This guide is for homeowners pricing an ADU against real 2026 rates, not last year's.
Rate data comes from the Freddie Mac weekly mortgage survey, the San Diego Housing Commission's own program page, and current HELOC rate surveys. For build cost ranges, pair this with garage conversion vs. detached ADU costs. For where permits are clustering, see the top San Diego ADU neighborhoods.
The five paths, side by side
What fits which homeowner
Each path on this list fits a different homeowner. The right one for you depends on four things: how much equity you already have, how much your household earns, the rate on your current mortgage, and how much you need to borrow.
The table below is the fast version. The sections after it walk through each path with real numbers.
| Path | Rate (Apr 2026) | Typical size | Equity needed | Strings attached | Best for |
|---|---|---|---|---|---|
| HELOC / home equity loan | 7.5% – 9.5% | Up to 85% CLTV | Yes, roughly 25%+ | None | Owners with strong equity |
| Cash-out refinance | 6.3% – 7.1% | Up to 80% LTV | Yes | Resets whole mortgage | First lien at 6.75%+ |
| Construction-to-permanent | 7% – 9% build, 6.5% – 8% perm | Up to as-completed value | Not required | Draws and inspections | Income but no equity |
| SDHC ADU Finance Program | 1% build, 4% fixed perm | Up to $250,000 | 25% of as-completed | 7-year rent cap | Households under $236,600 |
| Unsecured / renovation loan | 8.5% – 13% | Up to ~$100,000 | Not required | None | Small builds, fast close |
Rate bands in April 2026
Where each path prices today
The 30-year fixed mortgage is at 6.30% in the latest Freddie Mac release. A year ago it was 6.83%.
That one number drives almost everything else on this list.
HELOCs track the prime rate plus a lender margin. So they always price above a fixed mortgage. Cash-out refis price close to the 30-year, give or take. Construction loans sit higher still, because lenders are pricing a house that does not exist yet.
Here is how the ranges compare, all on the same axis. The dashed line is the current 30-year fixed for context.
6.30%
30-yr fixed mortgage
Freddie Mac PMMS, Apr 16, 2026
5.65%
15-yr fixed mortgage
Freddie Mac PMMS, Apr 16, 2026
6.83%
Year-ago 30-yr rate
April 2025, for context
ADU financing rate bands (San Diego, April 2026)
Source: Freddie Mac PMMS 04/16/2026; SDHC ADU Finance Program page; Bankrate HELOC and HEL rate surveys 04/2026
Path 1: HELOC or home equity loan
The default for homeowners with equity
A home equity line of credit, or HELOC, is the most common way San Diego homeowners fund an ADU.
You borrow against your home's equity. You draw the money as the contractor sends invoices. You only pay interest on what you have drawn.
A home equity loan is the fixed-rate version. One lump sum. One rate. Locked for the life of the loan.
HELOC rates in April 2026 run about 7.5% to 9.5%. They are variable, so the rate moves when prime moves. Fixed home equity loans run 7.5% to 9% and stay put.
Most banks will lend up to 85% of your home's value, minus what you still owe on your first mortgage. That cap is called the combined loan-to-value, or CLTV.
Here is the math.
Say your home is worth $900,000 and your first mortgage balance is $400,000. A HELOC lender will usually go up to about $365,000. If you draw $150,000 at 8.5%, the interest-only payment is roughly $1,063 a month.
The catch: when the draw period ends, usually after 10 years, the loan converts to a full payment. That payment jumps. You want a plan to pay it off, refinance it, or fold it into a new first mortgage before then.
A HELOC wins when you have plenty of equity, you like the rate on your current mortgage, and your build fits under the 85% CLTV cap. It stops working when prime climbs. Your payment climbs with it.
Quick check: total up your first mortgage and any new HELOC draw. Divide by your home's value. If that number is above 0.85, the HELOC math is already tight.
Path 2: Cash-out refinance
The quiet comeback
For three years, cash-out refinances were almost dead.
Homeowners with 2020 or 2021 mortgages at 2.75% or 3.25% were not going to touch them. That is still true. If your current rate is under 4%, do not refinance to build an ADU. You would trade the best rate of your life for a worse one.
What changed in 2026 is the 2022-2023 buying cohort.
If you bought a San Diego home between late 2022 and 2024, your mortgage probably prices between 6.75% and 7.5%. That is above the current 30-year fixed of 6.30%. A refinance is now cheaper than your existing mortgage.
Here is the math.
Picture a homeowner with a $400,000 balance at 7.125% and a $900,000 home. They need $150,000 for the ADU.
Option 1: keep the mortgage, stack a $150,000 HELOC at 8.5%. Combined monthly cost: about $3,722.
Option 2: refinance everything into a $550,000 mortgage at 6.75%. Monthly payment: about $3,568.
Option 2 saves about $150 a month. One fixed rate. No draw period to worry about.
The catch is closing costs. A refinance runs 2% to 3% of the loan amount. On $550,000, that is $11,000 to $16,500. You hit breakeven in 18 to 36 months. So this path only works if you plan to stay in the house through that window.
Path 3: Construction-to-permanent loans
How to build without the equity
The construction-to-permanent loan, sometimes called a future-value loan, is the path almost nobody explains. It is also the one that makes an ADU possible for homeowners without six figures of liquid equity.
Here is the idea.
A HELOC is sized against what your home is worth today. A construction-to-permanent loan is sized against what your home will be worth after the ADU is built.
