Most homeowners in Los Angeles finance an ADU with home equity: a home equity line of credit (HELOC), a home equity loan, or a cash-out refinance, and those who do not have the equity yet use a renovation loan or a construction loan that lends against the value of the property with the ADU finished. Green Design and Build is a licensed general contractor (CSLB #1110975) based in Van Nuys, not a lender; we build detached ADUs, garage conversions, attached ADUs and junior ADUs for homeowners across Los Angeles County, Orange County, Ventura County, western Riverside County and western San Bernardino County (Ontario, Rancho Cucamonga and neighbouring cities), and this guide explains the financing paths Los Angeles homeowners use so you know what to ask a lender for. Our published Los Angeles budgeting estimates run from $100,000 to $200,000 for a garage conversion ADU to $300,000 to $450,000 or more for a 1,000-square-foot detached unit; these are typical budgeting estimates, not a price list or a quote, and your project can come in lower or higher.
We are led by Dekel Sofer. We hold a 4.7-star rating across 146 Yelp reviews and have completed hundreds of projects across all five counties. Green Design and Build offers financing programs through Synchrony, Service Finance and Home Run Financing; terms depend on the lender and credit approval, and the details are on our financing page.
How much are you financing?
The loan has to fit the project, so start with the number. The ranges below are the ones published on our homepage and on our ADU cost guide.
| ADU type and size | Typical Los Angeles budgeting estimate |
|---|---|
| Garage conversion ADU | $100,000–$200,000 |
| Detached ADU, about 500 sq ft | $180,000–$260,000 |
| Detached ADU, 700–800 sq ft | $225,000–$350,000 |
| Detached ADU, about 1,000 sq ft | $300,000–$450,000+ |
| Rule of thumb, new construction | $300–$450 per sq ft all-in |
| Difficult lots (hillside, poor access, long utility runs) | $500+ per sq ft |
These are typical Los Angeles budgeting estimates, not a price list or a quote. Your project can come in lower or higher depending on the house, the scope and the finishes; the only real number is a written proposal after a site visit.
Two adjustments matter for the loan amount. First, our ADU cost guide recommends a contingency of 15 to 20 percent above the accepted bid; on the 600-square-foot detached ADU retold there, a $180,000 budget finished near $265,000 after a $14,000 sewer reroute, a $6,000 to $8,000 panel upgrade and about $30,000 of finish upgrades the owners chose after framing. Borrow the contingency up front; a HELOC you do not draw costs little, and a second loan mid-project costs time. Second, include the soft costs that come before construction: design, engineering, Title 24, plan check and permit fees, and any soils report. Our post on why ADU quotes vary so much between contractors explains what a complete quote includes, and our pricing page collects every range we publish.
ADU financing options compared
| Option | What it is | Best for | Watch for |
|---|---|---|---|
| HELOC | A revolving line secured by your home’s equity; draw what you need, when you need it, usually at a variable rate | Owners with substantial equity who want to pay the contractor as milestones complete | Variable rate; draw period followed by a repayment period; the lender caps the line at a percentage of your current value |
| Home equity loan | A fixed-sum second mortgage at a fixed rate, funded in one lump sum | Owners who want a predictable payment and know the full budget | You pay interest on the whole amount from day one, even before construction starts |
| Cash-out refinance | A new first mortgage larger than your current one; you take the difference in cash | Owners whose existing rate is close to today’s rates, or who want one payment | Replaces your existing mortgage rate; closing costs on the full loan, not just the cash out |
| Renovation loan (FHA 203(k), Fannie Mae HomeStyle Renovation) | A purchase or refinance mortgage that includes the construction cost, underwritten on the as-completed value | Owners with limited current equity, buyers planning an ADU at purchase | Lender-managed draws, inspections and paperwork; contractor and plans must be approved before closing |
| Construction loan | A short-term loan funded in draws as work is completed, often converted to a permanent mortgage at the end | Larger detached units where current equity will not cover the budget | Interest-only during construction; draw inspections; typically higher rates and fees than equity products |
| Personal loan or contractor financing | Unsecured loan, or a program offered through lenders the contractor works with | Smaller scopes, bridging a gap, or owners who do not want a lien on the house | Shorter terms and higher rates than secured loans; amounts are usually smaller than an ADU budget |
| Cash and savings | No loan | Owners who have it, or a phased scope | Keep the contingency in reserve; do not fund the last 20 percent from money you have not got |
Which one is right depends on your equity, your existing mortgage rate, your income and how fast you need the funds. We describe how each works below without rates, because rates change and lenders differ.
