ADU Grant California: A Homeowner's Path to Expansion

The ADU Grant California was created to help homeowners get the funds they need to build accessory dwelling units (ADUs) on their properties. This financial assistance is a huge part of California’s plan to tackle the housing crisis by providing more affordable housing options, especially for those who don’t earn much money.

Although the latest round of grant funding has been used up, it’s still important to know how the program works so you can be ready when more money becomes available. In this guide, we’ll explain who qualifies for the grant, how to apply, and what kinds of ADU projects it covers. As a homeowner, you can take advantage of this program to create an extra living space and earn some rental income or house family and guests.

Overview of the ADU Grant California Program

California introduced the ADU Grant Program in 2021 to support the construction of ADUs across the state. The program is run by the California Housing Finance Agency (CalHFA), which got $100 million during the program’s first phase in 2021. The second phase (2023-2024) provided $25 million in grant funding, which has now been fully allocated.

The main goal of the program is to create more affordable housing to help solve California’s housing crisis. The grant is mainly for homeowners whose income is below 80% of the Area Media Income (AMI). 

The program gives eligible homeowners grants to cover the initial cost of building ADUs. Those who qualify can get up to $40,000 to cover costs such as getting permits, preparing the site, architectural drawings, paying impact fees and surveys, and other one-time upfront expenses.

How the ADU Grant Program Works

1. Applying for Funding: To begin, you’ll need to apply for a construction loan from an approved lender. At the same time, complete the necessary paperwork for your ADU grant application.
2. Loan Approval Process: Lenders usually look at your income stability and how feasible your construction plans are before giving their approval. Once your lender approves the construction loan, you’re then prequalified for the ADU grant.
3. Pre-Development Phase: Next, the pre-development phase starts. Costs incurred during this phase are covered by your construction loan. Meanwhile, your lender submits the ADU grant application to CalHFA, including invoices for pre-development expenses.
4. Grant Approval and Disbursement: CalHFA reviews your grant application. If approved, they will transfer the grant funds directly into your construction loan account.
5. Constructing Your ADU: Once you’ve secured the grant, you can start construction on your ADU. Your approved loan covers the entire construction process.

What ADU Projects Does the Grant Cover?

The ADU grant supports two main types of ADU projects that suit different homeowner needs:

• New Construction: You can use the grant to build a brand-new structure on your property, including constructing an apartment over your garage or building a standalone unit in your backyard from scratch.
• Conversion: This option is great if you have an unused garage, basement, or a room that you want to turn into a living space. The grant covers the pre-development costs of converting these areas into practical and efficient living spaces, making the most of your property’s existing space.

Who Qualifies for an ADU Grant in California?

To qualify for an ADU grant in California, particularly the ADU Grant Program, you need to meet certain eligibility rules as a homeowner, and your property must comply with specific requirements.

Homeowner Requirements

1. Your income can’t be more than 80% of your county’s AMI. The exact limit depends on where you live. The good news is that this limit is for the homeowner applying for the ADU grant, not the whole household.
2. You must legally own the property where the ADU will be built. Additionally, the main home on the property must be your primary residence. The grant money can’t be used for an ADU on a property that’s just an investment for you. It has to be the home you actually live in.

Property Requirements

1. The property must be located within the state of California and zoned for single-family residential use.
2. Your proposed ADU needs to be within the size limits set by the program.
3. The ADU design has to follow all local building codes, zoning rules, and land use policies.
4. You need to get all required permits and approvals from your local government before applying for the grant.
5. Your ADU project should be ready to start construction with permits already obtained when you submit the grant application.

Keep in mind that some grants might give priority to areas with high housing demand or close to public transportation.

What Does it Take to Get the Grant?

To get this grant, you need to secure financing from an approved lender to cover the ADU construction costs. The grant money can then be used to pay back those upfront expenses. The program has different loan options you can choose from, including:

• Cash-out Refinance: This lets you swap your current mortgage for a bigger one. The extra cash goes toward your ADU, and the grant helps you pay back those initial expenses.
• Home Equity Loan/HELOC: With these options, you are borrowing against your home’s value to fund the ADU. The grant can then be used to pay back the loan or credit line.
• Renovation Loan:  This loan is specifically for home improvements, including ADUs. It comes with fixed rates and repayment terms, and the grant can help you pay it back.
• Construction Loan:  This is a short-term loan with a higher interest rate. A construction loan makes sense if you need the money upfront for building your ADU. The grant can then be used to pay off this loan.

The state is always adding more approved lenders to the list, so make sure to check the CalHFA website to see the latest options.

