How to Finance an ADU in California (HELOC, Construction Loans & More)

Most California homeowners finance an ADU by borrowing against the equity in their existing home, most often with a HELOC (home equity line of credit) or a construction-to-permanent loan. You generally don’t need to pay cash, and you don’t need a separate down payment the way you would on a new property purchase. The equity you’ve built is the down payment.

Here’s how the three common paths actually work, and which fits which situation.

The short version: If you have home equity, a HELOC is the most common and flexible way to fund an ADU. If you’d rather lock one rate for the whole build, a construction-to-permanent loan does that. A cash-out refinance makes sense mainly when today’s rates beat your current mortgage.

The three main options

Option	Best when	How it works
HELOC	You have equity and want flexibility	A revolving line against your equity; draw as needed, often interest-only during the build. Most common choice.
Construction-to-Permanent	You want one rate, one closing	A single loan funds the build, then converts to a standard mortgage when the home is finished.
Cash-Out Refinance	Current rates beat your mortgage	Refinance for more than you owe and take the difference as cash.

HELOC, the most common route

A HELOC lets you borrow against your home’s equity as a revolving line of credit. You draw funds as the project needs them and often pay interest-only during construction, which keeps early payments low. It’s flexible and fast to set up if you have meaningful equity. The trade-off is a variable rate, so your payment can move with the market.

Construction-to-permanent, one loan, one closing

This is a single loan that covers the build and then converts into a normal long-term mortgage once the home is complete. You lock terms up front and avoid a second closing. It’s a clean option if you prefer predictability over the flexibility of a line of credit.

Cash-out refinance, replace your mortgage

You refinance your existing mortgage for more than the balance and take the difference in cash to fund the ADU. This works best when current rates are at or below your existing rate; if your current mortgage is at a low rate, refinancing the whole balance to fund an ADU usually isn’t worth it.

What about the cost, and the return?

Framework First ADUs run $180K to $557K, with a permitting budget built into every model, and once your feasibility study confirms your exact permit costs and any property-specific site work, the build itself is a known, fixed number, which makes financing simpler because you are not borrowing against an open-ended bid. Use the ROI calculator to see the monthly payment for any model alongside the rental income and equity it can generate. For many homeowners, the rent more than covers the loan payment.

We don’t lend, but we’ll connect you

Framework First doesn’t finance directly. We work with two ADU-specialized lending partners, Mason Mac and SearchLight Lending, who handle HELOCs, construction loans, and refinances for California homeowners. Once you know which model fits your lot, Cathy can make an introduction. There’s no obligation, and you’re always free to use your own lender.

Frequently asked questions

What is the most common way homeowners pay for an ADU?

Home equity: a HELOC or a cash-out refinance. Construction and renovation loans fill the gap when equity is thin, and some buyers combine sources.

Does Framework First offer financing?

We do not lend directly. We can introduce you to ADU-experienced lending partners, with no obligation, and you are always free to use your own lender.

What happens if my financing falls through?

The $1,000 signup deposit is refundable if financing falls through. The feasibility study fee ($497, or $997 for an empty lot) credits toward your build and is refundable only if your property cannot host an ADU.

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Not sure your lot can host an ADU in the first place? Start with a free property analysis, financing only matters once you know what you can build.