Finance Your ADU The Smart Way
Explore financing options, grants, and incentives to make your ADU project affordable and maximize your return on investment.
Compare Financing Options for Your Los Angeles ADU
HELOC • HELOAN • Cash-Out Refinance • Renovation Loans • Construction Loans • Personal Loans
Understand rates, fees, qualifications, and benefits in one place. HELOC and HELOAN are the most accessible options for most homeowners.
Revolving credit line secured by your home's equity as a second position loan behind your primary mortgage. Draw funds as needed during construction and pay interest only on what you use.
Rate Range
7.5% - 10.5%
VariableTerm
10-30 years
Timeline
Approval: 3-10 days
Typical Fees
$0 - $500
Closing Costs
Minimal to none
Benefits
- Most flexible option - draw only what you need when you need it
- Pay interest only on funds used
- Lower initial costs than refinancing
- Reusable credit line after paydown
- Keep existing mortgage rate
Considerations
- Variable interest rates (can increase)
- Second lien position (subordinate to first mortgage)
- Home serves as collateral
- May have annual fees
Best For:
LA homeowners who want flexibility, need quick access to funds, have stable income, and want to keep their existing low mortgage rate
Typical Qualifications:
- Credit score typically 680+ required
- Debt-to-income ratio under 43%
- Combined loan-to-value (CLTV) typically under 85%
- Proof of income and employment
- Property appraisal required
Fixed-rate loan secured by your home's equity as a second position loan. Receive a lump sum upfront with predictable monthly payments over a set term, typically 5-30 years.
Rate Range
8.0% - 11.0%
FixedTerm
5-30 years
Timeline
Approval: 1-3 weeks
Typical Fees
$500 - $2,000
Closing Costs
2% - 5% of loan
Benefits
- Fixed interest rate for predictable payments
- Lump sum disbursement at closing
- Keep existing mortgage rate
- Lower rates than personal loans or credit cards
- Tax-deductible interest (if used for home improvement)
- Second position loan - doesn't replace your mortgage
Considerations
- Less flexible than HELOC - can't redraw funds
- Second lien position (subordinate to first mortgage)
- Home serves as collateral
- May have closing costs
- Fixed payment regardless of project needs
Best For:
LA homeowners who prefer fixed rates, know exact project costs, want predictable payments, and want to keep their existing mortgage
Typical Qualifications:
- Credit score typically 680+ required
- Debt-to-income ratio under 43%
- Combined loan-to-value (CLTV) typically under 85%
- Proof of income and employment
- Property appraisal required
Refinance your existing mortgage for more than you owe and use the cash for ADU construction. This becomes your new first position loan, replacing your current mortgage entirely.
Rate Range
7.5% - 9.5%
FixedTerm
15-30 years
Timeline
Approval: 3-6 weeks
Typical Fees
$2,000 - $5,000
Closing Costs
2% - 5% of loan
Benefits
- Access large amounts of capital
- Potentially lower interest rates than other options
- Tax-deductible interest
- Single monthly payment (replaces existing mortgage)
- First position loan with better rates
Considerations
- Closing costs typically 2-5% of loan amount
- Risk losing home if unable to pay
- Requires sufficient home equity (typically 20%+)
Best For:
LA homeowners with significant equity and favorable refinance rates compared to their current mortgage
Typical Qualifications:
- Credit score typically 620+ (680+ for best rates)
- Debt-to-income ratio under 43%
- At least 20% equity remaining after cash-out
- Stable income and employment history
- Property appraisal required
Specialized loans designed for home improvement projects like ADU conversions or additions. Ideal for converting existing space such as garages, basements, or adding onto your home.
Rate Range
8.0% - 11.0%
FixedTerm
15-30 years
Timeline
Approval: 4-8 weeks
Typical Fees
$1,000 - $3,000
Closing Costs
2% - 4% of loan
Benefits
- Designed specifically for home improvements
- May include project management support
- Competitive rates for qualified borrowers
- Flexible terms based on project scope
- Can finance up to 100% of project costs
Considerations
- Requires detailed project plans and permits
- May need contractor estimates upfront
- Credit score requirements vary by lender
- Loan amounts may be limited by property value
Best For:
LA homeowners converting existing space (garage, basement) or adding onto their home rather than building new
Typical Qualifications:
- Credit score typically 620+ (varies by lender)
- Debt-to-income ratio under 43%
- Detailed renovation plans and contractor estimates
- Proof of income and employment
- Property must meet minimum value requirements
Short-term loans specifically for ground-up construction of new structures like detached ADUs. Funds are released in stages as construction progresses, and the loan typically converts to permanent financing after completion.
