The Ins and Outs of Financing an In-Law Apartment

Published on July 6, 2023 | Webster Bank

Are the folks moving in to spend more time with the grandkids? Or perhaps they’re nearing the point where they need more care? Or maybe the opposite is true and it’s the kids returning to the nest? Whatever the reason, you’re in good company. Almost 1 in 5 Americans lives in a multigenerational household – quadruple the number of people who did in the past half-century!

Multigenerational households offer a lot of social, emotional, and financial benefits. But no matter how you slice it, you have more people living under one roof. A few home renovations – or even an addition – can make everyone a little more comfortable and provide some much-needed privacy.

It’s no surprise accommodating homes for multi-generational living is a trend on the rise with no signs of stopping. And with lending rates likely to increase, it’s the perfect time to think about putting in your own in-law apartment, accessory unit, basement remodel, bathroom upgrade, or whatever you have in mind.

While you have a range of financing options, here are two increasingly popular choices:

1. A Construction-to-Permanent Mortgage Loan

Use a fixed-rate Construction loan, which allows you finance the construction phase of your project (up to an 18-month construction period) and then converts to a permanent loan once the construction has been completed. You can choose a fixed interest rate that offers a steady, predictable amount to budget monthly.

Otherwise, you can opt for an adjustable interest rate that can increase or decrease throughout the life of the loan. Either way, you’ll pay interest only during the construction period followed by principal and interest payments as a fully amortized loan when it converts to permanent.

2. A Webster exclusive: The Construction Second loan

If you have an existing first mortgage that you want to leave in place, and your plans require at least $100,000, then consider the Webster Construction Second loan. It lets you borrow against a portion of the improved value of your home, even before you begin renovations, freeing up more cash flow and without making any changes to your first mortgage.

You get the funds you need before the contractor begins work—and the contractor only gets paid as the phases of the project are completed, inspected and approved.

What’s more, you pay interest only on the amount drawn during the construction phase. Once construction is completed, the loan automatically turns into a fully amortized fixed rate for a selected term.

You’ll just need to obtain proper permitting and local zoning approval prior to work being done and make sure all phases of your project are completed by a state-licensed and insured contractor.

See how we’ve helped clients in your situation.

At this important life transition, Webster is here to help for your questions and goals. Here, talk with a loan specialist who’s helped others address the challenges and opportunities that come with multigenerational living—a loan specialist who can assist you in making confident decisions so you can move forward faster.