Financing
You may not need to pay out of pocket.
Most homeowners fund an ADU with equity they already have. If you’ve owned your home for a few years, the money for your backyard home is likely already sitting under your roof.
Your options
Five ways homeowners fund an ADU.
There’s no single right answer — the best path depends on your equity, your rate, and your timeline. Here’s the landscape in plain English.
Home-equity line of credit (HELOC)
A revolving credit line against your home equity. You draw funds as construction progresses and pay interest only on what you use.
Cash-out refinance
Replace your existing mortgage with a larger one and take the difference in cash — one loan, one payment, funded up front.
Home-equity loan
A fixed lump sum against your equity, repaid on a set schedule. Predictable payments that pair well with a fixed-price build.
Renovation / construction loans
Purpose-built loans for adding a dwelling — including programs that qualify you on your home’s future value with the ADU completed, not just what it’s worth today.
Cash
The simplest path — no lender, no interest, and every dollar of rent goes straight to your return from day one.
Rates and qualifying terms vary by lender and change with the market — we’ll help you compare current options during your free consultation.
Grants & programs
California wants you to build this.
The state has periodically funded programs that put real money toward homeowner ADUs — availability changes, so we track what’s open right now.
In past funding rounds, the state grant covered pre-development costs — design, permits, site prep, and impact fees. Rounds open and close quickly, so we watch them for you and tell you the moment money is on the table.
Local & regional programs
Some cities and counties run their own ADU incentives — fee waivers, pre-approved plans, or low-cost loans. What's available varies city by city, and we know the local landscape.
The authoritative source
The California HCD ADU handbook is the state's official reference for ADU rules and programs. We stay current so you don't have to — and we'll tell you exactly what's available when you're ready.
The math
The rent does the heavy lifting.
Take a 600 sq ft one-bedroom — a typical detached ADU. In Southern California it rents for roughly $1,700–$2,000 a month against a typical all-in build cost of about $285,000. Depending on your rate and term, that rent can cover a large share of a typical home-equity loan payment — often most of it — from the first month it’s leased.
- Roughly $20,000+ in gross rent per year, year after year
- Rent typically offsets a large share of the loan payment, depending on your rate and term
- Once the loan is retired, the rent is yours — and the equity was there all along
- Typical all-in build cost
- ~$285,000
- Typical monthly rent
- $1,700–$2,000
- Gross rent per year
- $20,000+
- Payback horizon on gross rent
- ~12–14 yrs
Illustrative only. Actual rents, costs, and loan payments depend on your lot, finishes, market, rate, and term — your line-item estimate makes the numbers real.
How we help
We make the money part simple.
You shouldn’t need a finance degree to build a backyard home. We’ve done this more than a hundred times — and the financing conversation is part of the service.
Preferred lenders
We work with preferred lenders who specialize in ADU and renovation financing — people who understand construction draws and future-value appraisals, not just standard mortgages.
Compare in one sitting
Comparing your options is part of the free consultation. We walk through what your equity supports, what programs are currently open, and which path fits your goals.
A number lenders trust
You get a fixed price for your entire project — design, permits, and construction. Take it to any lender you like: no estimates that balloon, no allowances that surprise.
The tax angle
Your existing home isn’t reassessed.
What gets assessed
In California, only the ADU's added value is assessed for property tax — the new value stacks on top, nothing else changes.
Your current home
Building an ADU doesn't trigger a reassessment of the home you already own — its existing assessment stays put.
If you rent it out
A rental ADU may qualify for depreciation and expense deductions on top of the monthly income.
Every situation is different — talk to your tax professional about yours.
Get your fixed price first.
Design your ADU, get a transparent line-item estimate, and walk into any lender’s office with a real number — not a guess.