Four structures. The interest figure only appears when you type a rate and a term. We will not invent a “current mortgage rate.” Construction-loan interest is computed as if the full amount were drawn from day one, which overstates a typical draw schedule on purpose.
Your quotenot a national mortgage rateCFPB is the consumer reference for home-equity and mortgage basics. This page amortises the number a lender already gave you. Nothing here is a loan offer.
Type the project cost, cash you will put in, the structure, and (if you have it) the quoted annual rate and term. Cash on a $250,000 cost with $250,000 in hand is $0 borrowed.
Anything else subtracts cash from cost and amortises the remainder. A construction loan is labeled as worst-case interest because money is usually drawn in stages. Not lending or tax advice. HyreADU does not lend.
Structure first, then a quoted rate
Leave rate at 0 if you do not have a quote. Nothing is emailed.
—What this structure is
—Principal
—Total interest
—Monthly payment
—Read this
What this assumed—
Simple amortization of the amount you still need after cash. Construction path assumes full draw. Not a loan offer. HyreADU does not lend.
A state can make an ADU easy to build and still leave it hard to finance
The split between permission and money is the thing the trade knows and the homeowner does not. They are granted by two entirely separate systems, and only one of them has been reformed.
Our reading, stated as ours. Putting the two together: a state can make an ADU legal to build, quickly and without a hearing, and still leave it hard to finance — because the permission is granted by a planning statute and the money is governed by a secondary-market guide that no legislature amended.
That is our analysis of the retrieved material, not a claim either enterprise makes.
Why that matters more than it sounds. Every piece of good news a homeowner has heard about ADUs in the last few years came out of a planning statute. No hearing. No discretionary review.
A decision clock with teeth. Those are real and they are substantial — in California the decision is ministerial under Gov. Code § 66317(a)(1) and the agency has 60 days from a completed application to approve or deny.
None of that is a promise that a lender will fund it, because the lender is not reading the planning statute.
What the lender is reading. A conventional lender that intends to sell the loan on is reading the guides published by the two secondary-market enterprises that will buy it.
Those documents decide how an ADU is defined, how its floor area is counted in an appraisal, and whether the unit is eligible at all.
They were not amended when your state passed its ADU bill, because they are not state law and no legislature has jurisdiction over them.
The practical consequence. Two things that feel like one question — “can I build this?” and “can I pay for this?” — have to be answered by two different people, in two different conversations, against two different rulebooks.
A homeowner who gets a clean answer at the planning counter and treats the financing as a formality has done half the diligence and knows it as the other half arrives.
What this page therefore does. It compares four structures on how they behave, what they demand of you, and where they break — not on invented interest rates.
We do not publish a market rate, do not name products, and do not broker anything. HyreADU does not design, permit or build accessory dwelling units.
It does not appraise, lend, invest, let property or prepare taxes, it does not rank or refer contractors, and it takes no referral fee from anyone who does any of those things.
The appraisal rule that decides whether your build converts into value
If you take one thing from this page, take this. The square footage you build does not simply join the house’s square footage. It has to be carried by a separate adjustment that somebody must justify with evidence — and the evidence may not exist in your neighborhood.
Illustrative, and deliberately unitless: the bars show a rule about where floor area is counted, not any dollar value. Nothing here measures what an ADU is worth.Fannie Mae, Selling Guide B4-1.3-05, Improvements Section of the Appraisal Report, guide dated June 04, 2025. The reading of the area rule is HyreADU’s, and is labeled as such.
The definition first. “An ADU is generally an additional living area independent of the primary dwelling that may have been added to, created within, or detached from the primary dwelling.” And the basic test of what makes it a unit at all: “The ADU must have basic requirements for living, sleeping, cooking, and bathroom facilities on the same parcel as the primary dwelling.” Those two sentences are the guide’s own; everything after this paragraph is our reading of the surrounding section.
The area rule. The guide keeps ADU living area OUT of the primary dwelling’s finished above-grade square footage, requiring it to be reported and adjusted separately in the sales comparison grid unless it sits within the primary dwelling with interior access and above grade.
