Unlike a standard home equity loan or HELOC—which lets you borrow based on your home’s current market value—these Loans allows you to borrow based on your home’s expected value after renovations.

This can be especially helpful for newer homeowners who haven’t built up much equity yet, as it often gives them more borrowing power. Traditional options may work well for long-time homeowners with significant equity, but a renovation-based loan is designed to fund projects that boost a home’s future value.

Keep in mind, however, there’s no guarantee your home’s value will increase after renovations. In rare cases, you could end up owing more than the property is worth.

Renovation loans are often a faster and more flexible option than full construction financing. Although they still include things like draw schedules and inspections, the overall process is usually simpler—especially when you’re improving an existing home. You’ll get one loan for the ADU build, and your contractor can get started quickly without jumping through the same hoops required for new construction.