Financing • Updated September 10, 2025

ADU financing in 2025 — compare your options and estimate payments

Pick the right funding path: HELOC, cash-out refinance, construction loan, or FHA 203k. Then see your estimated monthly payment.

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TL;DR: If you have strong equity and want flexibility, a HELOC is the simplest. If mortgage rates are favorable or you need a large lump sum, consider a cash-out refi. For ground-up builds with staged draws, use a construction loan. If you need a rehab-focused option with lower down, look at FHA 203k.

ADU financing options at a glance

Product Typical use Disbursement Rate type Notes
HELOCFlexible draw for construction paymentsLine of creditUsually variableInterest-only during draw; quick to set up
Cash-out refinanceLarge lump sumAt closingFixedReplaces existing mortgage; watch overall rate
Construction loanGround-up with inspectionsDraw scheduleVariable → fixed (rolls to mortgage)Bank oversight can reduce risk; more paperwork
FHA 203kPurchase + rehab or major renovationEscrowed drawsFixedLower down, requires FHA consultant and limits

Monthly payment calculator

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This calculator is informational only and not a credit offer. Actual payments depend on lender terms and your profile.

Pros & cons by product

HELOC

  • Pros: fast setup, draw as needed, pay interest on what you use.
  • Cons: variable rates can rise; some have draw fees.

Cash-out refinance

  • Pros: fixed rate, one payment; large lump sum.
  • Cons: replaces your current mortgage; closing costs; less flexible.

Construction loan

  • Pros: staged draws align with build; inspections reduce risk.
  • Cons: more documentation; often interest-only during build; may reset at conversion.

FHA 203k

  • Pros: lower down; can bundle purchase + rehab.
  • Cons: FHA limits, mortgage insurance, consultant oversight.

Financing FAQ

Can I use a HELOC to pay contractors directly?

Yes—most HELOCs allow direct draws to your checking account so you can pay deposits and progress invoices.

Will a construction loan cover permits and design?

Often yes, if included in the budget; lenders may require invoices and proof of payment at each draw.

What credit score do I need?

Varies by lender and product; higher scores usually qualify for better rates and LTVs.

Can rental income from the ADU count toward qualification?

Some lenders will consider projected rent with restrictions; ask about ADU rental add-backs or DSCR options.

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