What is an ADU? A Simple Guide to Accessory Dwelling Units and Financing

As housing needs continue to evolve, more homeowners are looking for flexible ways to use their property. One option gaining attention, especially with recent changes in Maine, is the Accessory Dwelling Unit, or ADU.

Whether you’re thinking about creating additional living space or exploring long-term investment possibilities for your property, including creating rental income, understanding what an ADU is and how to finance one is an important first step.

What is an ADU (Accessory Dwelling Unit)?

An ADU is a smaller, independent residential unit located on the same property as a primary single-family home.

It can take several forms, including:

  • A detached backyard cottage
  • A converted garage or basement apartment
  • An addition attached to the main home

ADUs typically include their own:

  • Kitchen
  • Bathroom
  • Living space
  • Separate entrance

Why Are ADUs Becoming More Popular?

In Maine and across the country, ADUs are gaining traction for a variety of reasons:

  • Flexible living arrangements (family, guests, caregivers)
  • Potential rental income
  • More efficient use of existing property

Recent updates to Maine regulations have also made it easier for homeowners to consider adding an ADU to properties with an existing single-family home.

How Do You Finance an ADU?

Financing an ADU depends on several factors, including the type of project and your financial situation.

Common options may include:

  • Renovation loans (for converting existing space)
  • Construction loans (for building a new unit)
  • Mortgage refinancing options (depending on equity)

Each option comes with different requirements, timelines, and structures.

What Factors Impact Financing?

Lenders typically consider:

  • The scope of the project
  • Estimated construction costs
  • Property value (current and projected)
  • Local zoning and eligibility

Because ADUs involve both construction and property use considerations, planning ahead is especially important.

What Should You Consider Before Building an ADU?

Before moving forward, it’s helpful to think through:

  • Local zoning and permitting requirements
  • Construction costs and timelines
  • Long-term use (personal vs. rental)
  • How financing will fit into your overall budget

Where to Start

If you’re considering building an ADU, understanding your financing options is a key first step. University Credit Union can help walk through your options and next steps, without pressure. Email our Mortgage Loan Originators or give us a call at 800.696.8628.