The short answer
ADU financing in Colorado turns on one question: do you live on the property. If you do, an accessory dwelling unit is financed as a renovation, construction, or cash-out project on your primary residence, not as a DSCR loan. HB24-1152 made the unit buildable across the north metro. It did not make it short-term rentable.
What HB24-1152 Changed About ADU Financing in Colorado
ADU financing in Colorado got a lot more relevant on June 30, 2025, and the reason is a zoning law rather than a lending law. First, the plain-language definition. An accessory dwelling unit, or ADU, is a smaller second home on the same lot as a main house, with its own kitchen, bathroom, and entrance. People call them carriage houses, casitas, garage apartments, and mother-in-law units.
House Bill 24-1152 was signed on May 13, 2024 and took effect the same day. It added article 35 to title 29 of the Colorado Revised Statutes, and the operative section is C.R.S. 29-35-103.
The requirement itself is short. On or after June 30, 2025, a subject jurisdiction must allow one accessory dwelling unit as an accessory use to a single-unit detached dwelling in any part of the jurisdiction where it allows single-unit detached dwellings.
A subject jurisdiction is defined in the statute as a municipality with a population of one thousand or more that sits inside a metropolitan planning organization. Broomfield, Westminster, Thornton, Arvada, Superior, and Louisville all meet that test, and all six appear on the Colorado Department of Local Affairs list of subject jurisdictions. So this applies to every market I serve.
| Under HB24-1152 | What It Means for a Homeowner |
|---|---|
| One ADU must be allowed | Accessory to a single-unit detached home, anywhere those homes are allowed |
| Administrative approval process | Decided by staff on objective standards, and it cannot be elevated to require a public hearing |
| Owner-occupancy may not be required to build | With narrow exceptions written into the statute, covered below |
| Restrictive design and dimension standards barred | Cities keep life safety codes, historic district procedures, and impact fees |
| PUD restrictions curtailed | A planned unit development may not restrict an ADU more than the law outside the PUD does |
| HOA prohibitions void as public policy | Under C.R.S. 38-33.3-106.5(4), though reasonable restrictions still stand |
That last pair is what changed the conversation in this county. Broomfield built out heavily as planned unit developments with active associations, so Anthem and Broadlands homeowners who were told for years that an ADU was simply not permitted may want to ask again. The statute is careful, though, and so am I. Reasonable association restrictions survive, and zoning and permitting specifics are your city's call rather than mine. Start with your planning department.
ADU Financing in Colorado Is Not a DSCR Loan
Now the boundary, because this is the error I correct most often, and it is easy to make in good faith.
A DSCR loan, short for debt service coverage ratio, qualifies on the property's rental income instead of on your personal income. It is business-purpose financing, and it is available on non-owner-occupied property only. My Broomfield County DSCR loan guide covers how that ratio works.
Here is why it does not reach an ADU. If you live in the main house, the entire parcel is your primary residence, and the accessory dwelling unit is part of that residence. A tenant paying rent on the back cottage does not convert your home into an investment property. Occupancy is a representation you make to a lender, and it is not a detail to be flexible about.
So the ADU you build behind the house you live in is financed the same way any other major improvement to a primary residence is financed. It is a renovation, construction, or cash-out product. That is not a downgrade, either. Owner-occupied financing generally asks less of you at closing than investment financing does.
The picture flips only if you do not live there. A single-family home with an ADU that you own purely as a rental is non-owner-occupied, and at that point the investment lane opens up. Same building, different answer, decided entirely by where you sleep.
The quick test
Live in the main house and rent the ADU: owner-occupied financing. Live in the ADU and rent the main house: still owner-occupied financing. Live in neither: investment financing, and a DSCR loan may be one of the options worth pricing, subject to credit approval and a full loan estimate.
Three Paths to Finance a Colorado ADU
There is no ADU loan as such. HB24-1152 created no lending program and no state fund for homeowners, so the money comes from ordinary mortgage products used deliberately. These are the three that come up most on my calls.
| Path | How the Money Moves | Often Fits |
|---|---|---|
| Renovation loan | Rolls the cost of the work into the mortgage, based on the value after the work is done | Converting an existing basement, garage, or attic space |
| Construction loan | Releases funds in stages called draws as the build reaches milestones | A detached new structure built from the ground up |
| Cash-out refinance | Replaces your mortgage with a larger one and returns the difference to you in cash | Homeowners with meaningful equity who want to pay a builder directly |
A word on two of those terms, since they carry real mechanics. A draw is a scheduled release of construction money, paid out after an inspection confirms a stage of work is complete rather than handed over in one lump at closing. And a cash-out refinance means you take a new, larger loan, pay off the old one, and keep the difference. My cash-out refinance guide walks through how equity, appraisal, and closing costs interact on that path, and my new construction loans page covers how draw schedules behave on a build in this area.
Which path fits is a function of your equity, your timeline, and how much of the structure already exists. I price them side by side rather than steering, and every option stays subject to credit approval and a full loan estimate. Choosing and vetting the builder is genuinely outside my lane, so lean on your city's contractor licensing records and on people who have finished a comparable project nearby.
Thinking About Adding an ADU?