That is our reading of the retrieved section rather than a verbatim quotation.
Why that is the whole ballgame. So the 800 square feet you built does not simply get added to the house’s square footage and multiplied by a neighborhood rate.
Its value has to be carried by a separate adjustment the appraiser must support with market evidence — and in a neighborhood where few comparable sales have an ADU, that evidence may not exist.
Unpack the mechanism. An appraiser values a property by comparing it to properties that recently sold, and adjusting for the differences.
If ADU floor area were simply added to the house’s above-grade square footage, its value would follow automatically from the neighborhood rate per square foot.
Because it is not, the ADU has to be its own line of adjustment — and an adjustment is only as good as the market evidence supporting it.
In a neighborhood where no recent sale included an ADU, there is no evidence, and an appraiser without evidence cannot manufacture it.
The consequence for the borrower. A homeowner who assumes the build cost converts one-for-one into appraised value may find the after-improvement valuation lands lower than the money spent.
That is not necessarily a defect in the appraisal — it may be an accurate reading of a market that has not yet priced ADUs on that block.
It is nonetheless the moment a financing plan built on “the value will be there” stops working.
What to do with this before you borrow. Ask your lender directly how ADU area is treated in the appraisal they will order, and ask whether they can point to recent local sales with an ADU.
If the answer is that they cannot think of any, you have learned something expensive for free — and you have learned it while you still have the option not to proceed.
The eligibility sentence: why an unpermitted conversion is a money problem
People treat an unpermitted unit as a paperwork irritation to be tidied up eventually. In financing it is a gate, and gates are binary.
The sentence. “ADUs on 1-, 2- and 3-unit properties must be legally permissible by jurisdiction, legal non-conforming or be located in an area without zoning.” That is the published text at Freddie Mac, Accessory Dwelling Units.
Our reading of what it does. That eligibility sentence is a hard gate, and it is the reason an unpermitted conversion is a financing problem rather than a paperwork problem.
It is also why Maine’s statutory amnesty for units built without municipal approval is more consequential than it first looks: legalizing the unit is what makes it financeable.
Read the three permitted states carefully. Legally permissible, legal non-conforming, or in an area without zoning. A unit built without approval is in none of them. It is not a lesser version of compliant — it is outside the set. The consequence is not a worse rate; it is that the product does not apply.
Which is why an amnesty statute is a financing instrument. Maine took the unusual step of legislating that “An accessory dwelling unit that was not built with municipal approval must be allowed if the accessory dwelling unit otherwise meets the requirements for accessory dwelling units of the municipality and under this section.” (30-A M.R.S. § 4364-B (LD 2003 and later amendments)).
Read as a planning provision that is a modest tidying-up. Read against the eligibility sentence above, it is the step that moves a unit from outside the set to inside it — from unfinanceable to financeable.
Our analysis, not a claim either the state or the enterprise makes.
And the income side. “Borrowers may be able to use ADU income to qualify for home financing on their subject 1-unit primary residence (Guide Chapter 5306) or non-subject investment property (Guide Chapter 5306).” Note what that sentence is and is not.
It says income from an ADU may be usable in qualifying. It does not say your projected rent will be accepted, and it does not tell you what documentation the lender will want. Treat any projection as an assumption until somebody underwrites it.
The order of operations this implies. Legality first, money second, construction third. A homeowner who inherits an existing unpermitted conversion and wants to finance improvements to it is solving the legality problem whether they wanted to or not, and finding that out at application is finding it out late.
Four structures compared on shape and risk — not on invented rates
We publish no market rate, so this table compares the four structures on what they actually demand of you. The last column is what its absence from a conversation with a lender means.
Structure
What it actually is
Where it breaks
What its absence from the conversation means
Cash
No lender, no underwriting, no appraisal, no eligibility gate. The project’s legality still matters for other reasons; it stops mattering for funding.
Concentration and timing. A large sum becomes illiquid on somebody else’s construction schedule, and it is unavailable for anything else that happens during that period.
If nobody has asked what else that money was for, the opportunity cost has not been priced. Cash has no interest rate and it is not free.
