HELOC or home equity loan?
A HELOC generally provides an available line that can be drawn more than once. A home equity loan provides a lump sum. Either may add a second mortgage obligation when a first mortgage already exists. The CFPB comparison explains these differences.
| Question | HELOC | Home equity loan |
|---|---|---|
| How are funds provided? | Draws from an approved line, subject to its terms | A lump sum |
| What about rates? | Usually adjustable | May be fixed or adjustable |
| What needs checking? | Draw rules, payment changes and fees | Payment schedule, rate and fees |
What other paths should I ask about?
Ask a qualified lender whether cash-out refinancing, renovation financing or construction financing is relevant to your situation. Request a written explanation of what each would change about your existing mortgage, project requirements and total repayment cost. Availability through ADU Fund Co is not promised for every financing category.
Compare complete offers, not just a payment headline
- Use the same project budget and assumptions for each comparison.
- Ask for rates, fees, required cash and repayment terms in writing.
- Ask what changes if your property valuation or budget changes.
- Separate estimated rental income from income the lender actually accepts.
- Keep money and a plan for delays, overruns and ongoing property expenses.
What if I do not have enough equity?
Tell the lender early. Do not assume an unfinished ADU’s future value will count toward a HELOC limit. Ask what valuation basis applies and whether another product or a smaller project is worth considering. An inquiry is not an approval.
Where do permits fit?
Financing and project feasibility are separate checks. Review the California HCD ADU handbook and the relevant local planning department before committing to a design or timeline.
Sources & scope
Sources checked October 10, 2026. General educational information, not an individual financing recommendation. Loan terms and approval are determined by the lender. ADU Fund Co helps with initial inquiries and next steps.