Rate Range
9.0% - 13.0%
Variable then FixedTerm
12-18 months construction, then 15-30 years
Timeline
Approval: 6-10 weeks
Typical Fees
$2,000 - $5,000
Closing Costs
3% - 6% of loan
Benefits
- Designed specifically for new construction
- Interest-only payments during build phase
- Funds released in stages (draws) as work progresses
- Can convert to permanent mortgage after completion
- Lender oversight ensures quality construction
Considerations
- Higher interest rates than traditional mortgages
- Requires detailed construction plans and permits
- Stricter qualification requirements
- Requires experienced, licensed contractor
- Longest approval timeline of all options
Best For:
LA homeowners undertaking complex ground-up construction projects that will take 12+ months to complete. This is the most complex financing option and requires extensive documentation, higher qualifications, and longer approval times.
Typical Qualifications:
- Credit score typically 680+ required
- 20-25% down payment or existing equity
- Detailed construction plans and approved permits
- Qualified contractor with proper CA licensing
- Debt-to-income ratio under 43%
- Cash reserves for cost overruns
Unsecured loan not tied to your home equity. No collateral required, making it faster to obtain but with higher interest rates. Best for smaller ADU projects or gap financing when you need additional funds quickly.
Rate Range
12.0% - 18.0%
FixedTerm
3-7 years
Timeline
Approval: 1-2 weeks
Typical Fees
$0 - $500
Closing Costs
None
Benefits
- No home equity required - unsecured loan
- Fast approval process (1-2 weeks)
- No appraisal or closing costs
- Home not at risk as collateral
- Fixed monthly payments
- Can be used for any project expenses
Considerations
- Higher interest rates than secured loans (12-18%)
- Lower loan amounts - typically $65,000 maximum
- Shorter repayment terms (3-7 years)
- Higher monthly payments due to shorter term
- Credit score heavily impacts rate and approval
- Not ideal for large ADU projects
Best For:
LA homeowners with limited equity, excellent credit, or those needing gap financing for smaller ADU projects under $65K. Also useful for covering unexpected costs or finishing touches.
Typical Qualifications:
- Credit score typically 680+ required (720+ for best rates)
- Debt-to-income ratio under 40%
- Stable income and employment history (2+ years)
- No home equity required
- Proof of income and employment
Home Equity Line of Credit (HELOC)
Revolving credit line secured by your home's equity as a second position loan behind your primary mortgage. Draw funds as needed during construction and pay interest only on what you use.
Rate Range
7.5% - 10.5%
VariableTerm
10-30 years
Timeline
Approval: 3-10 days
Typical Fees
$0 - $500
Typical Closing Costs
Minimal to none
Benefits
- Most flexible option - draw only what you need when you need it
- Pay interest only on funds used
- Lower initial costs than refinancing
- Reusable credit line after paydown
- Keep existing mortgage rate
Considerations
- Variable interest rates (can increase)
- Second lien position (subordinate to first mortgage)
- Home serves as collateral
- May have annual fees
Best For:
LA homeowners who want flexibility, need quick access to funds, have stable income, and want to keep their existing low mortgage rate
Typical Qualifications:
- Credit score typically 680+ required
- Debt-to-income ratio under 43%
- Combined loan-to-value (CLTV) typically under 85%
- Proof of income and employment
- Property appraisal required
Home Equity Loan (HELOAN)
Fixed-rate loan secured by your home's equity as a second position loan. Receive a lump sum upfront with predictable monthly payments over a set term, typically 5-30 years.