HELOC
A HELOC is the financing path homeowners use most often for an ADU because it matches how a construction contract is paid: in stages. You draw against the line as each progress payment comes due and pay interest only on what you have drawn. The lender sets the line as a percentage of your home’s appraised value minus your first mortgage, so an owner of a 1960s Valley house bought a decade ago usually has room; an owner who bought in the last two years may not. Most HELOCs carry a variable rate and a draw period followed by a repayment period, so ask what the payment looks like once the draw period ends.
Home equity loan
A home equity loan is a second mortgage for a fixed amount at a fixed rate, funded in a lump sum. It suits an owner who wants a payment that does not move and a budget already settled by a site walk and a written proposal. The trade-off is interest on the full amount from closing, including money that sits in the bank for months waiting for plan check.
Cash-out refinance
A cash-out refinance replaces your existing mortgage with a larger one and hands you the difference. It only makes sense when the new rate is close to the one you have; an owner with a low-rate mortgage from a few years ago usually keeps it and adds a second lien instead. It does give you one payment and a fixed rate on the whole balance.
Renovation loans: FHA 203(k) and Fannie Mae HomeStyle Renovation
Renovation loans are the route for homeowners who do not have the equity today but will once the ADU exists, because the lender underwrites against the as-completed appraised value. The FHA 203(k) program lets homebuyers and homeowners finance repairs and improvements into the mortgage; the Limited 203(k) is capped at $75,000 of improvement cost, so an ADU usually needs the Standard 203(k). Since October 2023, FHA has allowed lenders, for some borrowers, to count 50 percent of the estimated rental income from a new ADU the borrower plans to add under a Standard 203(k) toward qualifying, and 75 percent of the estimated rent from an existing ADU. Fannie Mae’s HomeStyle Renovation mortgage lets a borrower “purchase a property or refinance an existing loan and include funds in the loan amount to cover the costs of repairs, remodeling, renovations, or energy improvements,” and Fannie Mae’s guide states it may be used to construct accessory units where local zoning allows. Both programs require plans, a contractor the lender accepts and a cost breakdown before closing, and both pay the contractor through lender-controlled draws with inspections. Ask the lender specifically whether the loan can be used for a detached ADU on your lot and how ADU rental income is treated in qualifying; the rules differ by program and lender.
Construction loans
A construction loan funds the build in draws tied to completed work, with interest-only payments during construction, and usually converts to a permanent mortgage when the ADU is finished. It is the tool for a larger detached unit when equity will not cover the budget and a renovation loan does not fit. Expect the lender to require the full plan set, the building permit, our written proposal and schedule, and an inspection before each draw, so design and permitting should be well along before you apply; our guide to how long an ADU takes shows where in the calendar that is.
Personal loans and contractor financing
Unsecured personal loans close fast and put no lien on the house, but the amounts and terms rarely fit a full ADU budget; they are more often used for a contingency or the last stretch of a phased project. Green Design and Build offers financing programs through Synchrony, Service Finance and Home Run Financing; terms depend on the lender and credit approval. We do not set the rates and we cannot promise approval.
Cash
Paying cash avoids interest and closing costs, but it removes the discipline a lender’s draw schedule imposes. Keep the 15 to 20 percent contingency in a separate account and pay on the same milestone schedule you would with a lender.