HELOC or home-equity loan
A second lien against equity you already hold. Underwritten against the current property, generally not against the finished project.
Variable rates on a line, and available equity that is a function of a valuation you do not control. A draw period that ends is a repayment period that starts.
If the lender has not said whether the rate is fixed or variable and what happens at the end of the draw period, the payment you were shown is not the payment you will make for the whole term.
Construction loan
Money released in stages against inspected progress, usually converting to permanent financing at completion.
Draw schedules that do not line up with the builder’s payment schedule, inspection delays, and a conversion at completion priced on conditions nobody can see today.
If nobody has laid the draw schedule next to the builder’s payment schedule, the gap between them is being funded out of your own pocket and no document says so.
Cash-out refinance
Replacing the existing first mortgage with a larger one and taking the difference in cash.
It reprices the entire mortgage, not just the new money. Whether that is sensible depends on the rate you already hold — which this page cannot see.
If nobody has compared the blended cost against keeping the existing first mortgage and taking a second lien, the comparison that decides the question has not been run.
No rates appear in this table by design. The calculator above will amortise a rate you were actually quoted; it will not supply one.
The permission clock and the money clock run at different speeds
Statutory reform compressed the approval timeline. Nothing compressed the financing timeline, and the state’s own reporting shows where projects stop.
46,944 of 114,651 permit units in that cohort. Approval is not the hard part of an ADU; it is the part that was reformed.California Department of Housing and Community Development, Housing Element Annual Progress Report, Table A2. HyreADU calculation. Method on /research/california-adu-permits-vs-completions/.
The permission clock. 60 days from a completed application (Gov. Code § 66317(a)(3)), and if the agency misses it: “If the local agency has not approved or denied the completed application within 60 days, the application is deemed approved.” That is a statute drafted with the expectation of local resistance and a self-executing consequence attached.
The money clock has no such provision. There is no deemed-approved rule in lending.
No clock forces an appraisal to find comparable evidence that does not exist, and no legislature can shorten underwriting by statute.
The two processes are not merely separate, they are differently shaped: one is a duty with a deadline, the other is a judgment about risk.
Where projects actually stop. 41% of ADU permit units issued between 2018 and 2023 — 46,944 of 114,651 — have no matching completion in the state’s file. That is our calculation on the published dataset, and the method is on the research page.
Read the caveat with it. These are reported APR rows, not a physical census of construction.
An unmatched permit may be a unit still under construction, an abandoned project, a unit completed without a reported certificate, or a project whose identifier changed between the permit row and the completion row.
The direction is robust; the exact rate is a reporting artefact as much as a construction one.
Why that figure sits on a financing page. Because of when it happens. Every project in that unmatched group had already cleared approval.
Whatever stopped them stopped them after the permission problem was solved — which is precisely the point at which somebody has to produce the money.
We cannot tell you from this dataset how many stopped for financing reasons specifically; the file does not record why.
What it does establish is that the approval was not the binding constraint for a large minority of applicants.
And where the completions do land. Among matched projects the median lag is 1 year, with 79% completing within one year of the permit and 94% within two.
So a financing structure has to survive roughly a year of outgoing money before any income or occupancy exists — which is a different demand than a purchase loan makes.
Staged money versus available money
The real division between the four structures is not the rate. It is whether the money arrives in stages against inspected progress, or sits available for you to spend as you choose.
Staged: the construction loan
A construction lender releases funds against inspected progress. That discipline is genuinely protective — it makes it structurally harder to pay a long way ahead of the work, which is the classic way a homeowner loses money on a build.
The cost of that protection is friction. Every draw is an event that has to be requested, inspected and released, and each one is a place where the calendar can slip. If the builder’s payment schedule is keyed to different milestones than the lender’s draw schedule, the difference is bridged by somebody — usually you.
The question to ask before signing anything: show me the draw schedule and the builder’s payment schedule side by side, and tell me where they diverge.
Available: cash and home equity
Cash and a home-equity line put the money under your control. Nobody inspects before you pay, which is faster, simpler and removes the draw-schedule mismatch problem entirely.