Rate Range
8.0% - 11.0%
FixedTerm
5-30 years
Timeline
Approval: 1-3 weeks
Typical Fees
$500 - $2,000
Typical Closing Costs
2% - 5% of loan
Benefits
- Fixed interest rate for predictable payments
- Lump sum disbursement at closing
- Keep existing mortgage rate
- Lower rates than personal loans or credit cards
- Tax-deductible interest (if used for home improvement)
- Second position loan - doesn't replace your mortgage
Considerations
- Less flexible than HELOC - can't redraw funds
- Second lien position (subordinate to first mortgage)
- Home serves as collateral
- May have closing costs
- Fixed payment regardless of project needs
Best For:
LA homeowners who prefer fixed rates, know exact project costs, want predictable payments, and want to keep their existing mortgage
Typical Qualifications:
- Credit score typically 680+ required
- Debt-to-income ratio under 43%
- Combined loan-to-value (CLTV) typically under 85%
- Proof of income and employment
- Property appraisal required
Cash-Out Refinance
Refinance your existing mortgage for more than you owe and use the cash for ADU construction. This becomes your new first position loan, replacing your current mortgage entirely.
Rate Range
7.5% - 9.5%
FixedTerm
15-30 years
Timeline
Approval: 3-6 weeks
Typical Fees
$2,000 - $5,000
Typical Closing Costs
2% - 5% of loan
Benefits
- Access large amounts of capital
- Potentially lower interest rates than other options
- Tax-deductible interest
- Single monthly payment (replaces existing mortgage)
- First position loan with better rates
Considerations
- Closing costs typically 2-5% of loan amount
- Risk losing home if unable to pay
- Requires sufficient home equity (typically 20%+)
Best For:
LA homeowners with significant equity and favorable refinance rates compared to their current mortgage
Typical Qualifications:
- Credit score typically 620+ (680+ for best rates)
- Debt-to-income ratio under 43%
- At least 20% equity remaining after cash-out
- Stable income and employment history
- Property appraisal required
Renovation / Home Improvement Loans
Specialized loans designed for home improvement projects like ADU conversions or additions. Ideal for converting existing space such as garages, basements, or adding onto your home.
Rate Range
8.0% - 11.0%
FixedTerm
15-30 years
Timeline
Approval: 4-8 weeks
Typical Fees
$1,000 - $3,000
Typical Closing Costs
2% - 4% of loan
Benefits
- Designed specifically for home improvements
- May include project management support
- Competitive rates for qualified borrowers
- Flexible terms based on project scope
- Can finance up to 100% of project costs
Considerations
- Requires detailed project plans and permits
- May need contractor estimates upfront
- Credit score requirements vary by lender
- Loan amounts may be limited by property value
Best For:
LA homeowners converting existing space (garage, basement) or adding onto their home rather than building new
Typical Qualifications:
- Credit score typically 620+ (varies by lender)
- Debt-to-income ratio under 43%
- Detailed renovation plans and contractor estimates
- Proof of income and employment
- Property must meet minimum value requirements
Construction Loans
Short-term loans specifically for ground-up construction of new structures like detached ADUs. Funds are released in stages as construction progresses, and the loan typically converts to permanent financing after completion.
Rate Range
9.0% - 13.0%
Variable then FixedTerm
12-18 months construction, then 15-30 years
Timeline
Approval: 6-10 weeks
Typical Fees
$2,000 - $5,000
Typical Closing Costs
3% - 6% of loan
Benefits
- Designed specifically for new construction
- Interest-only payments during build phase
- Funds released in stages (draws) as work progresses
- Can convert to permanent mortgage after completion
- Lender oversight ensures quality construction
Considerations
- Higher interest rates than traditional mortgages
- Requires detailed construction plans and permits
- Stricter qualification requirements
- Requires experienced, licensed contractor
- Longest approval timeline of all options
Best For:
LA homeowners undertaking complex ground-up construction projects that will take 12+ months to complete. This is the most complex financing option and requires extensive documentation, higher qualifications, and longer approval times.
Typical Qualifications:
- Credit score typically 680+ required
- 20-25% down payment or existing equity
- Detailed construction plans and approved permits
- Qualified contractor with proper CA licensing
- Debt-to-income ratio under 43%
- Cash reserves for cost overruns
Personal Loan
Unsecured loan not tied to your home equity. No collateral required, making it faster to obtain but with higher interest rates. Best for smaller ADU projects or gap financing when you need additional funds quickly.