How the contract and the draw schedule shape your payments
Whatever loan you use, California law fixes the shape of the payments. Under Business and Professions Code section 7159, a home improvement contract must state that “the downpayment may not exceed $1,000 or 10 percent of the contract price, whichever is less,” and that “it is against the law for a contractor to collect payment for work not yet completed, or for materials not yet delivered.” Change orders become part of the contract only when written and signed by both parties before the work starts. So a legitimate ADU contract in Los Angeles has a small deposit, progress payments tied to milestones such as foundation, framing, rough inspections, drywall and final, and written change orders for anything discovered along the way.
For financing, three things follow:
- Your loan has to fund in stages. A HELOC or a construction loan does that natively. A home equity loan or cash-out refinance funds once, so the money sits until each milestone; a renovation loan funds through the lender’s own draw process, which you and we both follow.
- Milestones drive interest. On a HELOC, a project that finishes in seven months costs less interest than the same project at twelve; on a lump-sum loan the interest clock runs regardless. Read the schedule in our ADU timeline guide with the loan in hand.
- Change orders need funded money behind them. On the $180,000 project that finished at $265,000, every increase was a written change order for a real condition or a real upgrade. An owner with the contingency in the HELOC approves a change order in a day; an owner who has to go back to the lender waits, and the crew waits with them.
Does the rent pay for the loan?
For a rental ADU the question is whether the rent covers the payment. The honest way to answer it is arithmetic with your own lender’s payment figure, not a number from a contractor’s brochure. Our ADU rental income guide puts HUD’s FY 2026 Fair Market Rents for each county against typical build costs.
- Start with realistic rent. The U.S. Department of Housing and Urban Development publishes Fair Market Rents for Los Angeles County by bedroom count each year at https://www.huduser.gov/portal/datasets/fmr.html; those figures are a conservative floor for a new studio or one-bedroom, and a local property manager will give you a market figure for your neighbourhood.
- Subtract what the tenant does not pay. Vacancy, the ADU’s share of property tax, insurance, maintenance and any utilities you keep in your name. Most ADUs share the house’s water, sewer and panel, so decide early whether you want a separate electric meter for the tenant.
- Compare net rent to the loan payment. If net monthly rent covers the payment on the loan you actually used, the unit carries itself; if not, the gap is the price of the space, the family use or the long-term value.
- Count the property-tax change correctly. Building an ADU in California does not trigger a reassessment of the existing house; the county assessor values the new construction as of completion and adds only that amount as a supplemental assessment, so your Proposition 13 base on the main house stays where it is.
- Ask about rental income in qualifying. Some FHA and conventional programs let a lender count a portion of projected or existing ADU rent toward your income; the percentages and conditions differ by program, so raise it in the first conversation.
State law bars a city from requiring owner occupancy for a standard ADU, and rentals of state-exemption ADUs and JADUs must be for terms longer than 30 days, so plan on a lease rather than a short-term rental.
What lenders will ask us for
Every lender that funds construction wants the same package, and we prepare it as part of the project: a written feasibility summary from the site walk with the budgeting range; the plan set, engineering and building permit; an itemized proposal with allowances, exclusions, the progress-payment schedule and the change-order procedure required by section 7159; our licence, bond and insurance details (verify CSLB #1110975 on the CSLB site); and a construction schedule with milestones the lender can tie draws to. Renovation and construction lenders may also require lien releases at each draw and an inspection before funds are released.
Choosing the right ADU financing
- Plenty of equity and a low existing mortgage rate: HELOC, or a home equity loan if you want a fixed payment.
- Existing rate close to today’s rates: compare a cash-out refinance against a HELOC on total cost, not just the rate.
- Thin equity but a property that will appraise well when finished: a renovation loan (Standard 203(k) or HomeStyle Renovation) or a construction loan; if you are buying the house now, a renovation loan at purchase covers both in one closing.
