Financing Your ADU or Renovation
An ADU is a capital project, and most people do not write a single check for it. Here is how construction financing usually works, what lenders look at, and how we support the process.
Why Finance
Why Owners and Investors Finance This Work
Financing is not a fallback for people who cannot afford to build. For an income-producing ADU it is frequently the better move, because the unit starts generating rent while the loan is still amortizing.
- Start the build now instead of waiting to accumulate the full amount in cash
- Keep working capital free for other properties, opportunities, or reserves
- Let rental income from the finished unit offset the monthly payment
- Spread the cost across the years the asset will be producing
- Draw funds in stages as construction progresses, rather than all at once
- Potential tax treatment of interest on investment property — ask your CPA, not us
Common Paths
How People Usually Pay for an ADU
We are a general contractor, not a lender or a mortgage broker, and we do not receive a referral fee from anyone. What follows is a plain description of the routes our clients actually use.
Home Equity (HELOC or Fixed Second)
The most common route for owners with equity in the primary residence. A HELOC gives you a revolving line you draw against as the build progresses; a fixed second gives you a lump sum at a set rate. Both are secured by the property.
Cash-Out Refinance
Replaces the existing mortgage with a larger one and returns the difference in cash. Works best when current rates are at or below the rate you already hold — otherwise you are repricing your entire mortgage to fund a portion of it.
Construction or Renovation Loan
Underwritten against the property's value after the work is complete rather than what it is worth today. Funds release in draws tied to inspected milestones, which is why an accurate, staged scope of work matters to the lender.
Portfolio or DSCR Lending
For investors, some lenders will underwrite based on the projected rental income of the finished unit rather than personal income. Terms vary widely, and this is where having real rent comps for your submarket pays off.
Rates, terms, and qualification standards change constantly and depend entirely on your credit, equity position, and the lender. Nothing here is a rate quote, a loan offer, or financial advice — talk to a licensed lender and your own financial advisor before committing to anything.
What We Provide
What Your Lender Will Ask Us For
Whichever route you take, the lender needs paperwork from the contractor. Getting this right up front is the difference between a smooth draw schedule and a stalled project.
- 01
A Detailed, Line-Item Scope
Not a one-page total. Lenders underwriting a construction or renovation loan want the work broken out by phase and trade so they can validate the number and structure the draws against it.
- 02
A Realistic Construction Schedule
Draw releases are tied to milestones. A schedule that reflects actual permitting timelines in your jurisdiction — rather than an optimistic one — keeps funding aligned with the work.
- 03
License, Bond, and Insurance Documentation
CA General B License #1130720, plus current liability and workers' compensation certificates naming the lender where required.
- 04
Inspection-Ready Milestones
We build to pass inspection at each stage, because a failed inspection does not just cost time — on a draw schedule, it withholds the next release of funds.
Common Questions
Financing Questions
Can you finance an ADU in Sacramento?
Yes, and most people do. The common routes are a home equity line, a cash-out refinance, a renovation or construction loan underwritten on the property's value after the work, or DSCR lending for investors that looks at the finished unit's projected rent instead of personal income.
Does an ADU pay for itself?
It depends on your rent and your rate, but the structure of the math is straightforward: the unit produces income while the loan amortizes. A 747 sq ft two-bedroom in the Sacramento market rents very differently than a studio, which is why lot size and unit configuration drive the return more than finish level does.
What does a lender need from my contractor?
A line-item scope broken out by phase and trade, a construction schedule that reflects real permitting timelines, current license and insurance certificates, and inspection-ready milestones for the draw schedule. A one-page total will not clear underwriting on a construction loan.
Do you get paid all at once?
No. On a financed project, funds release in draws tied to inspected milestones — which is also why an accurate schedule matters to you and not just to the bank.