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Quick Answer
California homeowners usually pay for an ADU with a HELOC, a construction loan, a cash-out refinance, a renovation loan or savings. Each fits a different situation. A HELOC works well if you have lots of equity. A cash-out refi can make sense if your current rate is high. State grant funding has been paused, so don’t count on it without checking first.
Key Takeaways
- Compare total cost, not just the interest rate.
- A HELOC is flexible but often has a variable rate.
- A cash-out refi replaces your current mortgage.
- Construction loans pay out in stages as work finishes.
- The CalHFA grant has been paused. Check the official page.
- Get your budget and scope fixed before you apply.
Know Your Budget First
Before you talk to a lender, know what you’re building. Lenders want a scope, plans and a cost estimate.
Many Chino Hills ADUs cost between $180,000 and $300,000. Garage conversions often cost less. Our guide on the real cost of a garage conversion ADU can help you compare.
Also read our ADU construction guide for 2026 for costs, permits and design ideas.
Five Ways to Pay for an ADU
1. HELOC (Home Equity Line of Credit)
A HELOC lets you borrow against your equity. You draw money as you need it.
Good for: Owners with lots of equity and a low-rate first mortgage. Watch out for: Variable rates and payments that can rise.
2. Home Equity Loan
You get a lump sum with a fixed rate. Payments stay the same.
Good for: Owners who want predictable payments. Watch out for: You pay interest on the full amount right away.
3. Construction Loan
A construction loan pays out in stages as work is finished. Some convert to a regular mortgage when the build is done.
Good for: Owners with a solid contractor and a detailed budget. Watch out for: Inspections, draw schedules and more paperwork.
4. Cash-Out Refinance
You replace your mortgage with a bigger one and take the difference in cash.
Good for: Owners whose current rate is higher than today’s market rate. Watch out for: You may lose a low rate. Closing costs also apply.
5. Renovation Loans
Some loans, such as certain FHA and Fannie Mae renovation products, roll the cost of work into one mortgage. Availability and rules depend on the lender and the project.
Good for: Owners who want one loan for the home and the build. Watch out for: Not every lender offers these for ADUs. Ask early.
Side-by-Side Comparison
Option | How You Get Paid | Rate Type | Best For | Main Risk |
HELOC | Draw as needed | Usually variable | Owners with high equity | Rising payments |
Home equity loan | Lump sum | Usually fixed | Predictable budgets | Interest on the full amount |
Construction loan | Staged draws | Varies | Larger, planned builds | Paperwork and inspections |
Cash-out refinance | Lump sum at closing | Fixed or adjustable | High current mortgage rate | Losing a low rate |
Renovation loan | Staged or combined | Varies | One-loan simplicity | Limited lender options |
Cash or savings | Pay as you go | None | Debt-free owners | Using up your reserves |
Ask each lender for the total cost over the loan term. A lower rate can still cost more once fees are added.
What About Grants?
You may have heard about a $40,000 state grant. That’s the CalHFA ADU Grant Program. It reimbursed up to $40,000 in pre-development and closing costs, such as plans, permits and surveys. It didn’t pay for the construction itself.
Did You Know?
The CalHFA ADU Grant has been reported as fully allocated since late 2023, with no open application at last check. Always confirm the current status on the official CalHFA ADU page. Be careful of anyone who says they can get you a grant for a fee.
Some cities and counties offer their own programs. Ask your city planning office what’s available.
Real-World Example
Example scenario: A Chino Hills couple had a 3.0 percent first mortgage and about $400,000 in equity. They wanted a $220,000 ADU.
A cash-out refinance would have replaced their low rate with a higher one. So they chose a HELOC for the build. They also set aside a cushion in case the rate went up.
They kept the low rate on their main loan. The tradeoff was a variable rate on the HELOC.
Mistakes To Avoid
- Applying before you have a scope and a cost estimate.
- Comparing rates only and ignoring fees.
- Giving up a low mortgage rate without running the numbers.
- Forgetting the cost of design, permits and fees.
- Borrowing the exact build cost with no contingency.
- Trusting a “grant” offer that asks for money upfront.
Not sure where to start? Book a consultation and we’ll walk through your budget.
Expert Insight
“Most homeowners ask about the rate first. I’d ask about the first mortgage first. If you have a low rate, protect it. A HELOC or a second loan can cost you less over time than a cash-out refi that replaces your whole mortgage.”
Frequently Asked Questions
What is the best way to finance an ADU in California?
It depends on your equity, your current mortgage rate and your budget. HELOCs and cash-out refinances are common.
Can I get a loan for an ADU before it’s built?
Yes. Construction loans and some renovation loans can use the future value of the finished project.
Is a HELOC a good way to pay for an ADU?
It can be, especially if you have lots of equity. Watch out for variable rates.
Does a cash-out refinance make sense for an ADU?
It may, if your current rate is higher than today’s rates. If you have a low rate, run the numbers first.
Is there a state grant for ADUs in California?
The CalHFA ADU Grant has been paused. Check the official CalHFA page for the latest status.
What does the CalHFA ADU grant cover?
It reimbursed up to $40,000 in pre-development costs, like plans, permits and surveys. It did not cover construction.
Can I use savings to build an ADU?
Yes. Many owners do. Keep some cash in reserve for surprises.
Do I need plans before I apply for financing?
Most lenders want plans, a scope and a contractor estimate.
Are garage conversions easier to finance?
Often, yes. They usually cost less than detached units, which means a smaller loan.
How much contingency should I include?
Plan 10 to 15 percent above your estimate.
