Funding Strategy

ADU Financing & Budget Guide

Compare lending products, cost stacks, and payback timelines so you can greenlight the right accessory dwelling budget.

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Financing comparison

Pick the capital stack that matches your equity position and project goals

ProductBest forRate snapshotNotes
HELOC or home equity loanOwners with strong equity and lower loan-to-value ratiosPrime + 1.0%–2.5%Interest-only draw periods keep payments light during construction; expect variable rates and liens on the primary home.
Renovation loan (Fannie Mae Homestyle / FHA 203k)Borrowers wanting one mortgage that wraps purchase + ADU improvementsFixed 30-year (conforming + renovation adders)Requires HUD consultant, detailed scope, and draws tied to inspections—ideal when buying a property and adding an ADU right away.
Construction-to-perm loanGround-up detached ADUs or multi-phase projectsFixed or adjustable; converts to permanent mortgage at completionCovers soft costs, permits, and builder draws with one closing. Underwriting scrutinizes plans, budget, and contractor credentials.

Budget building blocks

Line items every ADU budget should include

PhaseTypical spendWhat it covers
Feasibility + design$12,000 – $28,000Site analysis, surveys, architectural plans, structural, Title 24, interior specs.
Permitting + fees$6,000 – $18,000LADBS plan check, school fees, utility upgrades, impact fees where applicable.
Construction hard costs$225 – $425 / sq. ft.Foundation, framing, MEP trades, finishes, site work.
Contingency10% – 15% of totalCovers escalation, change orders, or utility surprises.

Lender readiness checklist

  • ✔ Two years of tax returns + YTD profit & loss for self-employed borrowers.
  • ✔ Current mortgage statement and insurance declarations page.
  • ✔ Signed construction contract or builder bid with detailed schedule of values.
  • ✔ Line-item budget with allowances for appliances, landscape, and inspections.
  • ✔ Rental income pro forma if you plan to offset payments with tenant revenue.

Pro tips

  • ✔ Lock rate once permits are in hand to avoid extension fees.
  • ✔ Budget 60–75 days for construction-to-perm underwriting; HELOCs can close in ~30 days.
  • ✔ Ask lenders about ADU rental income credit—many count 75% of projected rent toward debt ratios.
  • ✔ Layer local incentives (CalHFA grants, utility rebates) on top of traditional loans for better ROI.

Cash-flow scenarios

Sample rent-back periods using conservative LA lease rates

ScenarioTurn-key costConservative rentGross yield / payoff
Detached 750 sq. ft. ADU$310,000$3,200/mo11.6% gross yield; ~8-year payoff with rent only.
Garage conversion 450 sq. ft.$185,000$2,150/mo13.9% gross yield; HELOC interest-only payment often < $1,000/mo.
Two-story 1,000 sq. ft. ADU$420,000$3,900/mo11.1% gross yield; additional equity upside in resale comps.

Need help modeling funding?

We prep lender-ready budgets, connect you with ADU-friendly banks, and pressure-test rent assumptions.

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Resource Library

More ADU planning guides

Use these deep dives to explore financing, scope, and cost decisions before we submit your plans.

Resource

Los Angeles ADU Permitting Checklist

Every milestone, document, and owner action needed to secure LADBS approval for a Los Angeles accessory dwelling unit.

Read guide

Resource

Garage Conversion Cost Breakdown

Understand structural upgrades, envelope work, and finish allowances before turning an LA garage into an ADU.

Read guide