Across Los Angeles — and especially in the San Fernando Valley, where many lots have room to build — more homeowners are adding accessory dwelling units (ADUs), converting garages, or taking on major remodels. The question that comes up early is always the same: how do we pay for it?
For many homeowners with equity, a home equity line of credit (HELOC) is one of the first options worth looking at. Here's why, and what to think through before you borrow.
Why a HELOC fits a construction-style budget
Renovations and ADU builds rarely need all the money on day one. You pay for design and permits first, then a contractor deposit, then progress payments as work gets done. A HELOC is built for that pattern:
- Draw as you go. You're approved for a credit limit and draw funds when invoices come due.
- Interest on what you use. You typically pay interest only on the amount you've drawn, not the full line.
- Your first mortgage stays put. If you have a first mortgage rate you'd rather not give up, a HELOC sits alongside it instead of replacing it.
Most HELOCs have a variable rate, and they have two phases: a draw period, when you can borrow and payments may be lower, followed by a repayment period, when you pay back principal and interest. Understanding when your payment could change is part of planning the project. Our HELOC page covers the basics in more detail.
Other ways homeowners fund a project
A HELOC isn't the only tool. Depending on your situation, these may also be worth comparing:
- Home equity loan — a lump sum with a fixed rate and payment, useful if you have a firm contractor bid.
- Cash-out refinance — replaces your first mortgage with a larger one. It can make sense if refinancing your current loan also works in your favor. See rate-and-term vs. cash-out.
- Renovation loans — some programs base the loan on the home's expected value after improvements. These have their own rules and paperwork, so they're worth asking about if you don't have much equity today.
How much can you borrow?
HELOC limits are usually based on your combined loan-to-value (CLTV) — your first mortgage balance plus the new line, divided by your home's current value. Each lender and program sets a maximum CLTV, and your credit, income, and debt-to-income ratio also factor in. The best way to know your range is to look at your actual numbers together.
Plan the project before you plan the loan
The financing goes more smoothly when the project is clearly defined. Before you apply, it helps to have:
- A realistic budget with a contingency for overruns — construction costs rarely come in exactly as planned
- Contractor bids or at least a ballpark estimate
- A sense of your timeline, including permitting
- Your current mortgage statement and recent income documents
ADU rules — size, setbacks, permits, and what's allowed on your lot — are set by the state and your city, and they change over time. For those questions, check with the City of Los Angeles (or your city's) planning department, an architect, or a licensed contractor. We focus on the financing side.
What about future rental income?
Many homeowners build an ADU partly to rent it out. Whether and how future rental income can be considered in qualifying depends on the loan program and lender guidelines — it isn't automatic. If rental income is part of your plan, mention it early so we can look at which options account for it, if any.
The bottom line
If you have equity, a defined project, and a first mortgage you'd like to keep, a HELOC is often a strong fit for an ADU or remodel. If you need a fixed payment or your current loan is a good candidate for a refinance anyway, another option might be better. Either way, the decision is easier with real numbers in front of you.
Frequently asked questions
Can I use a HELOC to build an ADU?
Yes, a HELOC can generally be used for home improvements, including an ADU, as long as you qualify based on your equity, credit, and income. Permitting and building rules are separate and set by your city.
Is a HELOC rate fixed or variable?
Most HELOCs have a variable rate that can change over time. Some lenders offer options to fix the rate on part of the balance. Ask about this when comparing offers.
What is combined loan-to-value (CLTV)?
CLTV is the total of all loans secured by your home (your first mortgage plus the HELOC) divided by your home's value. Lenders use it to set the maximum line you can get.
Should I get a HELOC before or after I get contractor bids?
Having at least a rough estimate first helps you request the right credit limit. Some homeowners open a line early so funds are ready when the project starts. We can talk through the timing that fits your project.