It also removes the discipline. The protection a construction lender provides is not primarily about their money; it is that a third party with no stake in the builder’s cash flow is looking at the work before the next payment goes out.
If you fund from equity, that role is vacant, and you either fill it deliberately — with a payment schedule tied to observable progress — or nobody fills it.
This is the section where the honest recommendation is a behavior, not a product: whatever the source of the money, tie payments to things you can go and look at.
What to ask a lender, and what a straight answer sounds like
None of these require you to understand lending. They require the person across the table to demonstrate that they have done this before.
How will the appraisal treat the ADU’s floor area?
The answer you want shows they know it is not simply added to the house’s above-grade square footage, and that it will be carried by a separate adjustment. This single question sorts lenders who have closed ADU loans from lenders who have not.
Can you point to recent comparable sales in this area that include an ADU?
The market evidence that supports the adjustment either exists or it does not. A lender who says they will have to see is being honest. A lender who assures you the value will be there without naming a single comparable is guessing about your money.
Is every unit on this property legally permissible, legal non-conforming, or in an unzoned area?
That is the eligibility test in the published guide, and it applies to existing structures as much as to the one you are building. If there is an old conversion on the parcel, raise it yourself now rather than letting it surface at underwriting.
Have you closed a loan on this type of project, in this city, recently?
Specific and answerable. ADU lending is local in practice even when the guides are national, because the appraisal problem is local. Recent local experience is the qualification that matters.
If this is a construction loan: what are the draw triggers, and who inspects?
Get the schedule in writing and lay it next to the builder’s payment schedule. Ask what happens to the interest calculation if a draw is delayed, and what the conversion to permanent financing looks like at completion.
If this is a refinance: what does the blended cost look like against keeping my existing first mortgage?
A cash-out refinance reprices everything, not just the new money. The comparison against a second lien on the same amount is the analysis that decides it, and it is not a comparison this page can run because we cannot see the rate you already hold.
What documentation would you need to use projected rental income?
The published material says ADU income may be usable in qualifying. It does not say your projection will be accepted. Ask what evidence they need and how they will haircut it, before you build a plan that depends on it.
What is not in the rate?
Origination, points, title, inspection fees on each draw, and a conversion fee at the end of a construction facility. A rate is a component of cost, not the cost. Ask for the full list in writing and add it yourself.
What this page deliberately does not tell you
We publish our retrieval failures because a site that never says “we could not confirm this” is not being careful, it is being quiet. Three of them bear directly on financing.
FHANo FHA material appears on this site. The relevant mortgagee letter returned 403 to two clients, so nothing about FHA treatment of ADUs or of ADU rental income is published here — including anything about 203(k).Recorded retrieval failure
CFPBNo ADU-specific consumer-bureau guidance was found. Only general material with no ADU content, which we dropped rather than stretched into a claim it does not make.Recorded retrieval failure
No rateWe publish no market interest rate, no lender ranking and no product names. The calculator amortises a rate you were quoted. If you have no quote, leaving the field at zero is the honest state.HyreADU editorial policy
8 entriesTotal recorded retrieval failures on this site, each one looked for and not found or not served, and none of them appearing anywhere as a claim.HyreADU recorded failures
An absence stated is more useful than a gap filled. Every item above was on our list and is not on our pages.
What this tool cannot do
Specific failures, not a disclaimer. Each is a real way the output can mislead you.
It cannot see your existing first mortgage. On a cash-out refinance that is the largest omission on the page. The tool will amortise a rate against the gap and stay completely silent about the fact that you just repriced the whole house. That silence is a structural limit of the form, not an oversight.
It models a construction loan wrongly, on purpose. The arithmetic assumes the full principal is drawn from day one, which overstates interest against a real draw schedule. We prefer the number to be a ceiling you can plan under than a floor you are disappointed to exceed. It is not what your lender will compute.
It excludes every cost that is not interest. Origination, points, title, per-draw inspection fees and a construction-to-permanent conversion are all outside the figure. They are also how a low headline rate becomes an unremarkable total cost.
