A garage conversion in today's L.A. market typically runs $120K to $220K, and a detached new build $240K to $400K or more (full ranges in our ADU cost guide). Few homeowners write that check from savings. Here are the four routes most projects actually use. One thing to say plainly up front: we're builders, not lenders or financial advisors. This is general information to make your lender conversation sharper, not a recommendation.
HELOC (home equity line of credit)
- How it works
- A revolving credit line against your current equity. You draw as construction bills come due and pay interest only on what you've drawn.
- Who it fits
- Homeowners with substantial equity who want to pay the build in stages, the way construction actually bills.
- Worth watching
- Variable rates on most lines; your draw period and rate terms matter more than the headline number.
Home-equity loan
- How it works
- A fixed lump sum against your equity, repaid on a fixed schedule alongside your existing mortgage.
- Who it fits
- Projects with a locked scope and price, where you know the number before you borrow. A garage conversion with a fixed contract is the classic case.
- Worth watching
- You pay interest on the full amount from day one, even while the project is still in plan check.
Cash-out refinance
- How it works
- Replaces your existing mortgage with a larger one and hands you the difference in cash.
- Who it fits
- Homeowners whose current mortgage rate is at or above today's rates anyway, so refinancing costs little or improves their position.
- Worth watching
- If your existing rate is well below market, this is usually the most expensive way to fund an ADU. Run the blended cost first.
Renovation & construction loans
- How it works
- Products (including FHA 203(k) and Fannie Mae HomeStyle-type loans) that lend against the property's value after the ADU is built, not just its value today.
- Who it fits
- Homeowners whose current equity alone won't cover the build. Some programs also let lenders count projected rental income from the unit.
- Worth watching
- More paperwork: appraisals based on plans, draw schedules, and lender sign-off on the contractor. Have your scope and license numbers ready.
What about the state grant?
California's $40,000 CalHFA ADU grant is paused: the last round was fully allocated in December 2023 and no relaunch has been announced. Anyone who claims they can still get it for you is waving a red flag. The full story, including how to watch for a relaunch safely, is in our CalHFA grant status guide.
What every lender asks for first
Whichever route you take, the lender's first questions are the same: what exactly are you building, what will it cost, and who is building it. That means a fixed scope of work, a construction contract with a real number, and a licensed, insured general contractor. This is the part we handle. The free on-site consultation produces the scope and the number, and our license is public record: CSLB #1008209, held since 2015.
Walk into the bank with a real number
Start with the free site visit. You leave with a scope and a construction number you can put in front of any lender, and a build plan that fits what they approve.
ADU financing questions, answered
What's the most common way to finance an ADU in Los Angeles?
Home equity. HELOCs and home-equity loans fund the majority of L.A. ADU projects, with cash-out refinances close behind when rates make them sensible. Renovation loans that lend against the property's post-ADU value cover most of the rest.
Can lenders count the ADU's rental income when qualifying me?
Some renovation and construction loan programs allow projected rental income from the finished unit to factor into qualification, and appraisals on those products consider the property's value with the ADU complete. Whether yours does is a lender question; bring the unit's size and a market rent estimate to that conversation.
Is the $40,000 CalHFA grant an option?
Not right now. The program allocated its last funding round in December 2023 and is not accepting applications. See our CalHFA grant status guide for what it covered and how to watch for a relaunch safely.
What will a lender ask my contractor for?
A fixed scope of work, a construction contract with a real number, proof of license and insurance, and on draw-schedule products, milestone billing that matches the loan's disbursement stages. We produce all of these as a matter of course; it's the same paperwork that protects you.
Should I finance before or after getting a construction quote?
Get the scope and number first. Every financing conversation goes better when you walk in with a fixed construction cost instead of a guess, and lenders on renovation products require the plans anyway. The consultation that produces that number is free.
General information, checked August 2026. Not financial advice; talk to your lender or financial advisor about your situation.