How homeowners pay for a casita

An ADU is usually paid for with home equity (a HELOC or cash-out refinance), a renovation or construction loan, or savings. Which one fits depends on your equity, income and timeline.

The usual options

Option	How it works	Fits best when
Home equity line of credit (HELOC)	A revolving line secured by your home. You draw as the build progresses and pay interest on what you use.	You have equity, want flexibility on draws, and plan to keep your current first mortgage.
Cash-out refinance	Replaces your mortgage with a larger one and gives you the difference in cash.	Your current rate is not far from today's, or you want one payment.
Renovation or construction loan	Lends against the value the project will add, with funds released in stages as work is inspected.	Equity is limited today but the finished property appraises higher.
Savings or a combination	Paying part in cash and borrowing the rest.	You want to limit borrowing and the project is phased.

Side by side

The same options against the six questions homeowners ask us most. These are general program characteristics as of October 2026, drawn from the programs' published rules; Jesus Lopez (NMLS #1915703) confirms what applies to you. Rates, fees and qualification vary by lender.

Option	Keep your current first mortgage?	Existing equity required?	Can count completed value?	Rate type	How funds are released	Fees, qualification, restrictions
Home equity line of credit (HELOC)	Yes. A second lien behind your existing mortgage.	Yes. Lenders typically cap combined loans at about 80% to 90% of today's value.	No. Based on the home as it stands today.	Usually variable; some lenders offer fixed-rate draws.	You draw what you need, when you need it, during the draw period; interest only on what is drawn.	Low or no closing costs at many lenders; annual fee possible. Qualification on income, credit and equity. Payment rises if rates rise.
Home equity loan (fixed second mortgage)	Yes. A second lien.	Yes, same combined-loan limits as a HELOC.	No.	Fixed.	One lump sum at closing.	Predictable payment; less flexible if the budget changes. Closing costs vary by lender.
Cash-out refinance	No. Replaces your current mortgage with a larger one.	Yes. Conventional cash-out is typically limited to 80% of today's value.	No.	Fixed or adjustable, at today's market rate on the whole balance.	Lump sum at closing.	Full closing costs. Makes sense when your current rate is near today's; costly if you are giving up a much lower rate.
FHA 203(k) renovation loan	No for a refinance (it replaces the mortgage); a purchase 203(k) is a new first mortgage.	Little. FHA loan-to-value limits apply to the as-completed value.	Yes. Lends on the after-improved value; 50% of the proposed ADU's rent can count toward qualifying.	Fixed or adjustable (FHA).	Funds held in escrow and released as inspected work is completed; a HUD consultant is involved on the standard 203(k).	FHA mortgage insurance; owner-occupied primary residence only; licensed contractor and detailed bid required; renovation must start within 30 days of closing and typically finish within 6 to 12 months.
Conventional renovation loan (Fannie Mae HomeStyle, Freddie Mac CHOICERenovation)	No. A new first mortgage (purchase or refinance).	Some. Loan-to-value limits apply to the as-completed value.	Yes. Lends on the after-improved value.	Fixed or adjustable.	Escrowed and released by inspection as work completes.	No FHA insurance, but private mortgage insurance above 80% loan-to-value. Contractor approval, plans and a budget are required. Works for second homes and investment properties in some cases.
Construction or construction-to-permanent loan	Usually no; most lenders want first position and pay off the existing mortgage. Some portfolio lenders will take a second lien.	Some. Based on the as-completed appraisal and the budget.	Yes.	Often variable during construction, converting to fixed at completion on a construction-to-permanent loan.	Staged draws against the contractor's schedule, each released after inspection.	Higher fees and more paperwork; interest-only payments during construction; a licensed contractor, plans and a dated budget are required. Fewer lenders offer it for ADUs.
Cash, or cash plus one of the above	Yes.	Not needed.	Not applicable.	None.	Paid by milestone under the construction contract.	No financing cost or qualification. The only question is whether tying up the cash beats borrowing at today's rates.

What lenders look at

Equity in the home and the appraised value after the build.
Income and existing debt.
Credit history.
The contractor's written scope and schedule. Construction loans in particular want a licensed contractor and a dated budget. Ours qualifies.

Lining up money and construction

Financing approval and permitting can run at the same time. The order that avoids surprises: property review, then a site visit and written scope, then the loan application with that scope in hand, then permits. Construction draws, if your loan has them, follow the inspections in the schedule.

Who to talk to

Jesus Lopez

Licensed mortgage professional · NMLS #1915703

Tell us you are interested in financing when you request a property review. Jesus will follow up to talk through options and what lenders will ask for.

Inquiry versus application

An inquiry on this site is not a loan application. Nothing here checks your credit. Any application, and any financial documents, go through the lender’s own secure process after you choose to apply.

Payment examples

We do not show payment examples without their assumptions (rate, term, amount, costs) and a review by the lending professional. When reviewed examples are available they will appear here.

Request a property review and ask about financing →

Request a property review

Find out what your property can hold.

Send the address and your goal. Anthony Alexander Lopez or Juan M Lopez Solano will review zoning, setbacks and utilities and reach out within one business day. No obligation, and no city approval implied: it is our professional read of your lot.

Prefer to talk? (602) 386-6623 · See completed projects