Thinking about adding living space, a private suite for family, or a rental unit to your Cambridge home? With new statewide rules making accessory dwelling units easier to build, the opportunity is real, but the financing and permitting details still matter. In this guide, you’ll learn the rules that apply in Cambridge, the loan options that work for ADUs and additions, typical costs, and a step‑by‑step plan to fund your project with confidence. Let’s dive in.
ADUs in Cambridge: what changed
Massachusetts created a statewide right to build an ADU by right on single‑family properties, generally up to 900 square feet, with regulations effective in early 2025. See the state’s overview of the new ADU law and implementation details at Mass.gov.
Cambridge also adopted citywide zoning changes in February 2025 to allow multifamily housing in more places, which can affect how additions or conversions are reviewed. You still need to follow local zoning, building codes, and inspection processes through the City’s departments. Read the city’s update on multifamily zoning citywide.
Before you spend on plans, verify feasibility for your specific property through Cambridge Inspectional Services and the Community Development Department. Start with the City’s zoning and permitting hub.
Your financing options
Renovation mortgages
- FHA 203(k) Rehabilitation Mortgage. FHA supports ADU creation through 203(k) and allows lenders to use a portion of estimated ADU rent to help you qualify. See HUD’s policy update on ADU income and 203(k).
- Fannie Mae HomeStyle Renovation. Finances attached or detached ADUs as part of a purchase or refinance for eligible borrowers. Review program details in the HomeStyle Renovation guide.
These options roll construction costs into your mortgage and can be useful if you are buying a property and building the ADU right away, or refinancing to add one.
Construction‑to‑permanent loans
A short‑term construction loan funds the build and then converts to a permanent mortgage when the work is complete. This is common for ground‑up detached ADUs or larger additions. Expect interest‑only payments during construction and documentation requirements for your builder, plans, and budget.
Home equity and cash‑out
If you have strong equity, a HELOC, home equity loan, or cash‑out refinance can be simpler than construction financing. Rates and terms vary by lender, and second‑lien products may carry higher rates than first mortgages.
State and local programs
- MassHousing Home Improvement Loan Program. Fixed‑rate loans for eligible Massachusetts homeowners, generally for repairs and smaller renovations. Learn more on the MassHousing HILP page.
- Massachusetts Community Climate Bank, Energy Saver Home Loan. Offers low‑cost financing for qualifying energy upgrades, which can pair with an ADU project that includes electrification or efficiency work. See the State’s announcement.
- Cambridge Home Improvement Program. Income‑eligible homeowners can access low or no interest loans and technical assistance for repairs or code work that may be part of a conversion. Details are on the City’s HIP page.
Budget and cost ranges
Benchmarks for the Boston and Cambridge area vary by scope and site conditions. As a starting point:
- Internal or basement conversion: roughly $75,000 to $150,000
- Attached addition: often $150,000 to $350,000
- Detached cottage or garage conversion: frequently $200,000 to $400,000+
These directional ranges come from regional guidance like the City of Boston’s ADU resources. Review their cost benchmarks in the Boston ADU guide.
Hidden or variable costs to plan for include utility upgrades, foundation or site work, lead paint or other abatements, historic‑district mitigation, architect and engineer fees, permitting and review fees, financing costs, temporary housing during construction, and a 10 to 20 percent contingency. Property tax, insurance, and landlord compliance may also change after you add a rentable unit.
How lenders evaluate ADUs
- Income from the new unit. FHA allows lenders to count a portion of estimated ADU rent for qualifying, which can improve debt‑to‑income ratios. See HUD’s update on ADU income.
- Appraisal and value. Appraisers must identify the ADU and analyze its features, legal permissibility, and market demand. Fannie Mae outlines these expectations in its special property eligibility guidance.
- Permits and compliance. Lenders typically require evidence that the ADU or addition is legal and permitted for the value or the income to count.
Step‑by‑step plan to fund your project
- Confirm feasibility. Check zoning, overlays, utilities, and any historic considerations with Cambridge ISD and CDD. Start here: Cambridge Zoning and ISD.
- Scope and pricing. Hire an architect or designer to define the plan, then get itemized contractor bids.
- Choose a financing path. Compare renovation mortgages, construction‑to‑perm loans, and home equity options. If you qualify, layer in MassHousing or Climate Bank programs for relevant portions of the work.
- Prequalify and gather documents. Expect to provide plans, contractor license and insurance, detailed cost estimates, and rent comps if using projected ADU income.
- Permit before closing. Most lenders require building permits in hand before closing on construction financing or renovation mortgages.
- Build and fund draws. Lenders release funds in stages after inspections. When complete, convert to permanent financing or begin repayment on your HELOC or second mortgage.
Choose the right lender
Ask targeted questions so you know what to expect:
- Do you accept ADU rental income for qualifying, and what percentage counts?
- Will you lend on detached ADUs and on properties with two or more units?
- What permits or certificates do you require before closing or converting to a permanent loan?
- How do construction draws and inspections work, and who manages them?
Collect and organize key documents early: architectural plans, itemized bids, contractor credentials, evidence of legal permissibility, and market rent support if you plan to rent the unit.
Taxes, insurance, and rental rules
- Property taxes. An addition or ADU may trigger reassessment. Budget for a possible tax increase.
- Insurance. You may need an endorsement or different policy to cover a rental unit.
- Landlord responsibilities. Follow tenant habitability rules and lead disclosure or abatement requirements for older homes. Cambridge outlines homeowner and rental resources on its For Homeowners pages.
- Short‑term rentals. Many cities restrict short‑term rental use of ADUs. Cambridge has registration rules that limit who can operate short‑term rentals, so review local requirements before assuming nightly rental income.
Ready to run the numbers for your Cambridge property, weigh ROI, and plan the right financing path? Reach out for a tailored strategy grounded in local rules and current lending options. Connect with Diane Basemera to get started.
FAQs
Can I use ADU rental income to qualify for a mortgage in Massachusetts?
- Yes. FHA, Fannie Mae, and Freddie Mac provide guidance that lets lenders use a portion of ADU rent for qualifying, subject to each lender’s policies and appraisal requirements. See HUD’s summary of ADU income policy.
Will Cambridge allow me to build an ADU on a single‑family lot?
- Under the statewide ADU law that took effect in 2025, ADUs up to 900 square feet are generally allowed by right in single‑family zones, but you must still meet Cambridge’s local zoning and building rules. Start with the state’s ADU overview and confirm details with Cambridge ISD.
How much does an ADU cost in the Cambridge area?
- Costs vary by scope and site conditions. Regional benchmarks suggest internal conversions around $75,000 to $150,000, attached additions around $150,000 to $350,000, and detached units from $200,000 to $400,000 or more. See the Boston ADU guide for context.
Are there low‑interest loans or assistance programs for Cambridge homeowners?
- Yes. Cambridge’s Home Improvement Program offers income‑based loans and technical assistance, and statewide programs like MassHousing’s HILP and the Climate Bank’s Energy Saver loan can help with eligible improvements. Explore the City’s HIP page and the MassHousing HILP program.
