Financing an ADU in Northern California: HELOC, Cash-Out Refi, Renovation Loan, or Construction

California law has quietly made ADUs one of the friendliest projects a homeowner can undertake. Financing them, however, still trips people up because four separate tools all technically work.

HELOC

Best for phased projects and homeowners with a rate on their first mortgage they do not want to touch. Draw as needed, pay interest only on drawn balance, and convert to a fixed payment later if desired.

Cash-out refinance

Best when the current first mortgage rate is close to or above today's market rate. Combines the ADU budget and the existing mortgage into one payment, but resets the term.

Renovation loan

A single loan based on the projected after-completion value, not today's value. This is the tool for homeowners who do not yet have the equity to fully fund the build. Requires draw schedules and inspections during construction.

Construction to permanent

Used for larger detached ADUs. One close, one set of costs, and it converts to a standard mortgage at completion. Best when the ADU is a meaningful addition (e.g. 800 to 1,200 square feet, full amenities).