Guest House Financing

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Guest House Financing for Good & Bad Credit

Some homeowners choose to add a guest house on their property for when they have friends or relatives to come to stay. Guesthouses can also be used for long-term tenants or in-laws that need to stay with you. Some homeowners even use guest houses for grown children that haven’t moved out or need some extra space.

No matter your reason for getting a guest house, you are probably wondering if there are any financing options available to you to help with paying for it. Adding in a guest house can be a huge undertaking with a high cost, so you will want to make sure you get the best financing options available to you.

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How To Finance A Guest House Build with Acorn Finance

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How To Apply For Guest House Financing

1 Pre-qualify

Fill out an easy online form to check for pre-qualified offers with no impact to your credit score

2 Select offer

Compare terms and payment options to select the offer that’s best for you

3 Finish application

Complete your application on your selected lender’s website

4 Receive funding

After your loan is approved, your funds should arrive within 1-2 business days2

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- Mike T. (TN)

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“I like the easy online and 100% paperless experience of Acorn Finance. I received my money two days after completing my application.”

 

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FREQUENTLY ASKED QUESTIONS

Learn More About Guest House Financing

Can you finance a guest house? The easy answer is yes, you can indeed finance a guest house. However, you might need a good credit score and low debt-to-income ratios in order to get a loan with good terms and low interest. Many people choose to get a personal loan or a home equity loan to help them pay for guest homes. Whether you need financing for a guest house in South Africa or the United States, you can use a personal loan. There are other options for financing a guest house that you should compare. Keep reading to learn more.

Read more - FAQ

What is the best way to finance a guest house?

Since a guest house will likely cost you tens or hundreds of thousands of dollars, you will probably need some form of financing. Some homeowners decide to pursue a personal loan, a home equity loan, or a home equity line of credit. All of these loans will charge monthly payments with monthly interest that accrues.

Home equity loans will require you to have enough equity built into your home to ensure you can get a loan. Your home will also be used as collateral for the loan, so you need to be okay with this risk. A home equity line of credit is also based on the equity in your home. You will get revolving credit and be able to spend the money on home improvement projects like building a guest home.

Many times, you can get a home equity loan up to 85% of your home’s value. Your home will also need to at least have 20% equity in it.

Personal loans are usually unsecured, so you won’t need to use an asset for collateral. However, you will probably have higher interest rates than with a home equity loan. If you don’t have enough equity built into your home, you will need to start looking for personal loans.

Where do I get a loan to build a guest house?

Loans to build guest houses can be found in several different places. Many online lenders offer personal loans for home improvement projects. Most lenders will not check what you are using the money for or ask you to show the estimated cost of your guest house. This means you can receive the money in a lump sum and then use it for the costs that start to accrue as you are working on the guest home.

You can also check with your bank about loans. Ask them about their personal loan options and if they will be able to give you one. Sometimes banks offer loans with higher interest than credit unions or online lenders though. Make sure you compare rates before choosing.

You can also check with credit unions for financing. Sometimes they offer loans with lower interest and have options for fair credit borrowers.

Acorn Finance can help you find the best lenders for your credit score and situation. Just fill out a simple form and check offers. You can get prequalified in seconds without impacting your credit score. Our lending partners can offer personal loans up to $100,000 and APRs as low as 4.99%, depending on credit score.

How much does it cost to build a small guest house?

This will depend on your contractor and the size of the guest house. Always ask the contractor for an estimate of the expenses so you know ahead of time what you will be paying and not be blindsided with extra costs.

The average costs are about $50-$100 per square foot for the unit alone and $80-$160 per square foot for full installation. The foundation will also cost you more depending on how much time they need to spend preparing it. A custom house can be the same price as a primary residence depending on the features you add to it. Once you add in all the interior costs, furniture, and appliances, you can plan to spend about $100-$500 per square foot, totaling about hundreds of thousands of dollars.

Some county and state ordinances also have a minimum square footage amount for accessory dwellings. So, even if you want a very small guest house, you might need to make it larger to meet the expectations of the regulations. Make sure you have a margin of error.

Not following local ordinances can result in very large fees and you risk having to redo the guest home which is a large additional cost.

How much can I borrow to finance a guest house?

This depends on your application and what a lender can offer. Lenders will use your credit score, income, and other personal information to determine how much of a loan you can qualify for. Some lenders may approve personal loans for as much as $100,000. However, just because a loan provider advertises a maximum amount doesn’t mean you will be able to qualify for that amount.

You might qualify for a smaller amount based on your current debt and credit score. Many loan companies offer loans between $20,00-$50,000. You should have a contractor come to your home and give you an estimate of the guest house and tell you how much everything will cost you in total. This way you know how much of a loan you need for the building.

If you take out a home equity loan, you might be able to borrow more depending on how much equity you have in your home. Remember to only borrow as much as you need so that you don’t have any more debt than you need.

Is building a guest house worth it?

When answering this question, you first need to determine how much the guest house will be used. If you are spending a large amount of money on the guest house just for it to be used by visiting friends and family every few years, it might not be worth the cost.

If you plan to use the house as a rental, then you will probably be able to make the financing cost up very quickly. Renting a house on a website, especially in large cities, can give you a large source of income. If you live in a small city or rural area, renting it out might not give you enough money to cover the costs. Consider your location and where you will be renting the space before you decide to build the home.

