# ADU funding & financing Funding and financing an accessory dwelling will likely require thousands of dollars in "soft costs" (design and permit fees, for the most part) and "hard costs" (construction). There are many options to fund an ADU project, and will range from tens of thousands of dollars for a basement unit to hundreds of thousands of dollars for a backyard house. Borrowing money is not required – if you have enough cash; cash is an option for some property owners who want to build a basement unit. Costs for basement units can also have a large range, however, depending on the amount of work necessary. For example, to prevent flooding in the basement it may be advised to build a perimeter drain (with drain tiles) and a sump pump (and perhaps even an ejector pump). ## Borrowing options _Our borrowing options list is not exhaustive - if there's a lender or bank that you've worked with, ask them what products they have_ - **HELOC**. A home equity line of credit is an "as needed" loan that's backed by the equity that you have in your house. A lender will set a maximum amount for the loan, but you only pay interest on the portion of the loan that you withdraw. Check your equity: Your mortgage lender or servicer probably has a tool to estimate the current value of your property. If not, check Redfin or Zillow. - **Renovation loan**. This product is offered by many lenders that pays for renovations and additions, but not ground up new construction backyard houses. The value of the loan is a portion of the future appraised value (the projected value of the property after the renovation project is complete). ### Lenders - **CIBC** Loans are to experienced developers for improving vacant, foreclosed, or abandoned single-family houses, and cover up to 75% LTV based on the value of the post-construction project. Learn more about CIBC's [Housing Initiative](https://us.cibc.com/en/about-us/community/transform.html). - **Neighborhood Housing Services of Chicago**. The main lending product is a purchase & rehab loan, but NHS also administers the city's ADU development grant (up to $10,000 for pre-development, and up to $70,000 for construction). - **Community Investment Corporation**. CIC's loans cover acquisition and rehab for a single 5+ unit building or for a portfolio of at least five units. - **Guaranteed Rate**. The main lending product is an FHA-conforming renovation loan, which involves a HUD consultant who prepares a scope of work. The lending amount will be based on the value of the post-construction project that was done according to the scope of work (up to 110% LTV). The FHA requires a self-sufficiency test for 3-4 unit buildings. - **GreenState Portfolio Construction loan**. Max combined loan-to-value of 90% (based on post-completion value) up to $3,000,000. Interest-only payments during construction. Available for primary and second homes only. Can be used for rehab or ground-up new construction. Up to 4 units after renovation or construction, including the coach house unit. Contact: Greg Moore, [[email protected]](mailto:[email protected]) | [GreenState Credit Union](https://www.greenstate.org/GregMoore) Phone: (312) 379-8877 - **RenoFi**. RenoFi is a lending platform that connects homeowners with credit unions offering renovation loans. They can refer you to a credit union lender in their network. **US Alliance Credit Union** is one such partner and is known to have financed at least one ADU project in Hyde Park. Start at [RenoFi's website](https://www.renofi.com/) to explore loan options and get referred. Freddie Mac will <a href="https://sf.freddiemac.com/faqs/accessory-dwelling-unit-faq" target="_blank">allow lenders to consider an ADU construction</a> in ChoiceRenovation loans (check with your lender if they offer a conforming ChoiceRenovation loan product). ### Costs #### Construction cost statistics *Based on single-unit ADU permits issued in Chicago from March 2023 through March 2026.* **Basement** (128 permits): - Most basement ADU projects cost between $50,000 (25th percentile) and $181,500 (75th percentile). - The median reported cost was $80,000 and the average was $154,406. - The highest reported cost was $880,000, for a permit at 2920 W Palmer St that added one basement ADU to a 4-story, 7-unit brick building — but the scope also covered interior alterations and MEP work on all 7 existing units, a new rear steel porch, a rooftop deck, and a trash enclosure, so the $880,000 represents a full building renovation rather than just the ADU. **Backyard (coach) house** (70 permits): - Most backyard house projects cost between $100,000 (25th percentile) and $218,750 (75th percentile). - The median reported cost was $150,000 and the average was $188,180. - 9 of the 70 permits (13%) reported costs over $300,000. _Reported costs on permits are self-reported by the applicant and not validated by the city. Some permits cover a broader scope of work beyond the ADU itself — such as full building renovations, MEP upgrades for existing units, or exterior additions — which can inflate the reported cost relative to the ADU alone._ #### Taxes In March 2026 we studied the change in assessed value of properties (with an ADU permit and classified as "2-11", which are two-to-six flats), between the 2021 and 2024 assessment years. Here's what we found: A two-to-six flat with a basement ADU permit is associated with a 15–25% higher assessed value at the next reassessment, compared to a similar property that did not add an ADU. In dollar terms, for a property with a $70,000–$80,000 assessed value, that's roughly $10,000–$20,000 more in AV than a comparable neighbor who didn't build. A higher AV means a higher property tax bill — the size of which depends on the local tax rate and any exemptions you qualify for. A few things to keep in mind: 1. **Timing depends on the reassessment cycle.** Cook County reassesses properties on a three-year rotating schedule by township. Chicago City townships were last reassessed in 2021 and 2024; the next cycle is 2027. If you build after a reassessment, you may not see the AV change reflected for several years. 2. **The assessor uses permit data and mass appraisal methods.