- Most of the money and a small gap: contractor financing or a personal loan for the gap.
- Unsure the unit pencils out: do the rent arithmetic above first, and consider a garage conversion at the bottom of the budget range before a detached unit at the top.
We are a builder, not a lender or a financial adviser, and the right loan depends on facts about your finances we do not see. Talk to at least two lenders, bring our feasibility summary, and ask each for the total cost of the loan over the life of the project, not the rate alone.
Where we do this work
Financing an ADU works the same across our service area; the budget it has to cover does not. Inside the City of Los Angeles and the San Fernando Valley, a detached unit can use an LADBS pre-approved standard plan and older Valley houses usually need the 200-amp panel upgrade in the budget. In Orange County and Ventura County, each city runs its own building division and HOA review in master-planned communities adds time, so a HELOC in place before design starts avoids paying interest on idle money. In western Riverside County and western San Bernardino County, newer houses in Corona, Ontario and Rancho Cucamonga tend to have larger lots and 200-amp service already, which keeps a detached unit nearer the bottom of its range. See all of our service areas.
ADU financing FAQs
How much does it cost to build an ADU in Los Angeles?
A garage conversion ADU in Los Angeles typically runs $100,000 to $200,000, a detached ADU of about 500 square feet $180,000 to $260,000, and a detached unit of about 1,000 square feet $300,000 to $450,000 or more, with new construction at roughly $300 to $450 per square foot all-in. These are typical Los Angeles budgeting estimates, not a price list or a quote; a real project can come in lower or higher, and the only real number is a written proposal after a site visit.
What is the best way to finance an ADU?
For most Los Angeles homeowners with equity, a HELOC is the best fit for financing an ADU because you draw funds as each progress payment comes due and pay interest only on what you have used. A home equity loan or cash-out refinance suits owners who want a fixed payment, and a renovation or construction loan suits owners whose equity will not cover the budget until the ADU is finished. The right choice depends on your equity, your existing mortgage rate and your income, so compare at least two lenders.
Can I use an FHA 203(k) loan to build an ADU?
Yes, an FHA Standard 203(k) loan can finance an ADU as part of a purchase or refinance, with the improvement cost included in the mortgage; the Limited 203(k) is capped at $75,000 of improvements, which is below most ADU budgets. Since October 2023, FHA has let lenders count, for some borrowers, 50 percent of the estimated rental income from a new ADU built under a Standard 203(k) toward qualifying. The lender approves the plans and the contractor before closing and pays for the work through inspected draws.
Does Green Design and Build offer financing for ADUs?
Green Design and Build offers financing programs through Synchrony, Service Finance and Home Run Financing; terms depend on the lender and your credit approval. We are a builder, not a lender, so we cannot promise approval or quote a rate. For a full ADU budget most homeowners use home equity, a renovation loan or a construction loan, and we provide the feasibility summary, plans, proposal and schedule those lenders require.
How much can I put down on an ADU contract in California?
Under California Business and Professions Code section 7159, the down payment on a home improvement contract may not exceed $1,000 or 10 percent of the contract price, whichever is less, and a contractor may not collect payment for work not yet completed or materials not yet delivered. The rest of an ADU contract is paid in progress payments tied to milestones, which is why a loan that funds in stages, such as a HELOC or construction loan, matches the contract well.
Will building an ADU raise my property taxes?
Building an ADU in California adds the assessed value of the new construction to your property tax bill but does not trigger a reassessment of your existing house and land, so your Proposition 13 base on the main home stays where it is. The county assessor values the ADU as of completion and bills the difference as a supplemental assessment. The Los Angeles County Assessor publishes ADU guidance and can estimate the effect for your project.
Get the numbers your lender will ask for
Before you apply for anything, we will walk your lot, camera the sewer, check the panel and give you a written feasibility summary with a budgeting range, a phase schedule and the itemized proposal that HELOC, renovation and construction lenders require. The site visit and the estimate are free.