Mortgage Basics


All of our programs are paired with ADU Predevelopment Grants. 

                                                                                                      Learn More HPP CARES Foundation

Certainly! Here is the revised response: --- We have established relationships that we have maintained for over 15 years, serving these connections on a daily basis. One of our initiatives, ADUeasy, aims to simplify the financing process for your ADU projects. Through HPP CARES Lending, we assist California homeowners in navigating the myriad financing options available for the construction or legalization of an Accessory Dwelling Unit (ADU). Our comprehensive guide outlines various financing avenues, including both conventional options applicable beyond ADUs and newer, ADU-specific strategies. This guide features eleven diverse financing strategies tailored to ADU projects. You do not need to delve into each option exhaustively; an initial scan can help you identify which strategies best align with your specific circumstances. Each summary includes bullet points outlining the advantages and disadvantages of each strategy. Combining multiple funding sources is a common approach. Many individuals choose to use savings or existing assets to cover a portion of their project costs. This initiative reflects our commitment to supporting homeowners and strengthening our long-standing community relationships.

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Here are some of the most frequently used options for financing an ADU project: 

Cash-out refinance 

Home Equity Line of Credit (HELOC) A Home Equity Line of Credit (HELOC) operates akin to a credit card, providing homeowners with a flexible home equity loan. Within a predetermined limit, homeowners have the freedom to borrow as they see fit, choosing both the timing and the amount of their withdrawals. While cash-out refinancing boasts attractive interest rates, opting for a second mortgage can prove advantageous, particularly when the primary mortgage already boasts favorable terms. HELOCs empower homeowners to borrow only what they require, though it's important to note that they frequently come with variable interest rates.

Second mortgage 

Reverse mortgage 

Private money financing 

Construction loan 

Renovation loan.

A cash-out refinance typically incurs the lowest fees among loan options. However, its primary downside, distinguishing it from a HELOC (Home Equity Line of Credit), is that you receive the cash as a lump sum at closing.

The cost difference between a cash-out refinance and a HELOC (Home Equity Line of Credit) can vary depending on several factors, including interest rates, closing costs, and lender fees. Generally, a cash-out refinance may involve higher upfront costs, including closing costs such as appraisal fees, origination fees, and other associated expenses similar to those incurred when obtaining a traditional mortgage. In contrast, a HELOC typically involves lower upfront costs, with some lenders offering minimal or no closing costs. Additionally, the interest rates for a cash-out refinance and a HELOC can differ. 

Cash-out refinance loans often have fixed interest rates, while HELOCs typically have variable interest rates, which can initially be lower but may fluctuate over time. Ultimately, the cost difference between a cash-out refinance and a HELOC depends on individual circumstances, such as the amount of equity in the home, creditworthiness, and specific terms offered by lenders. It's advisable to compare offers from multiple lenders and carefully evaluate the long-term implications of each financing option before making a decision.

A point is a percentage of the loan amount, or 1-point = 1% of the loan, so one point on a $100,000 loan is $1,000. Points are costs that need to be paid to a lender to get mortgage financing under specified terms. Discount points are fees used to lower the interest rate on a mortgage loan by paying some of this interest up-front. Lenders may refer to costs in terms of basic points in hundredths of a percent, 100 basis points = 1 point, or 1% of the loan amount.

Yes, if you plan to stay in the property for a least a few years. Paying discount points to lower the loan's interest rate is a good way to lower your required monthly loan payment, and possibly increase the loan amount that you can afford to borrow. However, if you plan to stay in the property for only a year or two, your monthly savings may not be enough to recoup the cost of the discount points that you paid up-front.

Mortgage rates can change from the day you apply for a loan to the day you close the transaction. If interest rates rise sharply during the application process it can increase the borrower's mortgage payment unexpectedly. Therefore, a lender can allow the borrower to "lock-in" the loan's interest rate guaranteeing that rate for a specified time period, often 30-60 days, sometimes for a fee.

It's unsure how interest rates will move at any given time, but your lender may estimate where interest rates are headed. If interest rates are expected to be volatile in the near future, considering locking your interest rate may be good because it allows you to qualify for the loan. Or, if your budget could handle a higher loan payment, or lender's lock fees, you may want to let interest rates "float" until the loan closing.

Even with poor credit getting a home loan is still possible. A lender will consider you to be a risky borrower and to compensate for this they will charge you a higher interest rate, and expect a higher down payment usually 20%-50%. The worse your credit history is, the more you can expect to pay.

Not necessarily, if you've been late with your payments less than 3-times in the past year, and the payments were no more than 30-days late, you still have a good change at getting a competitive interest rate. Most lenders will accept certain reasons for this like an illness, or job-change, but explanations are required.

There are two important things to consider when choosing one lender over another one:

  • Quality of Service – Especially for first-time homebuyers who will have many questions about the total financing process and available loan options. Finding a lender with outstanding service skills that you trust will comfortably guide you every step of the way, so ask questions, even before you fill-out an application.
  • Cost of Services – It's good to ask potential lenders upfront what they charge for their services and any fees involved. They should be able to give you facts and get you through the financing process so that you feel confident knowing that you made a good decision by choosing them.