Funding Your Del Mar ADU: Options and Pitfalls

Thinking about adding an ADU to your Del Mar property but unsure how to pay for it? You are not alone. Between coastal rules, rising construction costs, and shifting loan guidelines, it can feel overwhelming. This guide breaks down practical funding paths, real costs, and common pitfalls so you can plan with confidence. Let’s dive in.

Del Mar rules to know

Del Mar updated its ADU rules, and the City’s ordinance became effective after Coastal Commission certification in June 2025. Because Del Mar is in the coastal zone, allowable size and siting can depend on your lot and coastal findings. Start with the City’s ADU page for process details and site-specific guidance, including timelines and permit steps. Review Del Mar’s ADU resources.

If you intend to use an ADU as a vacation rental, know that Del Mar regulates short-term rentals and caps them in residential zones. The City is implementing permits, caps, and owner-occupancy rules, which can limit ADU listings on Airbnb-type platforms. Check the City’s latest rules before counting on STR income. See Del Mar’s short-term rental page.

Del Mar also launched a time-limited ADU Incentive and Amnesty program focused on legalizing unpermitted units and encouraging affordable ADUs through December 4, 2025. Incentives can change the net cash you need up front, so confirm current availability with City staff. Explore the ADU Incentive Program.

ADU costs to expect

• Detached ADUs in San Diego County often range about $300 to $600+ per square foot all-in, with total budgets commonly $200,000 to $450,000+ depending on size, finishes, and site complexity. Garage conversions and JADUs can be lower, often $100,000 to $250,000 depending on scope. Coastal Del Mar properties frequently land at the higher end due to site and design needs. See a local cost overview.
• Permit and plan check fees vary by scope. State law limits some impact fees for smaller ADUs, but you should still budget thousands to tens of thousands for permits and plan review. Del Mar’s ADU page and fee schedule are your best sources for exact figures.
• Property taxes will rise for the added ADU value, but Proposition 13 generally preserves your primary home’s base. Expect a supplemental assessment tied to the new construction and then the ADU value rolls into your annual tax bill. Learn how ADUs affect property taxes.
• Insurance and utilities can add cost and time. Detached units often need policy endorsements, and sewer, water, or electric upgrades can be significant. Local industry reporting highlights utility coordination as a common schedule risk. Review a utility and schedule risk overview.

Financing options that work

Cash or savings

Paying cash is the fastest route with no interest or underwriting. It works well for smaller conversions or when you want to avoid refinancing. The tradeoff is tying up liquidity, so keep a contingency reserve for delays and change orders.

HELOC or home equity loan

A HELOC offers revolving funds, usually with a variable rate, while a home equity loan is a fixed-rate installment. These are popular for ADUs because they can close quickly and cover soft costs or draw shortfalls. Be mindful of rate risk on HELOCs and the fact that you are securing the debt against your home.

Cash-out refinance

You replace your current mortgage with a larger balance and take the difference to fund the ADU. This can simplify payments into one loan and may improve terms if rates cooperate. Confirm how your lender treats projected ADU income at qualification, especially if you do not have an existing lease.

Construction-to-permanent loan

A construction loan funds draws during the build, then converts or is refinanced into a permanent mortgage. It is common for detached ADUs with larger budgets and site work. Some public programs use this format, but many are limited by geography and income rules. For example, the San Diego Housing Commission’s ADU Finance Program has historically served City of San Diego addresses and may not include Del Mar. See SDHC’s ADU program summary.

Renovation loans using after-value

Conventional renovation products, such as Fannie Mae HomeStyle, can finance an ADU based on the as-completed appraised value. You combine the mortgage and renovation funds, with draws released during construction. You will need a lender that offers the product and an appraisal that supports the scope. Review Fannie Mae’s HomeStyle Renovation FAQs.

FHA 203(k) and ADU updates

FHA updated its ADU policy in 2023 to expand options. Under Mortgagee Letter 2023-17, lenders may count a portion of ADU rental income in qualifying and can finance ADUs with 203(k), subject to documentation and appraisal rules. Ask lenders how they apply FHA’s limits for projected versus existing ADU income. Read FHA’s ADU policy update.

Public grants and special programs

Public funds can reduce out-of-pocket costs but often come with owner-occupancy, income, and rent limits for a set term. CalHFA’s popular $40,000 ADU Grant was fully reserved as of December 28, 2023, and new rounds may open periodically. Always check current status before you plan around a grant. Check CalHFA’s programs page.

Pitfalls to avoid

• Counting on grant dollars that are not available. Many programs are limited and fill quickly, so verify status early and often.
• Underestimating utilities and schedule. Service upgrades, meter work, and coastal review can extend timelines and budgets. Build in time and cost contingencies.
• Assuming short-term rental income. Del Mar’s STR caps and rules can limit or prohibit ADUs as vacation rentals in many zones. Confirm before you factor STR revenue into your plan.
• Overestimating rental income for loan qualification. Lenders may cap how much projected rent they count and will require appraisals and documentation. Ask these questions upfront to avoid surprises.
• Choosing the wrong loan for rate risk. HELOCs are flexible but can get expensive if rates rise. Compare HELOCs, cash-out refi, renovation loans, and construction-to-permanent options side by side.
• Missing property-tax and insurance impacts. Budget for a supplemental tax bill and policy changes when the ADU is complete.

Your step-by-step plan

1. Confirm feasibility with Del Mar Planning. Ask about setbacks, coastal findings, allowable size, and timelines using the City’s ADU resources.
2. Get a detailed builder estimate. Separate hard costs, soft costs, utility hookups, and a contingency.
3. Choose a financing path. Compare HELOC, cash-out refi, construction-to-permanent, or renovation loans based on your budget, timeline, and rate outlook.
4. If you want public funds, verify eligibility. Check program status, income limits, and any affordability commitments before you count on them.
5. Prep documents for underwriting. If you plan to use ADU rent to qualify, gather market rent data and ask lenders what they will require.
6. Budget for taxes, insurance, and utilities. Plan for a supplemental tax assessment, policy updates, and possible utility upgrades.

Ready to model the numbers and pick a financing path that fits your goals in Del Mar? Reach out to Jorge Alvarez for local guidance, lender introductions, and a clear plan from feasibility to financing.

FAQs

What are the most common ways to fund a Del Mar ADU?

• Most homeowners use a HELOC or home equity loan for flexibility, a cash-out refinance for one fixed payment, or a construction-to-permanent or renovation loan for larger projects and as-completed value.

Can I rent my Del Mar ADU on Airbnb or VRBO?

• Del Mar regulates short-term rentals with caps and permits, and many residential zones limit or prohibit ADUs as STRs, so verify current rules before planning on vacation-rental income.

How much does a Del Mar ADU usually cost?

• Detached ADUs often run about $300 to $600+ per square foot all-in, with many projects totaling $200,000 to $450,000+, while garage conversions or JADUs can be about $100,000 to $250,000 depending on scope.

Will my property taxes go up after adding an ADU?

• Yes, you will receive a supplemental assessment for the new ADU’s value, but Proposition 13 generally preserves the base value of your existing home, so only the added value is assessed.

Can lenders count ADU rent to help me qualify?

• Often yes, but it depends on the loan type and documentation; FHA and some conventional renovation products allow a portion of ADU rent with appraisal support and specific limits.

Are there grants or local programs I can use near Del Mar?

• Public programs exist but are limited and often fully allocated; CalHFA’s prior ADU grant is fully reserved, and City of San Diego programs like SDHC may not cover Del Mar addresses, so always confirm eligibility and funding status first.