If you have guests that come often or relatives from out of town that stay every few months, a guest house could be worth it. When you have company, you can still have your privacy and they can have their own as well. This will be a great option if they are staying for extended amounts of time, and you need to keep your distance.

If you plan to rent the guest house long-term to a renter, you should also be able to make your money back slowly, but it might be slower than if you live in a large city and can rent the house out on places like Airbnb. If you have older relatives and are in charge of paying for their assisted living facilities, having a guest house they can stay in may be much cheaper.

You also need to consider financing when it comes to building a guest house. If you have good credit and a low debt-to-income ratio, then you should qualify for good loan terms. If you can only secure a loan with high interest and you aren’t sure whether you will be able to make money off the guest house, it might not be worth it to build the addition. Consider how much money you can make off the guest house before you get it if the sole purpose is to rent it out.

If you are building it to give family or kids a place to live, then it is probably worth it to have your privacy and not have the company in your home the entire time.

Does a guest house add value?

Most guesthouses will add value to the home, but this shouldn’t be your main reason for building it. It should be built more because you need the space, not because you are hoping to increase the resale value. Some buyers actually don’t like the idea of a guest house because it means they have another building to clean and keep up with. Having a guest house that won’t be used regularly can be more of a nuisance than adding value.

For a resale though, a guest home will almost always add value to home. Even more important than adding value to the home when you decide to sell it, you will also be adding value if you plan to rent the home. Guest homes that are used as rentals can give you much of your original investment back. Having a guest house will also save you money if you normally pay for your children or in-laws to stay in hotels when they visit you.

You can also add value to your own wallet by renting it out regularly. You can consider adding it to Airbnb or even renting it out monthly to someone. This will add value to the home by giving the guest houses more use.

How much will building a guest house increase property value?

This depends on where you live, how much the guest house costs, and how large it is. It should increase the home’s square footage which always adds value to the home. If it is detached it will be considered a line-item adjustment. This usually adds about $10,000-$30,000 to the total asking price when you are ready to sell.

The value will also depend on the other homes around you. If they all have guest houses, it will be easier to decide a sale value based on the addition. Always ask the appraiser if the value of your home will be determined by the additional square footage or the line-item adjustment. The line-item adjustment might give you more money than just adding on the square footage.

What is considered a guest house?

There isn’t an actual definition of a guest house. However, when someone mentions a guest house, they probably picture or imagine certain things. A guest house is either detached or attached to the main home. It has separate bedrooms and facilities from the rest of the house.

A guest house should always have its own bathroom or bathrooms. Most of them also have their own kitchens where guests or renters can cook. Most guest homes have a separate entrance or garage where people can enter without needing to walk through the main home.

If you are renting the space, people especially love to be able to enter the area without feeling like they are bothering you and entering your personal space. You can also enter your own area without feeling like you need to talk to or entertain the guests.

A guest house is usually considered a dwelling on its own, which means it has everything you need without needing to use the main house. This means it has its own washroom facilities and kitchen. In some cases, it will also have laundry facilities. This is especially important if you are renting to someone long-term as you don’t want them to have to come into the main house every time they need to wash clothes.

What are the pros and cons of guesthouses?

Just as with most home improvement projects, there are some pros and cons. Let’s look at the main ones below.

Pros:

Great for guests. People will love coming to stay in your home knowing that they have their own area and can have privacy. Sometimes having company can feel like an intrusion, but with a guest house, this isn’t a problem.
Personal escape for everyone. Even when you don’t have company, older children can use the guest house as a quiet place to study or have friends over. It can also help if you have older children that aren’t ready to move out but could benefit from starting to be independent.
Rent it out for extra money. The main pro for many people is that they can rent it out for extra money. This can give you more income and help you to pay the loan off.
Increases your home value. When it comes to selling, you can increase the price because of your guest home.

Cons:

Careful planning, Unfortunately, with local building codes and regulations, it can be hard to build a guest home. You may need to consult architects, real estate attorneys, and the homeowner’s association. All the paperwork will take a while and you may need to wait many months before the building permits come.
It can be costly to build. A guest home can be expensive to build and may need you to use financing or savings. This isn’t ideal for some people. You will also need to pay for the cost of upkeep such as water and electric bills. You might also need to pay for landscaping and cleaning.

Where can I get a loan for building a guest house?

You can get a loan from many places such as credit unions, banks, or online lenders. Use Acorn Finance to get a list of lenders that you pre-qualify for and see which ones have the best terms. With a simple online form, you can see which lenders may work the best for you.

Should I finance a new guest house?

If you have good to excellent credit, getting a loan for a guest house might be easier than if you have fair credit. If you have a stable income and good credit, financing a guest house can be a great way to secure the funding you need to build the guest house you need.

If you can’t get a loan with low interest or good terms, financing a new guest home might not be worth it.

Can I finance a guest house online?

Many lenders give you the option to finance a guest house online. In some cases, you can complete the entire process online. If you use a secured loan or line of credit, the process can take more time and may require face-to-face meetings and appraisals. If you use an unsecured personal loan, there’s a good chance you can complete the entire process online with a few phone calls in the mix.

All lenders and loan companies are different, and you will need to check their individual requirements before applying and accepting a loan.

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