Lenders run an 'as-completed' appraisal using the architect's plans, local comps, and the expected rent of the new unit. If that appraisal comes in at $1.2 million on your $900,000 current home, the loan is sized off the higher number.
That is the door that opens when your current equity does not stretch.
The money releases in draws. Usually three to six of them: foundation, framing, mechanicals, finish, close-out. An inspector signs off at each stage. During construction you pay interest only on what has been drawn so far.
The construction-phase rate runs about 7% to 9%. When the build is done, the loan converts to a 30-year fixed at whatever the permanent rate is that day. Right now that permanent rate prices between 6.5% and 8%.
Who offers this in San Diego? Mostly credit unions and a small set of regional banks. Most large retail mortgage shops do not write these. If the first bank you call gives you a blank stare, the product is real. They just do not offer it. Ask a local credit union first.
This is the right path when your home has appreciation baked in but you do not have much liquid equity to borrow against.
The trade-off is paperwork. Expect an inspection at every draw, a strict timeline, and a contractor who has been through the process before.
The shortcut for remembering which loan is which: a HELOC asks what your house is worth now. A construction-to-permanent loan asks what your house will be worth once the ADU is done.
Path 4: The SDHC ADU Finance Program
A San Diego-only deal most homeowners miss
This is the cheapest financing path on this list. It is also the one most homeowners never hear about.
The San Diego Housing Commission, or SDHC, runs a loan program that is only offered inside the City of San Diego. Almost no national ADU blog covers it. Most local ones bury it under a paragraph that calls it a low-income program.
It is not a low-income program.
Households earning up to 150% of the San Diego area median income qualify. For a household of five, that is $236,600. A lot of middle-class homeowners assume they are out of range. They are not.
Here is what the program offers, pulled straight from the SDHC page:
- Loan size up to $250,000
- 1% fixed rate during construction
- 4% fixed rate after construction, amortized over 30 years
- Up to 75% loan-to-value on the as-completed appraisal
- Minimum FICO score of 680
- Available only to owners of single-family homes inside the City of San Diego
The trade-off is a seven-year rent cap.
For those seven years, you can only rent the ADU to a tenant earning at or below 80% of area median income. Rent is capped at the HUD-defined affordable level for that income band. In most ZIPs, that cap is $1,600 to $2,000 a month for a one-bedroom.
In a coastal ZIP where market rent is $2,700, you give up real income. In an inland ZIP where one-bedrooms rent at $1,800, you give up almost nothing.
Run the math.
A $250,000 SDHC loan at 4% fixed over 30 years costs about $1,194 a month in principal and interest. The same $250,000 on a HELOC at 8.5% costs about $1,771 a month during the draw period. And that HELOC rate moves with prime.
Over seven years, the SDHC path saves about $48,000 in interest alone.
This program is a fit if you earn under $236,600, plan to hold the ADU as a rental for at least seven years, and live in a ZIP where market rent is close to the affordable cap. If that sounds like you, start your financing calls here.
$236,600
SDHC income cap
5-person household at 150% AMI
4.0% fixed
SDHC permanent rate
For the full loan term
7 years
Affordability window
Rent capped to 80% AMI tenants
Path 5: Personal and renovation loans
The small-build option
Unsecured renovation loans are the last path on this list.
Lenders like RenoFi and LightStream, plus a handful of San Diego credit unions, write unsecured personal or renovation loans for smaller ADU projects. They do not attach a lien to your home. No appraisal. Faster close.
The trade-off shows up in the rate.
Well-qualified borrowers see rates between 8.5% and 13% in April 2026. Loan sizes cap out around $100,000. Terms are short, usually 5 to 12 years, which pushes the monthly payment up. A $75,000 loan at 10% over 7 years runs about $1,245 a month.
Use cases are narrow.
This path fits when your build is under $100,000, you do not want the delay of a secured loan, and you can carry the higher payment. Most two-car garage conversions in the $80,000 to $150,000 range can work here if your credit and income are strong. Ground-up detached builds almost never fit. The numbers get too big for unsecured pricing to pencil.
How to pick the right path for your lot
A 60-second decision tree
Four quick questions narrow the field before you make a single phone call.
Question 1. Does your household qualify for SDHC? If your income is under $236,600 and your ZIP has modest market rent, this is almost always the best deal on the list. Start here.
Question 2. Is your current mortgage at 6.75% or higher? If yes, run the cash-out refinance math. One fixed loan at 6.30% is often cheaper than stacking a HELOC on top.
Question 3. Do you have 25% or more equity in your home? If yes, a HELOC or home equity loan is the quickest path. No draws. No inspections. No construction loan paperwork.
Question 4. No to all three? The construction-to-permanent loan is the path built for your situation. It does not care how much equity you have today. It cares what the property will be worth after the build, and whether your income can carry the debt.
Path five, the unsecured loan, is the fallback for small projects under $100,000 when you want speed over price.
Bottom line
Run your numbers before you run a bid
The right financing path depends on three things: your current mortgage rate, your household income, and your equity.
Most San Diego homeowners assume they already know which path fits. A quick five-path comparison usually surprises them. The SDHC program is the biggest surprise of all.
Before you call a contractor, get a parcel-level read on your lot. Run your address through CasitaScore for a $29 report that prices your likely build cost, estimates rent, and runs the payoff math.
For neighborhood-level permit context, see the top San Diego ADU neighborhoods. For the underlying build cost math, see garage conversion vs. detached ADU costs.