How to Fund Your ADU Project: Grants, Loans, and Incentives

In Los Angeles, Accessory Dwelling Units (ADUs) have become a practical solution for homeowners looking to add value, create rental income, or house extended family. But no matter the motivation, funding an ADU requires a clear understanding of both costs and the regulations that affect development.

Here’s how to think strategically about financing an ADU and what tools are available to help you build within your budget.

1. Start With a Complete Cost Picture

Many homeowners underestimate what goes into an ADU budget. It’s not just about building costs. A realistic budget must include:

• Design and architectural fees

• Permitting and review costs

• Utility upgrades and connections

• Site prep, grading, or drainage

• Inspection fees and contingency funds

Depending on your site conditions and project type, costs in Los Angeles typically range from $40,000 (for conversions) to well over $300,000 (for detached new builds). Starting with an informed estimate is key to avoiding scope changes or delays later in the process.

2. Explore ADU Grant Programs in California and LA

Grants can offset early costs that usually stop projects before they start. A few major options:

• CalHFA ADU Grant: Offers up to $40,000 to cover pre-development expenses like plans, permits, and utility upgrades. Must be paired with an approved loan product.

• LA ADU Accelerator Program: Supports homeowners who rent to low-income older adults, providing tenant matching, support, and guaranteed rent.

• Permit Streamlining & Fee Reductions: In many cases, city fees may be reduced or waived particularly for smaller units or affordability-aligned projects.

Tip: These grants and incentives change frequently. We recommends verify eligibility with the Los Angeles Housing Department (LAHD) or CalHFA before submitting any designs.

3. Consider Loan Options Designed for ADU Projects

Several state and federal programs help homeowners finance ADUs through mortgage refinancing or home improvement loans:

• FHA 203(k) Loan: Allows homeowners to refinance their mortgage and include ADU construction in the loan total.

• Fannie Mae HomeStyle Loan: More flexible than the 203(k) and ideal for broader project scopes or detached ADUs.

• CalHFA-backed Loans: Can be bundled with the ADU grant for added savings on pre-construction costs.

These are especially useful for homeowners who plan to remain in the home long term and want stable monthly payments.

4. Look Into Local Loan Support from LA County

The LA County ADU Pilot Program provides low-interest loans for homeowners who agree to rent out their ADUs at affordable rates. This is one of the few local programs that directly supports construction financing.

Additionally, the city offers reduced sewer connection fees for ADUs under 500 square feet an important savings for projects built on tight budgets.

5. Alternative Private Financing Options

If grant eligibility is a barrier or public programs aren’t enough, consider tapping into private equity:

• Home Equity Loan (HEL): A fixed-rate lump sum that offers predictable payments.

• Home Equity Line of Credit (HELOC): Draw funds as needed during construction, paying interest only on what’s used.

• Cash-Out Refinance: Replaces your current mortgage with a larger one and uses the difference to fund the ADU.

These tools are best used when combined with clear design plans and verified feasibility to avoid over-borrowing.

6. Leverage Rebates and Tax Credits

Many ADUs in Los Angeles qualify for tax savings and rebates tied to energy efficiency:

• Federal Tax Credits: Up to 30% for solar, energy-efficient windows, HVAC, or water-saving systems.

• California Rebates: For smart thermostats, heat pump water heaters, and green materials.

• LADWP Rebates: For efficient plumbing fixtures and greywater systems.

Installing sustainable systems not only cuts long-term utility costs but may also help speed up approvals under certain zoning overlays.

7. Combine Funding Sources Strategically

The most successful ADU projects blend funding methods to reduce risk and maximize flexibility. A homeowner might:

• Use CalHFA grant funds for design and permitting

• Finance the build with a HELOC or FHA 203(k)

• Apply for rebates and tax credits during or after construction

This staggered strategy allows you to manage cash flow and avoid overreliance on any single funding source.

8. Know the Financial Return

Whether you plan to rent the unit, house family, or boost resale value, ADUs often deliver strong ROI:

• Property Value Increase: In LA, ADUs can raise a home’s value by 20–30% depending on size, type, and location.

• Rental Income: Monthly rents typically range from $1,500 to $3,000 depending on neighborhood and amenities.

Run the numbers carefully. We recommend using real rental comps and factoring in ongoing costs like property tax increases and maintenance.

9. Always Confirm Site Feasibility First

Before investing in design or financing, verify that your lot can support an ADU. Key factors include:

• Zoning classification and overlays

• Required setbacks and fire access

• Utility access and easements

• Lot size, slope, and buildable area

Final Thoughts: Build Within Budget, and Code

Los Angeles offers more ADU opportunities than ever before, but every successful project starts with smart planning and clear financial strategy. Grants, loans, and rebates can lower the cost, but only if the design, site, and permitting path are realistic from the beginning.