How to Finance an ADU in 2025: Loans, Grants & Creative Funding Options

Building an Accessory Dwelling Unit (ADU) in Central Oregon is one of the smartest ways to increase property value, generate rental income, and create flexible living space. But before breaking ground, most homeowners face the same question — how do you actually pay for it?

In 2025, financing options for ADUs have expanded significantly, thanks to updated state housing initiatives, creative lending programs, and increased local support from Oregon banks. Here’s a breakdown of how to make your ADU dream a reality without overextending your finances.

1. Home Equity Loans and HELOCs

If you’ve owned your home for several years, you may already have the most accessible source of funding — your home’s equity.

A home equity loan provides a lump sum with fixed payments, while a Home Equity Line of Credit (HELOC) offers flexible borrowing over time. Both allow you to tap into your existing home’s value, often at lower interest rates than traditional construction loans.

Best for:

• Homeowners with substantial equity

• Smaller ADU projects or garage conversions

• Those who want predictable monthly payments

💡 Pro Tip: Many local lenders in Bend and Redmond have specific HELOC products designed for construction and renovation projects, making approval smoother.

2. Construction or Renovation Loans

A construction loan covers the cost of building your ADU from the ground up. These loans typically convert into a standard mortgage once the unit is complete.

They’re ideal for homeowners who are adding detached ADUs or starting from scratch, as funds are released in phases (called “draws”) as the project progresses.

Pros:

• Covers labor, materials, and even permits

• Option to refinance afterward into a long-term loan

Cons:

• Requires detailed plans, cost estimates, and inspections

• Slightly higher rates due to short-term risk

3. Cash-Out Refinancing

If you refinanced your home years ago at a low interest rate (say, 3%), you may hesitate to give that up. But in 2025, creative refinance structures are emerging that let you access cash without fully replacing your original mortgage.

With partial cash-out refinancing, you can keep your primary loan intact and borrow an additional amount specifically for your ADU.

Best for:

• Homeowners with strong credit and stable income

• Those who want to minimize multiple loan payments

4. Oregon’s ADU Incentives and Grants

Oregon has been pushing ADUs as part of its affordable housing strategy, and several grant and rebate programs now exist to help homeowners offset costs.

In Deschutes County and Bend, local initiatives sometimes include:

• System Development Charge (SDC) reductions or deferrals for ADUs

• Energy-efficient construction rebates through the Energy Trust of Oregon

• Affordable Housing Pilot Programs offering partial reimbursement for qualified rentals

These programs change frequently — so always check the City of Bend’s Housing Division or Deschutes County Planning Department for current incentives.

5. Partnering or Co-Investing in an ADU

For some homeowners, partnering with family members or private investors has become a creative financing route. For example, adult children may help fund an ADU that provides long-term housing for parents — or vice versa.

Another growing trend in Central Oregon is equity-sharing ADU partnerships, where an investor helps fund construction in exchange for a portion of future rental income or resale value.

Important: Always structure these agreements with legal counsel to ensure clarity around ownership, taxes, and future sales.

6. Renting to Reinvest: Using Rental Income to Cover Costs

Many Bend homeowners are strategically using anticipated rental income to qualify for ADU financing. Lenders now recognize ADUs as viable income-producing assets, meaning projected rent can strengthen your loan application.

With Central Oregon’s rental demand still high, especially for smaller units, your ADU can begin generating steady income soon after completion — often covering a large portion of your monthly loan payment.

7. Grants and Programs for Sustainable or Modular ADUs

If you’re building an energy-efficient or prefabricated ADU, you might qualify for green financing options. Programs like Fannie Mae’s HomeStyle Energy Loan or Oregon’s Energy Trust cash incentives can help offset the upfront costs of solar panels, battery storage, or efficient HVAC systems.

Prefab ADU builders may also offer built-in financing, where you pay in installments as the unit is assembled and installed.

Final Thoughts: Choose the Right Strategy for Your Goals

The right financing path depends on your timeline, budget, and long-term goals. Whether you want to create passive income, house a family member, or simply boost your property value, there’s never been a better time to build an ADU in Central Oregon.

Between local incentives, creative lending, and high rental demand, 2025 is shaping up to be the year of the homeowner-turned-investor.

FAQs

Q: What’s the average cost to build an ADU in Bend right now?

A: Most ADUs cost between $175,000 and $300,000, depending on size, location, and materials.

Q: Can I use rental income to qualify for an ADU loan?

A: Yes, some lenders will factor in projected rental income when approving financing, especially for detached ADUs with independent access.

Q: Are there grants available for ADUs in Deschutes County?

A: Occasionally, yes. Check the Deschutes County Planning Department and City of Bend Housing Division for SDC fee reductions or pilot programs.

Q: How long does it take to secure financing for an ADU?

A: Most loan approvals take 30–60 days, depending on documentation and whether you’re doing a full build or a conversion.

Q: Is building an ADU worth it financially?

A: In Central Oregon’s growing housing market, ADUs tend to pay off — both through monthly rental income and increased resale value.