It cannot tell you whether you qualify. Credit, income, existing debt, the property’s condition and the lender’s own appetite for this kind of project are all outside it. A monthly payment you can compute is not a loan you have been offered.
It cannot value the finished unit. That is the appraisal problem this page spends most of its length on, and no calculator can resolve it — only local market evidence can, and only an appraiser can weigh it.
It has no view on tax. Deductibility of interest, the treatment of a rental unit, and anything about depreciation are outside this page entirely. We will not invent a bracket.
And the standing disclosure. HyreADU does not design, permit or build accessory dwelling units.
It does not appraise, lend, invest, let property or prepare taxes, it does not rank or refer contractors, and it takes no referral fee from anyone who does any of those things.
That is what allows these tools to conclude that the numbers do not work, that the answer is to keep the garage, or that the honest next step is a question at the planning counter rather than a deposit.
The words that do the work
Four terms that carry most of the confusion in an ADU financing conversation.
Legally permissible
One of the three eligibility states in the published guide, alongside legal non-conforming and located in an area without zoning. A unit built without approval is in none of the three, which is why legalization is a financing step and not merely an administrative one.
Legal non-conforming
A structure that does not meet current rules but was lawful when built and is permitted to continue. It is inside the eligibility set. It is not the same thing as unpermitted, and the two are routinely confused by people describing their own property.
Adjustment
The line in an appraisal that accounts for a difference between the subject property and a comparable sale. ADU value lives here rather than in the square-footage line, and an adjustment has to be supported by market evidence rather than asserted.
Draw
A staged release of construction-loan funds against inspected progress. The draw schedule and the builder’s payment schedule are two different documents, and the gap between them is real money.
The outcomes where the answer is not to borrow
A financing page that can only ever recommend financing is an advertisement. Three cases where the honest output is no.
When the appraisal evidence is not there. If your lender cannot name a recent local sale with an ADU, the after-improvement value supporting your plan is an assumption. Borrowing against an assumption is a specific and knowable risk, and knowing it before you sign is worth more than any rate you could negotiate.
When you would replace a lower-cost first mortgage. A cash-out refinance that reprices an entire existing mortgage in order to fund a comparatively small project can cost more over the term than the project.
The comparison is arithmetic anyone can run once they have both quotes — and this page cannot run it for you, because it cannot see what you already hold.
When the project only works on the optimistic rent. If the payment is only serviceable at a rent above what the ROI tool’s tight case produces, you are not financing a project, you are taking a position on a rental market.
That may be a position you are happy to take. It should be a decision rather than an accident of a spreadsheet.
And the ordinary case for waiting. Legality established, utilities answered in writing, a real bid in hand — those three things change what a lender is being asked to fund, and they cost very little to obtain.
A financing conversation held before them is a conversation about a hypothesis. There is rarely a penalty for having it later with better facts.
How this calculator works
Amount borrowed is cost minus cash (floored at 0). If the structure is cash, or cash covers the cost, interest is $0 on this form.
principal = max(0, cost − cash)
monthly rate = quoted APR / 12
n = years × 12
payment = principal × r(1+r)^n / ((1+r)^n − 1)
total interest = payment × n − principal
That is standard amortization. It is the wrong model for a construction loan, so when you pick construction the page labels the interest as a worst case: full draw from day one. Actual construction interest is usually less because funds release against inspections.
Closing costs, points, inspection fees and a construction-to-permanent conversion are not in the figure. Add them.
What each input means
Inputs on this tool, in the order they appear on the form.
Input
What it is actually asking
Structure
Cash, HELOC/equity loan, construction loan, cash-out refinance. A label plus a warning, then the same amortization if you type a rate.
Project cost
All-in. A factory invoice without site work will understate the principal.
Cash in
What will not be borrowed. Design fees already paid still count as cash you put in if you want the remaining principal to be right.
Quoted rate
APR from a lender who has seen the project. 0 means “show the structure, skip the interest.”
Term
Amortization years. Construction loans often have a short build period then convert; type the term you were actually quoted, not a 30-year hope.
Worked examples
Including one where the naive answer misleads, which is the example most calculators leave out.
