Finance in LA
How ADU financing structures differ — cash, HELOC, cash-out refinance, renovation and construction loans — and what to compare in written lender terms.
- HELOC
- 8.0–9.5% variable, 10-yr draw
- Construction loan
- 8.5–10.5% interest-only during build
- Cash-out refi
- 6.75–7.75% fixed, 30-yr
- Renofi / ADU-specific
- 7.5–9.0% uses projected ARV
ADU financing choices differ in how funds are drawn, how rates can change, what the lender inspects and what happens to the existing mortgage. This hub compares structures, not lenders or rates, and does not rank products; request written terms from each lender for your property.
04.01Match the product to the project
Under $200K and you have equity → HELOC. $200K–$400K and you'll keep the property long-term → cash-out refi. Custom build, multiple draws, contingency volatility → construction-to-perm. Limited current equity but strong projected rents → an ADU-specific lender like Renofi.
04.02What lenders actually look at
Current home equity, debt-to-income, FICO, and (for ADU-specific products) appraised after-repair value with projected rental income. A clean appraisal that includes the ADU's projected income is worth more than a half-point rate negotiation.
04.03Tax and basis treatment
ADU construction is a capital improvement — costs add to your basis and reduce future capital gains exposure. Interest on construction loans secured by the primary residence is generally deductible up to the IRS limit. Confirm with your CPA; rules shift.
From the desk
- 5 min
HELOC vs. construction loan: a $40K decision
Same project, two financing paths, very different total interest.
- 6 min
How ADU-specific lenders underwrite projected rent
What Renofi and peers actually require — and what they ignore.