Tell me roughly what you owe, what the project scope looks like, and whether you plan to keep living in the main house. I will map out which of the three paths is realistic for your situation and what each one asks of you. No pressure and no obligation.
What Your City Still Controls Over a Colorado ADU
This is the part that gets left out of the enthusiastic version of the story, and it changes the math on a lot of plans.
HB24-1152 preempted a great deal, and it deliberately did not preempt short-term rental rules. Two provisions do that work. C.R.S. 29-35-103(3)(g) says nothing in the section prevents a jurisdiction from enacting or applying a local law concerning the short-term rental of an accessory dwelling unit or any other dwelling on the same lot. And 29-35-103(2)(b)(II), the same subsection that bars owner-occupancy requirements generally, carves out an exception allowing a jurisdiction to require proof that the owner resides on the parcel when an application is submitted for a short-term rental license or permit.
Read together, the effect is clear. The state forced the unit to be buildable. It left every city free to decide whether the unit may be rented by the night, and free to condition that license on the owner actually living there.
That matters here more than it would elsewhere, because five of the six cities I serve restrict short-term rental to an owner's principal residence or prohibit it outright. Arvada is the exception, and it is the only one of the six where a permit may be issued on a non-primary residence. So the plan that starts with build an ADU and rent it nightly runs into a local wall in most of the north metro before it ever reaches a lender. I am writing a full city-by-city comparison of those rules, and until it is published, please confirm the current ordinance with your own city rather than relying on a summary.
Long-term lease income is the model that generally works across all six. The other thing a city still controls is the first thing you should check: whether your specific lot, setbacks, and utility connections support the unit you are imagining. That is a planning department conversation, and it is worth having before you pay anyone for drawings.
How an ADU Changes a Broomfield County Loan File
A few practical things behave differently once an ADU enters the picture. None of them are obstacles, and all of them are easier to handle early.
- Unit count can shift your classification. Why it matters: a one-unit home with a single ADU is generally still treated as a one-unit property. A property with two dwelling units plus an ADU is counted differently under HUD Handbook 4000.1, which pulls it into a stricter category. My duplex and 2-4 unit loans guide covers that counting rule in full, and it is worth reading before you add an ADU to a duplex.
- The appraisal does more work than usual. Why it matters: an appraiser values an ADU against comparable sales, and in neighborhoods where few homes have one there may be thin comparable data. Permitted, legally conforming units generally support value more readily than unpermitted conversions.
- Rental income from the ADU is treated carefully. Why it matters: whether projected ADU rent may count toward qualifying depends on the program and on documentation, and the answer is rarely dollar for dollar. I confirm current guideline language before building a pre-approval around it.
- Insurance and property taxes both move. Why it matters: adding livable square footage and a tenant changes your coverage needs and your assessed value. Placement belongs with a licensed insurance agent, and the tax picture belongs with the county assessor.
- Permits should lead, not follow. Why it matters: an unpermitted conversion can complicate an appraisal, a future sale, and an insurance claim. Route the permit question to your city at the start.
If the ADU is part of a broader plan to own rental units, two neighboring pages may help. My house hacking guide covers living in one unit and renting the others, which is the same owner-occupied logic applied to a small multi-unit building. And my cash-out refinance on a rental property guide covers the investment version of the equity path described above.
ADU Financing in Colorado: Quick Facts
| Detail | Data |
|---|---|
| Law | House Bill 24-1152, signed May 13, 2024 |
| Codified at | C.R.S. 29-35-101 through 29-35-105, operative section 29-35-103 |
| Compliance date | June 30, 2025 |
| What must be allowed | One ADU accessory to a single-unit detached dwelling |
| Approval route | Administrative, objective standards, no public hearing |
| Markets covered | Broomfield, Westminster, Thornton, Arvada, Superior, Louisville |
| Short-term rental of an ADU | Still governed by city law, preserved at 29-35-103(3)(g) |
| Owner-residency at STR licensing | May be required, per 29-35-103(2)(b)(II) |
| Financing if you live on the lot | Renovation, construction, or cash-out refinance |
| DSCR eligibility | Non-owner-occupied property only, never your residence |
| State lending program created | None for homeowners; financing uses standard mortgage products |
Steps to Line Up ADU Financing in Colorado
Order of operations saves money here, because two of these steps can end the project and both are free to check.
- Call your city's planning department first. Confirm that your lot supports the unit you have in mind, and ask what the administrative approval process looks like in practice.
- Ask about short-term rental separately. The permit to build and the license to rent nightly are two different questions with two different answers, and the second one is not settled by HB24-1152.
- Settle occupancy honestly. Whether you will live on the parcel decides your entire product menu, so do not leave it fuzzy.
- Get a real scope and a real bid. The gap between a basement conversion and a detached build is large enough to change which financing path is workable.
- Pull your equity picture. What you owe against a current value estimate tells us quickly whether the cash-out path is realistic.
- Talk to me before you sign a construction contract. Draw schedules and lender requirements are far easier to align at the start than to renegotiate mid-build.
One closing thought. The homeowners who do well with an ADU are the ones who treated it as two projects: a zoning project and a financing project, run in that order. Sort the first with your city, bring me the second, and the plan tends to hold together. For the wider financing picture, my Broomfield County home loans hub is the next stop.