ADU Financing Comparison: Plus One vs HELOC vs Construction Loan

financing is the single biggest hurdle for most NYC homeowners considering an ADU. you know the project makes financial sense — the rental income math works out — but coming up with $100K–$250K in construction capital is a different challenge entirely.

the good news: there are three strong financing options for NYC ADU construction, and each one serves a different type of homeowner. here's the honest comparison.

the three options at a glance

feature	Plus One ADU Program	HELOC	construction loan
max amount	$395,000	up to 80-85% of equity	up to 80-90% of project cost
interest rate (typical)	3-5% (subsidized)	7-9% (variable)	8-10% (variable, converts to fixed)
term	20-30 years	10-year draw, 20-year repay	12-18 months, then converts to permanent
income requirement	AMI-based (up to 165% AMI)	standard DTI ratios	standard DTI + project viability
time to funding	4-8 weeks	3-6 weeks	6-12 weeks
best for	moderate-income homeowners	homeowners with significant equity	higher-budget projects with strong income

option 1: the Plus One ADU Program

the Plus One ADU Program is NYC's flagship ADU financing initiative, and for most homeowners, it's the best option. it was specifically designed to make ADU construction accessible to middle-income homeowners.

how it works

• provides up to $395,000 in construction financing
• below-market interest rates: 3–5% depending on income level and project details
• long repayment terms: 20–30 years
• can cover the full cost of most ADU projects in NYC (where typical builds run $100K–$250K)
• funds are disbursed in stages as construction progresses (draw schedule tied to milestones)

who qualifies

• income limit: household income up to 165% of Area Median Income (AMI). for 2026, that's roughly $190K for a family of four in NYC.
• owner-occupancy: you must live in the primary dwelling on the property
• eligible property: 1-3 family home in an ADU-eligible zoning district
• good credit: minimum credit score around 640-680 (varies by participating lender)
• debt-to-income: standard DTI requirements, but the program is more flexible than conventional construction loans

monthly payment example

on a $200K loan at 4% for 30 years:

• monthly payment: ~$955
• rental income at $1,800/mo = $845/mo positive cash flow
• that's before tax deductions, which make the effective cost even lower

pros

• lowest interest rates available for ADU construction
• longest terms = lowest monthly payments
• specifically designed for ADUs — the lenders understand the process
• $395K ceiling covers nearly any NYC ADU project

cons

• income limits exclude higher-earning households
• application process can take 4-8 weeks
• participating lender pool is still growing — fewer options than traditional products
• owner-occupancy requirement may limit flexibility

option 2: Home Equity Line of Credit (HELOC)

a HELOC lets you borrow against the equity you've already built in your home. if you bought your home years ago and it's appreciated significantly, a HELOC can be a fast, flexible financing option.

how it works

• your lender appraises your home and offers a credit line based on your equity
• typical LTV: 80–85% of home value minus existing mortgage balance
• draw period: 10 years (interest-only payments on what you use)
• repayment period: 20 years (principal + interest)
• variable interest rate tied to prime rate

HELOC math example

say your home is worth $800K and you owe $400K on your mortgage:

• 80% LTV = $640K maximum
• minus $400K mortgage = $240K available HELOC
• that covers most ADU builds in NYC

on a $200K draw at 8% during the draw period:

• interest-only payment: ~$1,333/mo
• rental income at $1,800/mo = $467/mo positive cash flow during draw period
• once in repayment (P+I): ~$1,673/mo — still cash-flow positive with $1,800/mo rent

who qualifies

• significant home equity — at least 20% equity after the HELOC
• good credit: 680+ typically required, 720+ for best rates
• stable income: DTI below 43% including the HELOC payment
• no income caps — unlike Plus One, higher-income homeowners qualify

pros

• fast approval (3-6 weeks, sometimes faster)
• flexible — draw only what you need, when you need it
• no restrictions on ADU type or design
• interest may be tax-deductible (consult your tax advisor)
• no income limits

cons

• variable rate — your payments can increase if rates rise
• higher interest rates than Plus One (7-9% vs 3-5%)
• your home is the collateral — default risk is real
• available amount depends on existing equity (newer homeowners may not have enough)
• some lenders restrict HELOC use for new construction

option 3: construction loan

a construction loan is a short-term loan specifically designed for building projects. it converts to a permanent mortgage (or is paid off) once construction is complete.

how it works

• lender evaluates the project plans, contractor, and your financial profile
• loan amount: up to 80–90% of the completed project value
• funds disbursed in draws as construction milestones are met (inspected by the lender)
• during construction: interest-only payments on the drawn amount
• after construction: converts to a permanent mortgage or must be paid off/refinanced
• construction phase: 12–18 months

construction loan math

on a $200K construction loan at 9%:

• during construction (avg $100K drawn for 12 months): ~$750/mo interest
• after conversion to permanent at 7% for 30 years: ~$1,331/mo
• rental income at $1,800/mo = $469/mo positive cash flow after conversion

who qualifies

• strong credit: 700+ typically required
• detailed project plans: lender will review architectural drawings, contractor bids, and project timeline
• licensed contractor: most lenders require a licensed GC, not owner-builder
• income sufficient for DTI including the fully drawn loan payment
• down payment: 10–20% of project cost as equity contribution

pros

• designed specifically for construction projects
• lender oversight (draw inspections) provides an extra layer of quality control
• can convert to permanent mortgage at completion
• no income limits
• lender validates project viability — if they approve it, the project likely makes financial sense

cons

• highest interest rates of the three options
• most complex application process (6-12 weeks)
• requires detailed plans and contractor selection before approval
• draw inspection process can slow construction if inspections are delayed
• conversion terms may not be as favorable as standalone mortgage rates
• 10-20% equity contribution required upfront

which option is right for you?

here's a quick decision framework:

choose Plus One if:

• your household income is under 165% AMI (~$190K for a family of 4)
• you want the lowest possible interest rate and monthly payment
• you're comfortable with the owner-occupancy requirement
• you want a program that was built specifically for ADU construction

choose HELOC if:

• you have significant home equity (20%+ after the draw)
• you want speed and flexibility
• your income exceeds Plus One limits
• you're comfortable with variable-rate risk
• you may want to pay down the balance faster than a fixed-term loan

choose construction loan if:

• you're doing a higher-budget project ($200K+)
• you don't have enough home equity for a HELOC
• you want lender oversight as an extra quality check
• you plan to refinance after construction into a better permanent rate

combining financing sources

you're not limited to one option. some homeowners combine sources:

• Plus One + personal savings — use Plus One for the bulk and savings for upgrades/contingency
• HELOC + cash — draw a smaller HELOC amount and supplement with savings to minimize interest
• HELOC for design/permits + construction loan for building — use a small HELOC draw to cover upfront soft costs, then a construction loan for the actual build

the numbers that matter most

regardless of which financing option you choose, these are the numbers to focus on:

• monthly cash flow — rental income minus loan payment minus operating costs (insurance, maintenance, vacancy allowance). this should be positive.
• total interest paid — lower rates save tens of thousands over the life of the loan. Plus One at 4% vs. construction loan at 9% = $80K+ difference in interest on a $200K, 30-year loan.
• break-even timeline — how many months of rental income until you've covered all costs (down payment, closing costs, interest during construction)
• debt service coverage ratio (DSCR) — rental income divided by total debt service. lenders want 1.2x or higher. you should want 1.3x+ for comfort.

use the nycadu cost calculator to model these numbers for your specific situation, and visit the financing page for more details on the Plus One ADU Program.