** The Cook County Assessor receives building permit data from the City of Chicago and uses it as one input into a mass appraisal model that values properties at scale. A permitted basement ADU will likely be known to the assessor even without a physical visit. Whether and how quickly it gets reflected in your AV depends on how the assessor's model incorporates the new finished space into the building's characteristics. 3. **Basement ADU value gets rolled into the primary building card.** Unlike a backyard coach house — which may get its own separate assessor "card" (card=2) with an explicit value — a basement conversion is typically reflected as an increase in the primary building's finished square footage and number of dwelling units. You won't see a separate line item for the ADU; instead, the whole building's value increases. 4. **The numbers here reflect association, not a guarantee.** This is an observational study across many properties. Your individual result will depend on the scope of your renovation, your assessor's model inputs, and local market conditions. The range of outcomes in the data is wide. ### Cook County Home Improvement Exemption If you own and occupy your property as your primary residence and it's classified as a Class 2 property (1–6 units), building an ADU may qualify you for the **Cook County Home Improvement Exemption**. This exemption shields up to **$75,000 of added value** from taxation for **up to four years**. For example, if your ADU adds $55,000 in value, the property's assessed value will not consider that on that added value for up to four years. If the ADU adds more than $75,000 of value the first $75,000 of that value is exempted. The Assessor provides this example: >Say a home with a current market value of $100,000 expands the home’s square footage such that the increase in square footage would cause the Assessor’s estimate of its market value to increase to $175,000. The added value of $75,000 from the home's improvement is _exempted_: the home would be assessed for taxation as if it was worth $100,000.  **No application is required.** The Cook County Assessor receives building permit data from the City of Chicago, conducts a field inspection, and automatically applies the exemption. You'll receive a notification by mail. This exemption can meaningfully reduce the near-term tax cost of building an ADU — potentially offsetting most or all of the assessed value increase for several years after construction. For questions about eligibility, call the Cook County Assessor's Office at 312-443-7550, or visit the [Cook County Assessor's Home Improvement Exemption page](https://www.cookcountyassessoril.gov/home-improvement-exemption). ## Insurance Homeowners typically do not need a separate insurance policy for an ADU — most standard homeowners insurance policies can be extended to cover the entire property, including a coach house or basement unit. That said, you should notify your insurance company before or shortly after construction begins, because adding a new structure or dwelling unit is a material change to your property that can affect your coverage and your premium. For backyard coach houses, which are detached structures, your insurer may treat the new building differently than an attached addition. Some policies cover detached structures automatically up to a percentage of the main dwelling's coverage limit (commonly 10%), which may not be enough given the cost of building a coach house. Ask your insurer whether the coach house will be covered under your existing dwelling coverage or as a separate "other structures" line item, and whether the coverage limit is adequate. If you plan to rent the ADU, let your insurer know — a landlord or dwelling fire policy may be required ([Nationwide](https://www.nationwide.com/lc/resources/home/articles/homeowners-insurance-for-rental-property), [Liberty Mutual](https://www.libertymutual.com/insurance-resources/property/accessory-dwelling-units)), since standard homeowners policies generally do not cover rental-related risks. ## Financial incentives ### Grants - *This program is without funding (August 2024)* The City of Chicago has a $3 million grant program to pay for some soft costs and lend on hard costs for property owners who want to build an ADU (both interior and backyard house types). [Neighborhood Housing Services is administering this program](https://nhschicago.org/fix/grant-programs/adurepairs). - Northwest Home Equity Assurance Program. Homeowners [in this area](https://www.chicagocityscape.com/place/chicagohomeequityassurance-northwest) can take out special loans at low interest rates to pay for renovations, including the addition of an interior ADU – [learn more](https://nwheap.com/). ### Appraisals and assessed values - We are still gathering information about the impact of ADUs, especially backyard houses, on assessed values. - Some lenders will underwrite a loan based on the projected rental income of an additional unit; ask your lender about whether they will. - A residential-only building with 7 or more units is classified as a commercial property and a residential-only building with 6 or fewer units is classified as a residential property. - The Casita Coalition [summarized an Appraisal Institute report](https://www.casitacoalition.org/casita-coalition-blog/insight-from-the-appraisal-institute-on-evaluating-adus) on the appraising of ADUs (2022). ## Finding contractors - Chicago Cityscape maintains an [ADU service provider directory](https://chicagocityscape.ngrok.io/adu/serviceproviders.php), which lists architects and builders ready to work in Chicago. - Use our [Member Directory](http://chicagocityscape.com/members.php) to find a contractor. Our [Building Permits Browser](https://chicagocityscape.ngrok.io/permits.php) also has an ADU quick filter to show all of the permits that are for ADUs, from which one could gather a list of service providers who have worked on a real ADU project. ### Notes for contractors - [ComEd has free training](https://slipstreaminc.org/ComEd-ASHP) for contractors to learn how to select, procure, and install air source heat pumps. - [Claim your profile on Chicago Cityscape](https://share.hsforms.com/1-x05JtzAQy-HV9BpLqJd7A4heqb) # Related articles - [[Finding contractors for home electrification]]