HELOC, cash-out, renovation loan: the ADU money decision

ADU costs vary widely by size, site conditions and finish level. Establish an itemized project budget before choosing a financing product. HELOC, cash-out refinance, renovation and construction products have different lien, draw, appraisal, payment and qualification rules. Pair this with the California homeowner funding guide, then test only your own assumptions or written lender terms in the financing calculator.

HELOC: revolving access and variable-rate risk

A home equity line of credit is open-end credit secured by the home. The agreement controls when funds can be drawn, whether the rate is variable, how minimum payments work, what happens after the draw period and whether access can be frozen or reduced. Compare those written terms and fees—not an assumed closing time or equity threshold. The CFPB HELOC explainer is the primary consumer reference.

Cash-out refinance

A cash-out refinance replaces the primary mortgage with a larger loan and releases part of the proceeds as cash. Fixed and adjustable structures may exist. Compare the current note with the complete proposed loan over the same holding period, including balance, term, payment, rate mechanics and closing charges; do not decide from the new payment or cash proceeds alone.

Renovation loans: borrowing against the after-built value

CHOICERenovation (Freddie Mac) and HomeStyle (Fannie Mae) can use an as-completed appraised value, with construction funded under product and lender draw controls. Eligibility, appraisal, equity, contractor, contingency and draw rules vary, so read current terms on the Freddie Mac and Fannie Mae pages and verify the lender in NMLS Consumer Access.

FHA 203(k)

The HUD FHA 203(k) program combines rehabilitation financing with an FHA-insured mortgage. Mortgage insurance, eligible work, consultant involvement, lender overlays and borrower qualification require current written confirmation; this guide does not state a credit-score threshold or recommend the product for a borrower.

Side-by-side

• —HELOC: open-end credit secured by the home; compare draw access, variable-rate terms, repayment changes, fees and line restrictions.
• —Cash-out refinance: replaces the existing mortgage; compare the complete old and new loans over the same holding period.
• —CHOICERenovation / HomeStyle: renovation financing with as-completed valuation and lender-controlled construction requirements.
• —FHA 203(k): FHA-insured rehabilitation financing with mortgage insurance and program-specific work and administration rules.