Melissa Bergrin, a loan officer with Guild Mortgage, told attendees at a Kitsap County ADU information session that homeowners have multiple financing options to build accessory dwelling units and should start by establishing a realistic budget.

Bergrin said a home equity loan or home equity line of credit is “the lowest cost loan available.” She advised homeowners to use that option when they have sufficient equity, and called it “your plan A.”

The lender outlined alternatives when equity is insufficient. “We need to get a construction loan,” she said, explaining that a construction loan allows the lender to underwrite against the home’s future value after the ADU is built. She said conventional loans, FHA loans and a takeout VA loan can all be used in coordination with construction financing.

Why it matters: ADUs are a common reason for building-permit applications in nearby King County, Bergrin said, and financing choices affect cost, credit requirements and who can occupy the property.

Details of each path, as described by Bergrin:
- Home equity loans/lines: she said lenders typically will allow borrowing up to about 90% of a home's value and that borrowers generally receive better rates when the loan-to-value is closer to 80%.
- Construction loans: these are short-term, disbursed during construction, and later replaced by a long-term mortgage (the “takeout”). Bergrin said the construction loan itself is short-term and the long-term loan can be conventional, FHA or VA.
- Conventional loans: Bergrin said conventional construction-to-permanent financing is widely compatible with a variety of building types and noted a typical minimum credit score around 620.
- FHA loans: Bergrin said an FHA-backed construction or takeout loan generally requires the property to be the borrower’s primary residence and can offer lower credit-score flexibility.
- VA loans: she said VA loan programs can underwrite ADUs when the veteran occupies the primary residence, but rental income rules for VA underwriting limit using projected ADU rental income as the main qualifying factor. She summarized this as “yes and no” for doing the construction loan entirely under VA rules, and clarified the long-term VA loan can be the takeout.

On owner participation in construction, Bergrin said homeowners may perform work themselves or contribute labor, but lenders require a budget that is realistic for a hired contractor to complete every line item if the owner becomes unable to finish the build. “When we’re putting a budget together for our construction loan, it does need to be...a budget that's realistic for you to hire out every line item,” she said, adding that some line items cannot be zero.

Bergrin recommended that prospective ADU builders meet first with a lender to develop a budget before meeting builders or applying for permits. She said she prepared a roadmap for the financing process and offered to share it with attendees.

No formal motions or votes were taken during this presentation. Bergrin said she would be available after the session to answer individual questions and did not endorse any contractor or require attendees to use her services.