Financing
How to Finance an ADU Without Cash on Hand (4 Real Paths)
You don’t need to write a $287,000 check to build a California ADU. The vast majority of our clients use one of four borrowing strategies, a Home Equity Line of Credit (HELOC), a cash-out refinance, a construction-to-permanent loan, or a specialized ADU lender, and the right pick depends on three things: how much equity you have in your current home, the interest rate on your existing mortgage, and how comfortable you are with variable-rate debt.
For a typical Framework First client building a $287K Six Sixty 1-Bedroom, the monthly payment runs $1,800 to $2,400 depending on rate and term. Many cover that with rental income from the ADU itself, making it cash-flow positive from month one.
The short version: Four real financing paths, HELOC (most common), construction-to-permanent loan, cash-out refi, and specialized ADU lenders like Mason Mac and SearchLight. Most clients pay $1,800 to $2,400/month at current 2026 rates. ADUs in California rental markets typically cash-flow positive from month one.
The four financing paths, ranked by how common they are
1. HELOC against your main home (the most common path)
A Home Equity Line of Credit is a revolving credit line backed by your home’s equity, like a credit card with your house as collateral. You draw what you need, when you need it, and pay interest only on the drawn amount. Most Framework First clients pick this path.
Pros:
- Quick to get (3 to 6 weeks to close).
- Interest-only payments during the build, principal kicks in later.
- You only borrow what you need (vs a lump-sum cash-out refi).
- Lower closing costs than a refi.
- Tax-deductible interest if the proceeds are used for home improvement (talk to a CPA).
Cons:
- Variable rate, tied to Prime + a margin. As of 2026, HELOC rates are 7.5% to 9.5% APR.
- Rate can rise during your build. Plan a buffer.
- 10-year draw period, 20-year repayment in most cases.
- Some HELOCs have annual fees and balloon-payment features. Read the fine print.
The math (650 Six Sixty 1BR example):
- ADU cost: $287,000
- HELOC rate: 8% APR (assume mid-range)
- Interest-only payment during 6-month build: $287,000 × 8% / 12 = $1,913/month
- After build, switches to amortizing: ~$2,400/month on 20-year repayment
2. Construction-to-permanent (CTP) loan
A single loan that funds construction in stages (draws against milestones), then automatically converts to a 30-year fixed-rate mortgage when the home is complete. One closing, one rate lock.
Pros:
- Fixed rate locked at closing (predictable monthly payment forever).
- Single closing (lower fees than HELOC + later refi).
- Most lenders disburse funds directly to Framework First as we hit milestones, clean and simple.
- 30-year amortization keeps payments low.
Cons:
- More qualification scrutiny upfront, full underwriting on the project.
- Higher rates than a typical purchase mortgage (~0.25 to 0.75% premium).
- Locks you into one lender for both the construction and permanent phase.
- Need to qualify for the FULL build cost on day one.
The math (same Six Sixty 1BR):
- ADU cost: $287,000 financed at 80% LTV
- 30-year fixed at 7.25% (CTP loan typical 2026 rate)
- Monthly P&I: $1,553
- Plus property tax: ~$300/mo
- Total: ~$1,850/mo
This is often the lowest monthly payment of the four options.
3. Cash-out refinance
You refinance your existing primary mortgage for a larger amount, take the difference in cash, and use it to fund the ADU. The new mortgage covers both your remaining old balance + the ADU cost.
Pros:
- Fixed rate (assuming you pick fixed-rate refi).
- Single mortgage payment for everything.
- Often the longest amortization (30 years), keeping monthly payment lowest.
Cons (and the big one in 2026):
- Your existing mortgage rate may be much lower than current rates. If you locked a 3% mortgage in 2021, cashing out forces you to refinance the WHOLE balance at 7%+. That math rarely works.
- High closing costs ($5K to $15K typical).
- Resets your amortization clock.
When this makes sense: Only if your existing mortgage rate is similar to or higher than current rates (you have an older mortgage from before 2010, or you bought recently at peak rates). For anyone with a sub-5% mortgage, this is almost always the worst option.
4. Specialized ADU lenders (Mason Mac, SearchLight Lending)
Framework First works with two California-licensed ADU specialty lenders. They underwrite differently from a traditional bank, they look at the future rental income of the ADU as part of your debt-coverage ratio, which can help you qualify for more than a traditional bank approves.
Mason Mac (Cynthia Holthouse):
- HELOC and construction-to-perm products specifically for California ADUs.
- Underwrites based on combined LTV of main home + completed ADU.
- Often approves clients who are turned down at big banks.
- We’ve routed dozens of clients to Cynthia; her team understands ADU permits and timelines.
SearchLight Lending (Alex Salmoun):
- Construction-to-perm with rental-income consideration.
- Loan-to-cost products that can fund up to 100% of an ADU project for qualifying borrowers.
- Strong for clients planning to rent the ADU and want the rental income factored in.