Cash covers it
Cost $250,000, cash $250,000, any structure. Result: $0 borrowed, $0 financing cost on this form. The engine test. Cash still has an opportunity cost this page does not price.
HELOC for the gap, with a real quote
Cost $300,000, cash $50,000, HELOC, 8% for 15 years. Principal $250,000. The form amortises that rate. Compare the monthly figure to the ROI tool’s monthly rent after vacancy. If rent does not cover the payment plus operating, the rental story is a subsidy from the rest of your income. Name it.
The one where “rates are about 7%” misleads
Typing 7 because a headline said 7, on a refinance that would replace a 3.5% first mortgage. The ADU’s interest is not the only cost. You also just repriced the house.
This tool will happily amortise 7% on the ADU gap and stay silent about the first mortgage, because it cannot see it. That silence is the point of the refinance warning. Get a Loan Estimate on the whole picture.
What changes the result
Cash in is the only thing that shrinks principal. A higher rate with more cash can beat a lower rate on a larger loan. Run both.
Term stretches interest even when payment falls. A 30-year amortization of construction-gap debt is a 30-year relationship with that project.
Construction versus HELOC is not decided by this amortization. Draws, inspections, recourse and whether the product will fund an ADU at all are the lender’s rules.
Local considerations
Lender appetite for ADUs is local. Some markets have ADU construction products; many do not, and the homeowner uses a HELOC or cash. We will not name products. A lender who has closed this form of loan in your city is the filter. CFPB’s tools explain the documents, not the credit box.
When not to use this
Do not use this as a Loan Estimate, a qualification, or tax advice. Do not type a headline rate. Do not ignore the first mortgage on a cash-out refinance.
If you do not yet have a cost, use the cost calculator first. Financing a hole is how allowances get invented.
Cash, home equity (HELOC or home-equity loan), a construction loan that releases against inspections, a cash-out refinance, and sometimes a personal loan to bridge design. Which are available depends on the borrower, the property, the lender and the project. The homepage lists those categories. This tool puts a quoted rate on them.
What rate should I type?
The one on the Loan Estimate or the term sheet. If you do not have one, leave rate at 0. This page will not fill in a market average.
Why is construction-loan interest higher here than my lender said?
Because this amortization assumes the full principal is drawn from day one. Real construction interest accrues on draws. We overstate it so the number is a ceiling, not a pleasant surprise later.
Is a HELOC cheaper than a construction loan?
Only the quotes know. HELOC rates are often variable. Construction loans have origination, inspection and conversion costs this form does not itemize. Type both quotes, one at a time, and compare interest plus the fees you add in your head.
Should I refinance to pull cash out?
Only if the new rate on the whole mortgage is a trade you accept. Replacing a low existing rate to fund an ADU can cost more than a second lien. This page does not know the rate you already hold. CFPB’s owning-a-home material is the consumer walkthrough.
Can rental income qualify me?
Some products consider projected ADU rent. Treat any projection as an assumption. The ROI tool’s tight scenario is a more honest exhibit than a brochure’s rent.
Are points and closing costs in the interest figure?
No. Add them. Origination, title, inspection draws and conversion fees are how a “cheap” rate stops being cheap.
Is cash always best?
It has no financing cost and it concentrates a large sum in an illiquid asset on a construction timeline. That is a trade, not a virtue. The form will say $0 interest. It will not say you should.
What about ADU-specific loan products?
They exist in some markets and change. We do not list products or lenders. A local lender who has closed ADU construction loans in your city is the useful conversation, not a national product name on this page.
Is this lending advice?
No. HyreADU does not lend, broker or underwrite. Matching is still being built.
Sources and methodology
Figures dated 26 August 2026. Last reviewed .
Owning a home: mortgages and home equity (Consumer Financial Protection Bureau, retrieved 2026-08-26. Consumer reference for mortgages, closing costs and home-equity borrowing. Not a rate table.)
Hiring a contractor (Federal Trade Commission, retrieved 2026-08-26. Payment schedules tied to progress, not to the lender’s draw, still need to match. Ask.)