ADUCosts

ADU Financing Guide

Compare rates, terms, and requirements for every ADU financing option — from home equity loans to DSCR investor products.

Compare ADU Financing Options (2026 Rates)

Home Equity Loan (HELOAN)

Homeowners with significant equity who want fixed monthly payments

Rate7.5%–10.5%
Term10–30 years
Min Equity15–20%

Pros

Fixed interest rate
Lump sum upfront
Predictable payments
Lower rates than construction loans

Cons

Requires substantial home equity
Uses your home as collateral
Closing costs 2–5%
Full amount due even if project costs less

HELOC (Home Equity Line of Credit)

Flexible borrowers comfortable with variable rates who want to draw funds as needed

Rate8.0%–11.0% (variable)
Term10-year draw + 20-year repay
Min Equity15–20%

Pros

Only pay interest on what you use
Flexible draw schedule
Reusable credit line
Lower initial payments

Cons

Variable rates can increase
Interest-only period ends
Payment shock risk
Lender can freeze line

Construction Loan

Ground-up builds over $200K that need structured disbursements and inspections

Rate8.5%–12.0%
Term12–18 months (converts to permanent)
Min Equity20–30%

Pros

Funds disbursed in stages
Converts to permanent mortgage
Can finance entire build
Lender oversight reduces risk

Cons

Higher rates
Complex approval process
Requires detailed plans + permits
Draw inspections slow payments
Read full guide

DSCR Loan

Investors and self-employed borrowers who qualify based on rental income, not personal income

Rate7.5%–11.0%
Term30 years fixed
Min Equity20–25%

Pros

No personal income verification
Based on rental income potential
Available for LLCs
No DTI ratio requirement

Cons

Higher rates than conventional
Larger down payment required
Not all lenders offer for ADUs
May require appraisal with rental comp
Read full guide

Cash-Out Refinance

Homeowners with low existing mortgage rates who want to tap equity at scale

Rate6.5%–8.5%
Term15–30 years
Min Equity20%+ after cash-out

Pros

Lowest rates of all options
Large lump sum available
Single mortgage payment
Tax-deductible interest

Cons

Replaces your existing mortgage
Lose low rate if refinancing
Closing costs 2–6%
Longer break-even if current rate is low
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Compare national ADU lenders

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R

RenoFi

Post-construction value lending — ideal for new-build ADUs

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F

Figure

Digital HELOC — funding in as little as 5 days

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L

LendingTree

Compare HELOC and construction loan offers from 50+ lenders

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Which Option Is Right for You?

Do you have 20%+ home equity?

Yes: Home Equity Loan, HELOC, or Cash-Out Refi
No: FHA 203(k), personal loan, or save more equity first

Is your project over $200K?

Yes: Construction Loan or Cash-Out Refi
No: HELOC or Home Equity Loan

Are you self-employed or an investor?

Yes: DSCR Loan (qualifies on rental income)
No: Conventional options above

Do you want fixed monthly payments?

Yes: Home Equity Loan or Cash-Out Refi
No: HELOC (lower initial, variable)

City-Specific Financing Guides

Local lenders, down payment assistance programs, and city-specific loan options:

Los AngelesSan DiegoPortlandSeattleAustinDenverSacramento

Frequently Asked Questions

Can I finance an ADU with no money down?

Very difficult. Most options require 15–30% equity. Some local programs offer low-interest second mortgages for ADU construction (check your city's housing authority). VA loans may allow zero-down for eligible veterans building on their property.

How long does ADU financing approval take?

HELOC: 2–4 weeks. Home Equity Loan: 3–6 weeks. Construction Loan: 4–8 weeks (requires plans and permits). DSCR Loan: 3–5 weeks. Start the process well before construction.

Is ADU financing tax deductible?

Interest on loans used for home improvement (including ADU construction) may be deductible on Schedule A. Once the ADU is rented, mortgage interest becomes deductible on Schedule E as a rental expense. Consult your CPA.

What if my ADU costs more than expected?

This is common — budget 10–20% contingency. HELOCs are most flexible for overruns since you can draw additional funds. Construction loans may require a change order process. Always have a backup funding plan.

In-Depth Finance Guides

Construction Loan Guide

Stage-by-stage disbursements explained

DSCR Loan Guide

Qualify based on rental income

ADU Impact Fees

City-by-city fee breakdown

Utility Hookup Costs

Water, sewer, electric connection fees

Soft vs Hard Costs

Full cost breakdown by category

Permit Fee Breakdown

18-city permit fee database