Rate Range
12.0% - 18.0%
FixedTerm
3-7 years
Timeline
Approval: 1-2 weeks
Typical Fees
$0 - $500
Typical Closing Costs
None
Benefits
- No home equity required - unsecured loan
- Fast approval process (1-2 weeks)
- No appraisal or closing costs
- Home not at risk as collateral
- Fixed monthly payments
- Can be used for any project expenses
Considerations
- Higher interest rates than secured loans (12-18%)
- Lower loan amounts - typically $65,000 maximum
- Shorter repayment terms (3-7 years)
- Higher monthly payments due to shorter term
- Credit score heavily impacts rate and approval
- Not ideal for large ADU projects
Best For:
LA homeowners with limited equity, excellent credit, or those needing gap financing for smaller ADU projects under $65K. Also useful for covering unexpected costs or finishing touches.
Typical Qualifications:
- Credit score typically 680+ required (720+ for best rates)
- Debt-to-income ratio under 40%
- Stable income and employment history (2+ years)
- No home equity required
- Proof of income and employment
Understanding Rates & Accessibility
Lower advertised rates on complex products like Construction or Renovation Loans don't always mean easier qualification or lower total costs. These products require more documentation, higher credit scores, longer approval times, and often have higher fees. Interest rates vary based on your credit score (680+ vs 740+), available equity (LTV ratio), lien position (first vs second), property use, debt-to-income ratio, and current market conditions. HELOC and HELOAN offer the fastest approval and most flexible qualification requirements, making them the best choice for most LA homeowners building ADUs.
Where to Apply
HELOC & HELOAN
Available at regional banks, credit unions, and online lenders throughout Los Angeles County. These are the most accessible options with fastest approval times.
Cash-Out Refinance
Available at major banks, credit unions, and mortgage lenders. Best when refinancing at a lower rate than your current mortgage.
Renovation Loans
Available at regional banks, credit unions, and online mortgage lenders. Ideal for garage conversions and home additions.
Construction Loans
Available at regional banks, credit unions, and construction loan specialists. Required for ground-up detached ADU construction.
Personal Loans
Available at banks, credit unions, and online lenders like SoFi, LightStream, Marcus by Goldman Sachs, and Discover. Best for smaller projects or gap financing when you need additional funds quickly.
Need a referral? ADU Build Pros can connect you with trusted lenders in our network who specialize in ADU financing and understand the unique requirements of these projects.
How Financing Affects Your ROI
Adjust the numbers below to see how different financing options impact your monthly cash flow and return on investment.
Adjust Your Project Details
Cash Annual ROI (No Financing)
If you paid cash for the entire project
Annual Return
HELOC (Variable)
Annual ROI Range
HELOAN (Fixed)
Annual ROI Range
Cash-Out Refi
Annual ROI Range
Understanding the Numbers
These calculations show ranges based on the low and high interest rates for each financing option, assuming a 30-year term. The lower end represents the best-case scenario (lowest rate), while the higher end represents the worst-case scenario (highest rate). Your actual ROI will vary based on your specific loan terms, rental rates in your area, property taxes, insurance, and maintenance costs.
Which Option Matches Your Situation?
Find the financing option that best fits your specific circumstances and goals.
Strong Equity, Low Current Mortgage Rate
HELOC or HELOANKeep your low mortgage rate and tap equity as a second lien
High Current Mortgage Rate
Cash-Out RefinanceLower your rate while accessing equity in one transaction
Need Flexibility, Quick Access
HELOCFastest approval, draw only what you need when you need it
Want Predictable Payments
HELOAN or Cash-Out RefinanceFixed rates mean stable monthly payments throughout the loan term
Building New Detached ADU
Construction LoanDesigned for ground-up construction and great for projects that are 1 Year to 1.5 Years
Converting Existing Space
Renovation Loan or HELOCFlexible options for garage conversions and home additions
Limited Equity or Quick Funding
Personal LoanFast approval and no collateral required, ideal for smaller projects or gap financing
Financing Process
Follow these steps to secure the best financing for your ADU project.
Check your credit, income, and available equity to see what you can qualify for.
Compare available loan types and run your own ROI estimate to see which product best fits your project.
Submit your application, lock your rate, and start your ADU construction with confidence.
Get Ready
Check your credit, income, and available equity to see what you can qualify for.
Explore Options
Compare available loan types and run your own ROI estimate to see which product best fits your project.
Get Approved & Build
Submit your application, lock your rate, and start your ADU construction with confidence.
Calculate Your ADU Investment Return
Use our ROI calculator to see how quickly your ADU will pay for itself with rental income.
Need Help Choosing the Right Financing?
Our financing experts can help you navigate your options and find the best solution for your situation.