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The short answer
Most LA homeowners pay for an ADU by borrowing against the equity in their home — a HELOC, a cash-out refinance, or a renovation loan — rather than paying cash. The build itself runs $90,000 to $400,000 depending on type, which is more than most people have sitting in savings, so the question usually isn’t “do I borrow?” but “which loan?” The right answer depends on how much equity you have, how today’s interest rates compare to your current mortgage, and whether you want the loan based on what the home is worth now or what it’ll be worth with the ADU finished.
| Way to pay | What it is | Best when |
|---|---|---|
| Cash / savings | Pay out of pocket, no loan | You have the funds and want no interest cost |
| HELOC | Revolving line against home equity | You have strong equity and want to draw as you build |
| Cash-out refinance | Replace your mortgage with a bigger one, pocket the difference | Your current rate is high and refinancing makes sense anyway |
| Home equity loan | One-time lump sum against equity, fixed payment | You want a predictable fixed payment and know the full cost |
| Renovation / construction loan | Lends against the home’s future value with the ADU built | You don’t have enough current equity to cover the build |
| CalHFA ADU grant | State assistance toward upfront soft costs (when funded) | You qualify and a funding round is open |
The rest of this guide walks through each option, what an ADU actually costs to finance, and how the rent helps pay the loan back.
First, know the number you’re financing
How much you need to borrow comes straight off the type of ADU you build. In LA in 2026, the all-in costs run:
- Detached new build (600–1,200 sq ft): $200,000–$400,000. A full structure from the foundation up, so it’s the most to finance.
- Attached addition (400–800 sq ft): $150,000–$300,000. You share a wall and some systems with the house.
- Garage conversion (400–600 sq ft): $90,000–$180,000. The foundation, walls, and roof already exist, which keeps the loan smaller.
- Junior ADU / JADU (up to 500 sq ft, inside the home): $40,000–$100,000. The cheapest to build and the easiest to fund out of savings or a small loan.
One thing that helps the math: LA City waives impact fees for ADUs under 750 sq ft, so you’re not financing a pile of city fees on top of construction. Knowing your target number first tells you which financing options are even on the table — a $60,000 JADU and a $350,000 detached build are very different borrowing problems.
Option 1 — Pay cash
If you have the savings, paying cash is the cheapest way to build an ADU because you skip interest entirely. It’s most realistic for the lower-cost projects — a JADU at $40,000–$100,000 or a garage conversion at $90,000–$180,000 — where the number is within reach for someone who’s been saving.
The trade-off is liquidity. Tying up six figures in a build leaves less of a cushion if the project hits a surprise (an old sewer line, a needed panel upgrade). Plenty of owners who could pay cash still finance part of it to keep reserves on hand. There’s no rule that says it’s all-or-nothing.
Option 2 — HELOC (home equity line of credit)
A HELOC lets you borrow against your home’s equity as a revolving line of credit, which fits ADU construction well because you draw money in stages as the build progresses instead of taking it all at once. You only pay interest on what you’ve actually pulled, so during the early months — when you’re spending on plans and permits, not the full build — your carrying cost stays low.
HELOCs are popular for ADUs in the $90,000–$300,000 range when the homeowner has built up real equity. The main thing to watch: most HELOCs carry a variable interest rate, so your payment can move if rates do. Lenders also cap how much of your home’s value you can borrow against, so how much you can pull depends on your current mortgage balance and the home’s appraised value. Rates and terms vary by lender — get current quotes before you commit.
Option 3 — Cash-out refinance
A cash-out refinance replaces your existing mortgage with a new, larger one and hands you the difference in cash to fund the ADU. It can make sense when you’d benefit from refinancing anyway — but in 2026, that math only works if current rates are at or below the rate on your existing mortgage. If you’re sitting on a low rate from a few years ago, refinancing the whole balance to fund an ADU can mean giving up that rate on your entire loan, which is often more expensive than a second loan layered on top.
So cash-out refi is the right tool for a specific situation: you have substantial equity, and today’s rates are friendly compared to your current one. Run both scenarios — cash-out refi versus a HELOC or home equity loan that leaves your first mortgage untouched — before deciding.
Option 4 — Home equity loan
A home equity loan gives you a single lump sum against your equity with a fixed interest rate and a fixed monthly payment, so you know the full cost going in. It’s the predictable cousin of the HELOC: instead of a revolving line that moves with rates, you borrow a set amount and pay it back on a set schedule.
This fits owners who already know roughly what the ADU will cost and want payment certainty rather than the flexibility to draw in stages. If a fixed contractor bid puts your detached build at, say, $280,000, a home equity loan sized to that number means no rate surprises over the life of the loan. As with any equity product, the amount available depends on your home’s value and what you still owe.