How to Apply for the ADU Grant

To apply for the ADU Grant from the California Housing Finance Agency (CalHFA), follow these steps:

1. Contact an Approved Lender.  Start by reaching out to a lender on the CalHFA website. They’ll help you figure out if you qualify for the grant and guide you through the entire process.
2. Secure Loan Approval.  You’ll need a loan from an approved lender to qualify for the grant. As part of the loan application, you’ll need to provide structural plans or architectural drawings of your ADU to the lender. This allows them to assess the value of the project and determine the loan amount.
3. Complete the Grant Application. Once your loan is approved, you’ll fill out the ADU Grant application forms.
4. Start the Pre-development Phase. After loan approval, you can begin the pre-development work on your ADU, such as permits and site preparation. These costs will be covered through your construction loan account.
5. Grant Package Submission.  Your lender will submit the ADU grant application package, including cost lists and invoices, to CalHFA.
6. Grant Approval and Funding.  CalHFA will review your application along with the invoices. If everything checks out, the grant money will be sent to your loan account. This reduces the overall loan amount you need to repay.

Documents Required

When you apply for the ADU Grant, you’ll need to submit certain documents to make sure your application process goes smoothly. Here’s what you’ll need to include:

• Proof that you own the property
• Architectural designs for your ADU
• Soil test reports and permits
• Property surveys and details on any impact fees
• Energy reports related to your construction plans
• A breakdown of all your pre-development expenses
• Income documents, such as pay stubs or tax returns, are needed to check if you qualify
• A copy of the deed of trust for your current construction loan (if you’re financing the project)
• Documents showing approval of your loan and instructions for escrow
• Participant and Applicant Affidavits required by CalHFA

What to Do If the ADU Grant Is No Longer Available

The latest round of the ADU grant funding from the CalHFA has been fully allocated and is no longer available. Getting a grant can be quite challenging because there are way more homeowners applying than there are funds available. For example, only about 600 homeowners got the grant in the last round, and it all happened in just over two weeks (December 11, 2023, to December 28, 2023).

However, just because getting an ADU grant is tough doesn’t mean you should put off your ADU project indefinitely. Check the CalHFA website regularly for updates on potential future rounds. And if you’re eager to get started right away, there are other ways you can finance your ADU project.

Consider a RenoFi home renovation loan that lets you borrow up to 90% of what your home will be worth after the ADU project is complete. Unlike traditional loans, this option doesn’t require refinancing your mortgage so you get to keep your current rate. The best part is you get all the cash upfront without needing to wait for draws and inspections.

Remember, you can’t use the ADU grant to directly cover the build itself. First, you need to secure financing from one of the approved lenders. After that, you can use the grant money to pay back the initial expenses that come with constructing an ADU. But if you’re using financing options like a RenoFi loan, you can cover the entire cost of building your ADU from start to finish.

Other ADU Programs in California

There are several other programs you can explore apart from the ADU Grant California program. Here is a small list of other initiatives you might want to check out:

• CalHome Program: This provides grants to local agencies and nonprofits, which they can use to help low-income homeowners in building ADUs.
• San Diego Housing Commission ADU Finance Program: If you live in the San Diego area, this program offers unique financing options specifically for ADU construction projects.
• Local Early Action Planning (LEAP) Grants: While these grants are awarded to local governments, the funding helps them update planning documents and processes to accelerate housing production, including ADUs.
• Community Development Block Grant Program (CDBG): While not ADU-specific, this program provides annual grants to states and local governments to develop affordable housing and suitable living environments, which can include ADUs.

As a homeowner looking to get funds for your ADU project, it’s important to find out the specific requirements and how to qualify for each of these programs. Keep in mind that details and availability may change over time, so it’s a good idea to regularly check the latest information to make sure you have the most up-to-date information.

Are There Drawbacks to the ADU Grant California Program?

While the grant gives you free money, it’s important to consider some factors so you’re sure it suits you:

• The timelines are not very certain, and it might take some time to get the grant processed.
• Although the grant money you get is considered free money, there could be some tax implications. It’s a good idea to talk to a tax expert about how the grant may affect your annual taxes.
• The application involves lots of paperwork and steps. Your builder will also need to work with the lender for progress updates and site inspections.

Financing Your ADU With RenoFi

The ADU Grant California helped cover the upfront costs of building an ADU for many homeowners. But now that the latest round of funding is used up, homeowners have to look at other options.

RenoFi is the smartest way to finance your ADU project. ADUs not only increase your home’s value after renovation but can also generate rental income. However, ADUs are costly. If you don’t have enough equity in your current home, funding ADU construction with a home equity loan is impossible.

For example, let’s say your current home value is $500,000, and your outstanding mortgage balance is $400,000. You are planning on adding an ADU and expect the value of your home to increase to $640,000. Your current loan-to-value ratio (LTV) is already at 80%, which means that most home equity loans are out of reach because that’s the maximum LTV they allow. So, your borrowing power using your current equity is $0.

RenoFi, on the other hand, would allow you to go as high as 150% LTV of your current value or 90% of your after renovation value, whichever is lower. So, in this example, while using a standard home equity loan results in your borrowing power being $0, a RenoFi loan allows you to borrow up to $176,000 by using the after renovation value of your home!

Get started with your RenoFi loan here

RenoFi loans are the smartest way to finance a home renovation project. Unlike traditional loans, which are based on your current home value or require you to refinance your primary mortgage and give up your low rate, RenoFi loans are based on the after renovation value of your home. This allows you to borrow, on average, 11x more, get a low monthly payment, and keep your low rate on your first mortgage.