These aren’t the only ADU lenders in California, but they’re the two we trust enough to introduce clients to. We don’t take referral fees, we route to them because they perform.
The decision matrix
Pick your path based on these three factors:
| Your situation | Best path |
|---|---|
| Sub-5% existing mortgage + significant home equity | HELOC, don’t touch the existing mortgage |
| 6%+ existing mortgage + significant home equity | Compare cash-out refi vs HELOC (refi might make sense) |
| You want a fixed payment forever, no surprises | Construction-to-permanent |
| You’re being turned down by big banks | Specialized ADU lender (Mason Mac / SearchLight) |
| You’re planning to rent the ADU for income | Specialized ADU lender, they’ll count the rental income toward qualification |
| You have a lot of cash and don’t want any debt | Pay cash, but maybe keep a small loan for the tax-deductible interest |
Frequently asked questions
”Do I need 20% down?”
For a HELOC: no, it’s a credit line against equity you already have. For a construction-to-perm or cash-out refi: typically 20% down or 80% combined loan-to-value (CLTV) maximum, but some specialized ADU lenders go higher.
”Will my rental income count toward my approval?”
Traditional banks: usually no, or only after 12 months of rental history. Specialized ADU lenders (Mason Mac, SearchLight): yes, projected rental income from comparable units in your area is factored into your debt-coverage ratio.
This matters a lot. If your current debt-to-income is borderline, an ADU lender may approve you where a traditional bank says no.
”What if I can’t qualify for the full build cost?”
A few options:
- Smaller model, a Four Fifty Studio at $180K qualifies for far smaller financing than a 1,200 sq ft model.
- Larger down payment, if you can cover 25 to 30% upfront, qualification gets easier.
- Co-borrower, adding a co-applicant (spouse, child) brings their income into qualification.
- Pause and improve credit/income, Framework First’s price holds for 90 days from contract signing if you need time to align.
Monthly payment scenarios across all 14 models
Assuming 20% down, 30-year fixed at 7.5% APR:
| Model | Price | Monthly P&I | + Tax/Insurance | Realistic All-In |
|---|---|---|---|---|
| Four Fifty (450 Studio) | $180K | $1,007 | ~$200 | ~$1,200/mo |
| The 405 (1BR) | $237K | $1,326 | ~$260 | ~$1,590/mo |
| Five Five Five (1BR) | $267K | $1,494 | ~$295 | ~$1,790/mo |
| Six Sixty 1BR | $287K | $1,606 | ~$315 | ~$1,920/mo |
| Six Sixty 2BR | $309K | $1,729 | ~$340 | ~$2,070/mo |
| Seven Forty-Nine (2BR/2BA) | $347K | $1,941 | ~$380 | ~$2,320/mo |
| Eight Eighty-Five 2BR | $377K | $2,109 | ~$415 | ~$2,520/mo |
| Eight Eighty-Five 2BR/2BA | $402K | $2,249 | ~$440 | ~$2,690/mo |
| Nine Forty-Five 2/1 | $387K | $2,165 | ~$425 | ~$2,590/mo |
| Nine Forty-Five 2/2 | $412K | $2,305 | ~$455 | ~$2,760/mo |
| Nine Forty-Five 3/1 | $399K | $2,232 | ~$440 | ~$2,670/mo |
| Nine Forty-Five 3/2 | $434K | $2,428 | ~$478 | ~$2,910/mo |
| Twelve Hundred 3/2 L | $507K | $2,836 | ~$555 | ~$3,390/mo |
| Twelve Hundred 3/2 U | $557K | $3,116 | ~$612 | ~$3,730/mo |
Use the ROI calculator to plug in your specific rate, down payment, and zip-code rent estimate, it computes the net cash flow scenario for any model.
What ADU lenders actually want to see
When you apply, here’s what’s reviewed:
- Credit score, 680+ for most products, 720+ for the best rates.
- Debt-to-income ratio, 43% or lower for traditional, up to 50% with rental-income consideration.
- Loan-to-value (CLTV), main home value + ADU cost vs total loan. 80% is the magic number for most products.
- Reserves, usually 2 to 6 months of mortgage payments in liquid savings.
- Employment history, 2+ years stable income (self-employed needs 2 years of tax returns).
- Property and ADU details, Framework First model selection, total price with permitting budget included, expected delivery date.
The good news: with a finalized Framework First contract, you have everything you need to apply. The contract spells out the price, the build timeline, what’s included, exactly what lenders want documented.
Get started
Want a no-pressure introduction to Mason Mac or SearchLight? Mention it in your contact form or tell our team when you call. We’ll make the email intro and they’ll quote you within a few business days.
Want to see the math for your specific situation first? Run the ROI calculator, it gives you the financing, rental, and equity scenarios side by side.
This guide is general financial information, not lending advice. Loan products, rates, and qualification standards change. Talk to a CA-licensed lender for current rate quotes and underwriting specifics.