quick decision guide
Use this as a starting point for conversations with lenders and your build team.
- You need funds in weeks and have equity: consider a HELOC or home equity loan.
- You want one fixed payment and a stable long-term rate: consider a cash-out refinance.
- You are building a new detached ADU with a fixed-price contract: consider construction-to-permanent.
- You want to limit new household debt and share risk: consider partner capital with a clear agreement.
- You are converting interior space with a tight, known budget: consider a home equity loan for predictability.
Common pitfalls to avoid
- Starting design without confirming Cary’s size, setback, and utility rules.
- Underbudgeting soft costs such as permits, utility work, and contingency.
- Assuming lenders will count projected rent with no track record.
- Choosing a product with rate risk you are not comfortable carrying.
- Skipping early conversations with your insurer and CPA.
How Shenandoah Realty can help
You do not have to navigate this alone. Shenandoah Realty brings a research-forward approach and a local network to help you scope an ADU that supports your long-term goals. We can connect you with experienced architects, contractors, and lender resources, then plan for resale and rental implications with clear, data-informed advice. Ready to explore options tailored to your property and timeline? Schedule your free 15‑minute brainstorming session with Shenandoah Realty.
FAQs
What financing works best for a detached ADU in Cary?
- For new detached builds with formal plans and fixed-price contracts, construction-to-permanent financing is designed for staged draws and inspections.
Can projected ADU rent help me qualify for a loan?
- Many lenders require a history of rental income to count it fully; projected rent is often excluded or used conservatively, so confirm policy before you apply.
How long does ADU permitting take in Cary?
- Timelines vary by project complexity and plan completeness; check with the Town’s permitting staff for the most current review and inspection timeframes.
How much home equity do I need for an ADU?
- HELOCs and home equity loans are often capped around 80 to 90 percent combined LTV, while cash-out refis and construction loans follow lender-specific LTV or LTC limits.
Is the interest on ADU financing tax deductible?
- Interest on debt used to buy, build, or substantially improve the home securing the loan may be deductible within federal limits; consult a tax professional.
Will my insurance change if I add an ADU in Cary?
- You should notify your insurer before construction; endorsements or higher dwelling coverage are common, and landlord coverage may be needed if you rent the unit.
