HELOC/HELOAN

What is a HELOC/HELOAN?

A Home Equity Line of Credit (HELOC) or Home Equity Loan (HELOAN) allows homeowners to use their property’s existing equity to fund improvements, upgrades, or new construction — including Accessory Dwelling Units (ADUs) such as garage conversions, backyard cottages, or rental suites. These loans provide flexible access to funds that can increase property value, create rental income, and improve long-term cash flow.

Who is eligible for a HELOC/HELOAN for ADU Projects?

Eligibility varies by lender, but typically homeowners should have:
Sufficient equity in the property (lower loan-to-value required if the property is an investment)
A manageable debt-to-income (DTI) ratio, often 43% or lower
A stable income history to support repayment
For investment properties: lenders may require ownership for at least 12 months and possible reserves required

For primary residences, qualification is generally easier, with more lenders and more flexible terms.

What are the benefits of using a HELOC/HELOAN for an ADU or Rental Conversion?

Leverage your home’s equity to build an ADU or convert unused space
Create new rental income and increase cash flow
Boost long-term property value
HELOCs offer flexible, revolving access to funds during construction
Primary-residence HELOCs often offer easier qualification
Potential tax advantages if used to “buy, build, or substantially improve” the home securing the loan

Other Information for a HELOC/HELOAN for ADU Projects

HELOCs for investment properties may require:
- Higher equity levels (75–80% LTV)
- Fewer lenders available
- Possible reserves required
HELOCs secured by a primary residence cannot offer tax-deductible interest if used to improve a different property.
Homeowners can consider alternatives such as a HELOAN.
All loans are subject to lender guidelines and credit approval.