California Just Made ADUs Easier; Utility Hookups Can Take a Year; The Financing Mistake Homeowners Keep Making
California has spent years making it easier to build accessory dwelling units.
But there has been a pretty ridiculous problem hiding in the process:
You can get the ADU designed.
You can get it permitted.
You can get it built.
And then you can still wait months for the utility hookup.
California just took a swing at fixing that.
Governor Gavin Newsom signed SB 1196 on September 27, directing the California
Public Utilities Commission to establish clearer timelines for utility connections on ADUs
and other small projects — with penalties for utilities that miss those standards. The
bill’s author says some California homeowners and ADU builders have faced utility
delays of up to a year. Senator Jerry McNerney
That is not a small inconvenience.
If you financed the project, that delay can become a very expensive holding period.
I. CALIFORNIA IS TRYING TO REMOVE ANOTHER
ADU BOTTLENECK
ADUs have become one of California’s favorite answers to the housing shortage.
They can create:
Housing for aging parents.
A place for adult children.
Rental income.
More usable space.
Potential added property value.
And in many cases, housing without buying another parcel of land.
California’s Department of Housing and Community Development describes ADUs as an
effective way to add needed housing supply. California Housing Department
But getting an ADU approved is only one part of the process.
The unit still needs power.
It may need gas.
It may require water or other utility work.
And when those connections get delayed, the homeowner can end up sitting on a
completed or nearly completed project that still cannot be used the way it was intended.
SB 1196 is supposed to attack that problem by creating clearer utility-processing
standards.
That is good news.
But it does NOT solve the other major ADU problem:
How are you paying for the thing?
II. DO NOT START WITH “WHAT IS THE ADU LOAN
RATE?”
This is the mistake I see homeowners make.
They start with:
“What is the best ADU loan?”
That is backwards.
The first questions should be:
How much equity do you have?
What is your current first-mortgage rate?
How much will the project actually cost?
Will the project be built all at once or in stages?
Do you need the future value of the completed ADU to make the financing work?
And how much payment can you comfortably carry while the ADU is under
construction?
Those answers usually determine the financing strategy.
Not the name of the loan.
III. SOMETIMES THE BEST MOVE IS NOT
TOUCHING YOUR FIRST MORTGAGE
This is especially important for homeowners who already have a low first-mortgage rate.
Suppose you owe $500,000 on a mortgage with a very attractive rate.
You need $200,000 to build an ADU.
A cash-out refinance might provide the money.
But it also replaces the existing $500,000 loan.
Now you are not just financing the new $200,000.
You are repricing the entire $700,000 balance.
That can be a huge difference.
Depending on the homeowner’s equity, credit, income and project, it may make more
sense to consider a second-lien strategy such as a HELOC or fixed home-equity
loan instead.
That leaves the existing first mortgage alone.
It is not automatically the best answer.
HELOCs can have variable rates.
A fixed second has a different payment structure.
And the total combined loan-to-value still matters.
But this is exactly why the financing conversation needs to happen before someone
signs a construction contract.
IV. OTHER ADU PROJECTS NEED A COMPLETELY
DIFFERENT STRUCTURE
Some homeowners do not have enough current equity to fund the entire project with a
traditional second mortgage.
That does not necessarily mean the ADU is dead.
Renovation loans and construction financing may be able to look at the completed
project differently than a normal home-equity loan.
For a purchase, financing may sometimes be structured around buying the home and
completing the ADU work together.
For an existing homeowner, a construction or renovation structure may make more
sense when the project is large enough that current equity alone does not solve the
problem.
The tradeoff is usually more moving parts.
Plans.
Permits.
Builder review.
Budgets.
Draw schedules.
Inspections.
And potentially a different mortgage structure when construction is complete.
This is not:
“Click a button and get $250,000.”
The project and the loan have to work together.
V. THE RENTAL INCOME IS NOT THE ONLY REASON
TO BUILD ONE
I also would not evaluate an ADU only by asking:
“How much can I rent it for?”
That can absolutely matter.
But there are plenty of homeowners building ADUs for reasons that have nothing to do
with becoming landlords.
A parent may need to move closer.
An adult child may need affordable housing.
A family may want multigenerational living without putting everyone under the same
roof.
Someone may want an office or guest space now and rental flexibility later.
So the financial decision is broader than:
ADU cost versus monthly rent.
The real question is:
What problem is the ADU solving for your family or property?
And what financing structure solves it without creating a bigger financial problem?
THE BOTTOM LINE
California is making another attempt to remove friction from ADU construction.
SB 1196 targets utility delays that can leave homeowners waiting months — potentially
even up to a year — for a usable connection. Senator Jerry McNerney
That is progress.
But homeowners still need to solve the financing correctly.
Before you refinance the whole house, pull a HELOC, take a fixed second or sign a
construction contract, run the complete scenario.
Look at:
Your existing mortgage.
Your available equity.
The true project budget.
The construction timeline.
The payment during construction.
The expected finished value.
And what the ADU is actually supposed to accomplish.
Because building an ADU can be a fantastic use of a California property.
But the best ADU project is not just the one that gets approved.
It is the one that gets built — and financed — without wrecking the rest of your
financial plan.
About Michael Belfor
Michael Belfor is a Branch Manager and Loan Originator with approximately 24 years of
mortgage experience.
He has been recognized in American Pacific Mortgage’s President’s Club and among the
company’s Top 1% producers since 2017.
Michael works with homebuyers, homeowners, real estate investors and real estate
professionals on conventional, jumbo, FHA, VA, down-payment assistance, self-employed and Non-QM financing, DSCR/investment loans, TICs, condos, renovation financing, HELOCs, home-equity loans, construction financing and other complex mortgage scenarios.
California Just Made ADUs Easier — How to Finance an ADU in 2026
California signed SB 1196 to speed up ADU utility hookups. Learn how HELOCs, home-equity loans, renovation loans and construction financing can fit an ADU project.
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For internal links, I’d point HELOC to your HELOC-vs-cash-out page and ADU financing to your existing California ADU financing article. You already have both in the site library. Pasted markdown Pasted markdown
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