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When considering adding an accessory dwelling unit (ADU) to your property, or any home addition, one question which should be addressed early is where does the money come from? There are several potential answers to this question.

• Construction Loans - First, consider your primary banking relationship, the place where you keep your checking and savings accounts. You have a trust level built in with this institution and they know you as well. Ask your bank if they do construction loans or home equity lines of credit. This is a great place to start exploring your loan options. Ask your bank for their list of requirements for starting the loan process. Keep in mind that many lenders require a set of plans for a construction loan which will often mean an upfront investment from you to your builder or architect to create these plans.
• Retirement Plan Loans - Another attractive option is any investment funds you have contributed to over the years, a 401(k) plan or IRA. Often you can make a loan from these funds to yourself. The benefits include a ready source of funds, a reasonable interest rate, and the fact that you may be paying yourself over time in interest.
• Refinancing - If you have substantial equity in your home, you can also consider refinancing your first mortgage. In today’s credit climate, refinancing may be an easy way to access the equity that is in your home at a fixed interest rate. There is a possibility that Fannie Mae could raise the amount of conforming loans, which come at a lower interest rate, from the $417,000 loan limit to as much as $625,000 in November of 2008. This may also open a door for accessing your equity.
• Your Relative’s Home - If you are building your Sidekick for an aging relative, their current house may be a source of funding for your project, whether through its sale or tapping into its equity.

When you are looking at possible financing for your secondary home, it is important to consider your options as a first step toward completion of your project.