How to finance an ADU
in San Diego.
Almost nobody writes a cheque. There are four routes, one of them is a trap if your mortgage is from 2021, and one of them is the reason “I don't have enough equity” is usually the wrong conclusion. Start with the calculator, then read why.
Reviewed October 2026 · re-check quarterly
What will your equity cover?
Two figures you already know. Nothing is sent anywhere — the arithmetic runs in this page, we never see it, and there is no credit check of any kind.
Available to borrow —
- CADU 500Studio · 500 sq ft $299,000 —
- CADU 7501 bed · 750 sq ft $365,000 —
- CADU 12002 bed · 1,200 sq ft $475,000 —
Enter the two figures above and this will tell you which plans your equity reaches.
Against the Standard finish level, for the building only. Site work sits outside it and higher finish levels add up to $110,000 on a 1200 — the cost page breaks both down.
The four routes
A HELOC or home equity loan. The common one, and usually the right one for a granny flat this size. You borrow against the equity you have while leaving your first mortgage untouched, which matters enormously — see the next paragraph. A line of credit draws as you need it; a home equity loan hands you the lot at a fixed rate, which suits a fixed-price build better than it suits an open-ended remodel.
A cash-out refinance — careful. This replaces your whole first mortgage with a bigger one. If you locked a rate in 2020 or 2021, you would be giving up that rate on your entire balance to reach the equity, not just on the money you take out. For a lot of San Diego homeowners that is the most expensive way to fund an ADU while looking like the simplest. Run the comparison before anyone talks you into it.
A renovation loan underwritten on the finished value. The route most people have never heard of, and the reason the calculator above stops short of telling anyone no. Fannie Mae's HomeStyle Renovation, Freddie Mac's CHOICERenovation and FHA's 203(k) are all underwritten against an as-completed appraisal: the appraiser values your property as it will be with the ADU standing, using comparable finished properties, rather than as it sits today. Fannie permits up to 97% loan-to-value on a primary residence against that figure. An ADU adds value, so the thing you are building helps pay for itself. If your equity today falls short, this is the conversation to have — and what it rents for is what services the loan.
A construction loan. Funds released in draws against completed stages, typically a point or two over prime, converting to permanent financing at the end. Regional credit unions tend to beat the national banks here, largely because they already understand San Diego's plan check and do not treat an ADU as an exotic request.
What the calculator cannot tell you
It does arithmetic on a number you typed. That is genuinely useful for working out whether you are in the right conversation, and it is not an approval. Four things sit outside it:
- Your home's value is your estimate, not an appraisal. We deliberately do not look it up. The free tools are inaccurate and a county assessor's figure is close to meaningless in California, because Proposition 13 freezes assessed value for as long as you hold the property.
- Equity is not the same as approval. A lender decides on income, debt-to-income ratio and credit as well. Plenty of equity-rich households get declined on DTI.
- It compares against the building price only. Site work — trenching, sewer tie-in, a panel upgrade, grading — is real money and varies lot to lot. We put a number on it in writing after the site walk.
- It uses the Standard finish level. Choosing up through the finish categories adds as much as $110,000 on a CADU 1200. Price yours in the studio.
Two programmes people ask about
The CalHFA $40,000 ADU grant is closed. It reimbursed pre-development costs — design, permits, soil tests, surveys — and it was genuinely good. It stopped accepting applications on 28 December 2023, the roughly $100 million it launched with was exhausted first-come, and as of late 2026 it remains paused with no waitlist and no announced new round. You will still find San Diego builders promoting it, which tells you something about them. If it reopens we will say so here.
The SDHC ADU Finance Program is real, and narrower than it sounds. The San Diego Housing Commission lends against ADU construction with free technical assistance alongside. Competitors publish rates and income limits for this programme that are simply wrong, so here are the actual terms, from SDHC:
| Term | What it actually is |
|---|---|
| Maximum loan | $250,000 construction loan |
| Interest rate | 3% fixed |
| Loan-to-value | 75% maximum, second-lien position |
| Income limit | At or below 80% of San Diego AMI |
| Minimum credit score | 680 |
| Application fee | $2,500, due at construction loan closing |
| Where | City of San Diego only — 921XX postcodes |
| The catch | Rents restricted to 80% AMI for a minimum of seven years |
| Funding | No new allocation in FY2025; limited prior-year funds first-come. Confirm current status with SDHC directly |
Source: San Diego Housing Commission.
Read the income limit and the seven-year rent restriction together and you can see who this is built for, which is a homeowner earning at or below 80% of area median who wants to let the unit affordably. That is a good programme and we will happily point you at it. It is not the same household that is pricing a $475,000 CADU 1200, and any builder implying otherwise has not read the guidelines.
What we don't do
We are a contractor, not a lender and not a mortgage broker. We do not run credit checks, we cannot tell you what you qualify for, and we do not take a referral fee for sending anyone to a lender — a home equity line is a settlement service under RESPA, and we would rather keep that clean than earn $200 for muddying it. The only reason we care how you finance this is that financed projects get built.
If you want to be pointed toward lenders who do as-completed-value renovation loans in San Diego County, say so in the message box when you ask for a quote and we will tell you who to call.
Know the number you are financing. Pick a plan, pick a level for each finish, and watch the figure move.
Open the studio