Homeowners pay for ADUs in different ways, from savings to loans to programs. This section explains the common options in general terms.
What this topic covers
Two money questions follow every ADU: how to pay for it, and what it does to your taxes and income. The guides here cover loan types, the status of the CalHFA grant, rental income and property tax.
Key facts
- Common options are cash, a home equity loan or HELOC, a cash-out refinance, a renovation loan, a construction loan and local programs.
- CalHFA launched its ADU Grant Program in September 2021 and raised it to $40,000 in March 2022. Its current status was not confirmed, so check calhfa.ca.gov.
- The IRS says "in most cases, you must include in your gross income all amounts you receive as rent."
- A new ADU is generally assessed as new construction, which adds to your assessed value without repricing the whole home.
- The 2024 bill SB 1164, which would have excluded ADU construction from reassessment, was not confirmed as law.
Guides in this hub
- ADU financing options: the main loan types compared, questions for lenders and how to choose.
- ADU rental income and property tax: how rent is taxed and how the Assessor treats new ADUs.
Before you borrow
- Write down the total project budget, with soft costs and fees.
- Note your current home value, mortgage balance and mortgage rate.
- Get offers from at least three lenders and compare the full cost, not only the rate.
- Ask whether the loan allows a detached unit and whether projected rent counts.
Protect yourself
Borrowing against your home puts the home at risk if you cannot repay. Be careful with contractor-arranged financing, and read the contract and the loan separately. Test the monthly payment against a month with no rent coming in from the new unit.
We are not a lender and do not give financial advice. Talk with a lender or advisor about your situation.