The short answer
Most homeowners pay for an ADU from savings or by borrowing against their home: a cash-out refinance, a home equity loan or line of credit, or a renovation or construction loan that lends on what the property will be worth once the ADU is built. Some mortgages can now count the ADU's rent toward qualifying. Statewide grants are rare: CalHFA's ADU grant has been fully allocated since December 2023.
The main options
| Option | How it works | Watch for |
|---|---|---|
| Cash-out refinance | A new, larger first mortgage replaces the old one; you take the difference in cash. | It resets the rate on the whole balance, which can cost more if your current rate is low. You can borrow only against today's equity. |
| Home equity loan or line of credit (HELOC) | A second loan against your home; your first mortgage stays as it is. | Limited by today's equity. A line of credit usually has a variable rate. |
| Renovation or construction loan | Lends on the value after the ADU is finished (Fannie Mae HomeStyle, Freddie Mac CHOICERenovation or a private construction loan). HUD's FHA 203(k) list covers attached ADUs and renovations; it doesn't list new detached ones. | Draw schedules, inspections, contractor approval and more paperwork. Programs have their own limits. |
| ADU-specific lenders | Private loans based on the value after completion. | Terms aren't standardized: compare fees, draw terms and whether it's a first or second loan. |
| Personal loan | An unsecured loan, with no lien on your home. | Usually smaller amounts at higher cost. |
| Builder financing | Financing arranged through your builder. | Tied to one contractor; compare it with other offers. |
We don't quote rates: they change daily. Compare offers from more than one lender.
Counting the ADU's rent to qualify
- FHA loans: since HUD Mortgagee Letter 2023-17 (October 2023), rent from an ADU can count as income. Without a rental history, the lender uses 75% of the lower of the appraiser's market rent or the lease, and ADU income can be at most 30% of the income you qualify with. It can't be used on a cash-out refinance.
- Fannie Mae: rent from an existing ADU on a one-unit home you live in can count on a purchase or limited cash-out refinance, up to 30% of qualifying income (Selling Guide B3-3.8-02).
- Freddie Mac: on a purchase or no cash-out refinance, up to 75% of the lease amount and 30% of qualifying income; the ADU must be legal under local zoning (ADU fact sheet, February 2026).
Loans that can pay for building one
- Fannie Mae HomeStyle Renovation can pay for building accessory units, with the loan based on an as-completed appraisal (Selling Guide B5-3.2-01).
- Freddie Mac CHOICERenovation can pay for building a new ADU or renovating one, and a no cash-out refinance can pay off short-term financing used to add an ADU.
- FHA 203(k): HUD's list of eligible work includes adding an ADU attached to the house and renovating an existing attached or detached ADU (Mortgagee Letter 2023-17); it doesn't list building a new detached ADU. The smaller Limited 203(k) (up to $75,000) doesn't cover work that needs plans (Mortgagee Letter 2024-13), so an ADU would need a Standard 203(k).
Grants and local programs
- CalHFA ADU Grant: closed. It paid up to $40,000 toward pre-development costs, but the last round was fully allocated in December 2023. CalHFA warns that anyone offering to help you get an ADU grant is running a scam.
- Los Angeles ADU Accelerator: closed to new applications.
- Eaton Fire, Altadena: San Gabriel Valley Habitat for Humanity's Infill ADU Grant, funded by Los Angeles County, offers up to $100,000 to eligible owners who owned and lived in their home in the unincorporated Altadena program area before the fire, under an income limit. The ADU must then be rented for 10 years at a rent the county sets.
- Rebuilding after the 2025 fires: CalHFA's Disaster Rebuilding Assistance Program helps with construction loans for rebuilding homes; ask a participating lender whether an ADU qualifies.
- Ventura County: several cities and the county offer free or pre-approved ADU plans, some with reduced review fees (see pre-approved ADU plans), which lowers the cost, but we found no ADU loans or grants.
Property taxes
Building an ADU is new construction for property taxes. The county assessor adds only the value the ADU adds; your home's existing assessed value doesn't change, and a supplemental tax bill follows completion (Board of Equalization).
Before you borrow
- Get firm builder bids first, including design, permit fees and utility connections, so you borrow the right amount.
- Talk to more than one lender, and ask whether the loan lends on today's value or the value after the ADU is built.
- If you plan to rent the ADU, ask how its rent will be counted.
See also: ADU fees, what ADUs cost in Los Angeles, whether an ADU is worth it, choosing a licensed builder.
General information, not financial advice. Summarized from each agency's published rules as checked on September 29, 2026; lenders apply them and can add their own requirements.
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