How do you finance an ADU in California?
Many California homeowners pay for an accessory dwelling unit (ADU) with home equity, through a HELOC, a home equity loan, or a cash-out refinance, or with a renovation loan that is sized on the home's value after the work. The right fit depends on your current mortgage, your equity, and the project budget. Turn Times, a licensed mortgage broker (NMLS #2099552), compares options from participating wholesale lenders for California homeowners.
Key facts
- California law allows ADUs and junior ADUs (JADUs), and cities and counties apply state ADU law through local rules and permits. The state housing department publishes an ADU Handbook. (California HCD: Accessory Dwelling Units)
- A HELOC lets you draw funds as the project moves forward. A home equity loan pays one lump sum. Both usually sit behind your first mortgage as a second lien. (CFPB: HELOC vs. home equity loan)
- A cash-out refinance replaces your first mortgage with a larger loan, so it changes the rate and terms on your whole balance.
- Renovation loans, such as Fannie Mae's HomeStyle Renovation, can use an "as-completed" appraisal, and Fannie Mae lists ADUs among eligible projects. (Fannie Mae: HomeStyle Renovation) FHA's 203(k) program also finances eligible repairs and improvements. (HUD: 203(k))
- Lenders set their own rules on whether, and how, expected rent from an ADU can be counted as income.
- Turn Times may charge an origination fee. All fees are disclosed on your Loan Estimate.
Four ways to pay for an ADU
| Option | How funds arrive | Effect on your first mortgage | Often considered when | |---|---|---|---| | HELOC | Draw as needed during the draw period | Stays in place | You want to keep your current first mortgage and pay contractors in stages | | Home equity loan | One lump sum | Stays in place | You have a fixed bid and want a set repayment schedule | | Cash-out refinance | One lump sum at closing | Replaced by a new, larger loan | Your current rate and terms are not ones you want to keep | | Renovation loan | Held and released as work is completed | Replaced (refinance) or created (purchase) | Your current equity is limited and the lender sizes the loan on the finished value |
Availability, terms, and limits vary by lender, property, and occupancy. Ask which options participating lenders offer for your project.
Steps before you apply
- Check local rules. Confirm setbacks, size, parking, utility connections, and permit steps with your city or county, using the state's ADU Handbook as a starting point.
- Get plans and written bids. Lenders may ask for plans, a contractor agreement, a budget, and permits, especially for renovation loans.
- Estimate your equity. Your home's value, what you owe, and the lender's combined loan-to-value limit set the ceiling. See how much you can borrow with a HELOC. Our home value estimator is a starting point only.
- Compare the options side by side. See HELOC vs. home equity loan and HELOC vs. cash-out refinance.
- Line up timing with your build schedule. Timelines vary by lender, property, appraisal, and underwriting.
Self-employed or building to rent?
If your income is hard to document with tax returns, ask about bank statement HELOC options. If the ADU is on a rental property you don't live in, the options and limits are different; see HELOCs on investment properties and DSCR loans in California and Colorado.
Colorado homeowners: ADU rules are set locally, so check with your city or county first. The financing options above work the same way; see home equity options in California and Colorado.
Local pages: Orange County · Los Angeles · San Diego · Inland Empire · Sacramento · Home equity options · Cash-out refinance · Licensing and disclosures
This is general education. Terms, available amounts, and eligibility are set by each lender.
Common questions
Can I use a HELOC to build an ADU?
Yes, many homeowners use a HELOC for an ADU because they can draw funds as the work progresses. The line amount depends on your equity and the lender's limits and underwriting.
Can expected ADU rent count as income for my loan?
It depends on the lender and the program. Some lenders consider rent from an existing or planned unit under specific conditions, and others do not count it.
Do I need permits before I apply for ADU financing?
Not always to apply, but lenders often ask for plans, bids, and permits before they release funds, especially for renovation loans. Check local permit steps first.
How do I choose between a cash-out refinance and a HELOC for an ADU?
Compare the terms on your current first mortgage, the amount you need, and how you want to receive funds. A HELOC keeps your first mortgage; a cash-out refinance replaces it.
Does Turn Times build ADUs or lend the money?
No. Turn Times is a licensed mortgage broker, not a lender or a builder. The lender you choose underwrites, approves, and funds the loan.
Next step
Planning an ADU on a California home? Schedule a Loan Options Consultation at /schedule or call 844-999-8876 to compare how participating lenders would look at your project. A consultation is a no-obligation educational conversation, not a credit decision.
Sources
- California Department of Housing and Community Development: Accessory Dwelling Units
- CFPB: What is the difference between a home equity loan and a HELOC?
- CFPB: What is a home equity line of credit (HELOC)?
- CFPB: What is a loan-to-value ratio?
- Fannie Mae: HomeStyle Renovation
- HUD: 203(k) Rehabilitation Mortgage Insurance
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