Option 5 — Renovation and construction loans
Renovation and construction loans are built for the homeowner who doesn’t have enough current equity to cover the build, because they lend against the home’s value after the ADU is finished. An appraiser estimates the “as-completed” value, and the lender sizes the loan off that higher number — which can unlock a build that a standard HELOC, capped at today’s equity, couldn’t reach.
This category covers a few products: renovation-specific loans, construction-to-permanent loans, and government-backed options. They tend to involve more paperwork and lender oversight (draw schedules, inspections) than a simple HELOC, and terms vary widely, so it’s worth comparing a few lenders. The payoff is access: for a first-time ADU builder who bought recently and hasn’t built much equity yet, an after-completion-value loan is often the only realistic path to a $200,000-plus detached unit.
Option 6 — The CalHFA ADU grant
California’s housing finance agency (CalHFA) has at times offered an ADU grant program to help cover upfront “soft” costs like design, permits, and site work — the expenses that hit before construction even starts. When it’s funded, it’s worth applying for because that money reduces what you have to finance out of pocket at the riskiest, earliest stage of the project.
The catch is availability: the program runs in funding rounds that open and close as money is allocated, and it has been paused when funds run out. Eligibility (including income limits) also applies. Don’t build your budget assuming this grant — treat it as a bonus if a round happens to be open. Check CalHFA’s official site for current status and amounts before counting on it.
How the rent helps pay it back
Whatever you borrow, an LA ADU is one of the few home projects that can largely pay for itself. ADUs in Los Angeles typically rent for $2,200 to $3,500 a month, which can cover a meaningful share of the loan payment — and in many cases most of it. On a $400,000 build renting at around $3,000/month, you’re looking at roughly an 8-to-10-year payback on the construction cost before you even count appreciation.
There’s a second financial lift: building an ADU usually raises your property value by an estimated 25–35% of the build cost. So a $200,000 ADU might add somewhere around $50,000–$70,000 in value on top of the rental income. None of that changes what you owe the lender each month, but it’s why the financing math on an ADU tends to look better than financing, say, a pool or a kitchen remodel that earns nothing back.
Which financing fits your situation
There’s no single best ADU loan — there’s the one that fits your equity, your existing mortgage rate, and your project size. A few honest rules of thumb:
If you have strong equity and a low existing mortgage rate, a HELOC or home equity loan usually beats a cash-out refi, because you keep your good first-mortgage rate and only borrow what you need. If your current mortgage rate is high and rates today are friendlier, a cash-out refinance can consolidate everything into one better loan. If you bought recently and haven’t built equity yet, a renovation or construction loan that lends on after-completion value is often the only way to reach a larger detached build. And if you’re doing a smaller JADU or garage conversion in the $40,000–$180,000 range, paying cash or a modest home equity loan keeps it simple.
Because the loan you can get is tied directly to the build cost, it helps to pin down a real number for your specific lot before you talk to a lender. Building Greatness Inc is a licensed LA contractor (CSLB Lic. #1089704) that builds ADUs across Los Angeles County and can give you a grounded cost estimate to take into those financing conversations — so you’re borrowing against a real bid, not a guess.
FAQ
How do most people pay for an ADU in LA?
Most LA homeowners finance an ADU by borrowing against their home equity — typically a HELOC, a cash-out refinance, or a home equity loan — rather than paying cash. Builds run $90,000 to $400,000 depending on type, which is more than most people keep in savings, so some form of financing is the norm.
Can you get a loan to build an ADU?
Yes. The common options are a HELOC, a home equity loan, a cash-out refinance, and renovation or construction loans. Renovation and construction loans are designed specifically for owners who don’t have enough current equity, because they lend against the home’s value after the ADU is finished rather than its value today.
How much does an ADU cost to build in LA?
In LA in 2026, a detached new-build ADU runs $200,000–$400,000, an attached addition $150,000–$300,000, a garage conversion $90,000–$180,000, and a junior ADU (JADU) $40,000–$100,000. That build cost is the number you’re financing, so it largely determines which loan options make sense.
Is a HELOC or a cash-out refinance better for an ADU?
It depends on your existing mortgage rate. If you have a low rate from a previous year, a HELOC or home equity loan is usually better because it leaves your first mortgage untouched and you only borrow what you need. A cash-out refinance makes more sense when current rates are at or below your existing rate.
Does an ADU pay for itself in LA?
Largely, over time. LA ADUs typically rent for $2,200–$3,500 a month, which can cover much of a loan payment, and a $400,000 build renting at around $3,000/month works out to roughly an 8-to-10-year payback before appreciation. An ADU also tends to raise property value by an estimated 25–35% of the build cost.
Is there a state grant to help pay for an ADU in California?
CalHFA has at times offered an ADU grant to help cover upfront soft costs like design and permits, but it runs in funding rounds that open and close, and it has been paused when funds run out. Eligibility limits apply. Check CalHFA’s official site for current availability before counting on it in your budget.