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ADU Financing
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Homeowners usually pay for an ADU with savings, a home equity loan or line of credit, a cash-out refinance, a renovation or construction loan, or a personal loan. The HCD ADU Handbook (March 2026) notes that Fannie Mae, Freddie Mac, and the Federal Housing Administration each support ADU financing in some form.
Common Ways To Pay
| Option | How It Works | Things To Ask |
|---|---|---|
| Cash savings | No loan, no interest. | How much cushion remains after the build? |
| Home equity loan or line of credit | Borrow against equity in your current home. | Is the rate fixed or variable? What are the fees and the draw period? |
| Cash-out refinance | Replace your mortgage with a larger one and take the difference. | What happens to your current rate and your monthly payment? |
| Renovation or construction loan | Funds are released as work is completed, based on the plan and expected value. | How are draws inspected? What happens if costs run over? |
| Personal or unsecured loan | Not secured by your home. | What are the rate, the term, and any origination fee? |
Agency Backed Loans
The HCD ADU Handbook (March 2026) notes that Fannie Mae, Freddie Mac, and the Federal Housing Administration all support ADU financing in some form.
- The Fannie Mae ADU financing page describes options to add an ADU to an existing property, to build a home with an ADU using construction-to-permanent financing, and to buy a home with an existing ADU.
- The Freddie Mac ADU fact sheet describes Freddie Mac options, including counting rental income from an ADU toward qualifying income in some cases.
- The FHA allows rental income from an ADU in qualifying for some loans. The handbook notes the FHA 203(k) rehabilitation loan can only be used to build an attached ADU.
Programs have conditions. A lender can tell you which ones fit your situation.
State And Local Programs
The California Housing Finance Agency ran an ADU Grant Program that reimbursed up to $40,000 of predevelopment costs, such as design, permits, and surveys. The HCD ADU Handbook (March 2026) says its funds were exhausted at the time of writing. Some cities and counties have their own funding or fee waivers. Check your city's ADU page and the grants section of the HCD ADU page.
Questions For Any Lender
- Will you lend on a project that has not been built yet, and how do you value it?
- Do you count expected rental income, and how?
- What are all the fees, in dollars?
- What happens to my loan if the project stalls or goes over budget?
- What does my monthly payment look like at the highest rate this loan could reach?
Do Not Rely On Rent To Pay The Loan
Rent depends on the market, vacancy, and your own costs. See Rental Rules And Income for the rules, and talk to a tax professional about how rental income is taxed.
Related guides: ADU Cost In California, Prefab Versus Site-Built.
Common Questions
How do people pay for an ADU?
Common choices are cash savings, a home equity loan or line of credit, a cash-out refinance, a renovation or construction loan, and a personal loan. Each has different costs and risks, so ask lenders for the rate, fees, and how funds are released.
Do Fannie Mae and Freddie Mac finance ADUs?
Both describe ADU options. Fannie Mae lists adding an ADU to an existing property, construction-to-permanent financing, and buying a home with an ADU. Freddie Mac describes options including counting ADU rental income toward qualifying income in some cases.
Do you quote interest rates?
No. Rates change and depend on your credit and your home, so confirm current terms with a lender.
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