CALHFA ADU Grant Program: What You Need to Know

The CalHFA ADU Grant Program is designed to help homeowners in California build extra living spaces on the same lot as their primary residence. The program offers money that helps cover the costs of planning and building Accessory Dwelling Units (ADUs). So, if you’re a homeowner, the grant makes it easier to expand your home or create rental units.

In this article, we’ll explain the key points of the grant program. We’ll cover who can apply, how to apply, what the grant money can be used for, and more. We’ll also highlight other ways to finance your ADU project if you can’t get the grant.

Overview of the CalHFA ADU Grant Program

The California Housing Finance Agency’s (CalHFA) ADU Grant Program is a statewide initiative to help tackle the Golden State’s housing crisis. It does this by giving free money to homeowners who qualify to construct ADUs.

The main goal of the program is to address California’s housing shortage by helping with ADU creation across the state. Homeowners who qualify can get up to $40,000 in grant money to cover architectural designs, site preparation, and other initial costs of building ADUs.

How to Apply for the CalHFA ADU Grant Program

Before you apply, make sure you meet all eligibility criteria, including homeowner status, property type, and income limits.

1. Gather the Required Documents

Before starting your application, make sure you have the following documents ready:

• Proof of property ownership and residency in California
• Income documentation, such as pay stubs or tax returns, to verify your income level is within the limits
• Preliminary ADU plans or designs showing what you intend to build or convert
• Necessary permits or zoning approvals from local authorities

2. Find an Approved Lender

The CalHFA ADU Grant is provided through approved lenders, so you’ll need to work with one of these lenders to apply. You can find a list of approved lenders and partner organizations on the CalHFA website. Get in touch with one of these lenders to begin the application process and get pre-qualified for the grant.

3. Complete the Application With Your Lender

Work closely with your approved lender to fill out the application form accurately and provide all required information. Your lender will help you submit the application and supporting documents to CalHFA.

4. Wait for a Decision and Follow-Up

CalHFA will review your application and may request additional information if needed. Once approved, you’ll receive instructions on how to access the grant funds through your lender. If your application is denied, ask your lender for feedback and explore other financing options for your ADU project.

How the CalHFA ADU Grant Program Works

The program provides money to homeowners who qualify as reimbursement for the early, upfront costs to get the ADU project started. The grant funds also help pay for closing fees when securing financing from approved lenders for the ADU.

To participate in the grant program, you’ll need to find approved lenders. These lenders can use their own methods to price and provide construction loans for your ADU project. 

Once you’re approved for the grant, you’ll work closely with your lender to set up a construction escrow account. The lender will then manage payments from this account as your ADU is being built to make sure everything is according to requirements.

Here’s a quick rundown of how the program works:

• Homeowners and their properties need to meet certain requirements to be eligible
• Those who qualify can apply for the grant through approved lenders
• Applications are submitted along with the required documents
• If approved, homeowners get the money to help pay for the expenses of building the ADU

Keep in mind that funding for the latest round of the grant has been fully allocated. That said, there’s a possibility of additional grant funds becoming available in the future. It’s a good idea to regularly check the CalHFA ADU Grant Program website for updates on future grant opportunities.

And while the grant is no longer available for the time being, getting a solid grasp of how the program works and what it takes to qualify can help you prepare for future opportunities. Understanding how to qualify, the application process, and how to find approved lenders will put you in a strong position to apply successfully if and when new grant funds are released.

Eligibility for the CalHFA ADU Grant

To be eligible for the CalHFA ADU Grant Program, you need to meet specific criteria. Here’s what you need to know to figure out whether you qualify for the grant and what requirements you must fulfill.

• Homeowner Status: First, you must be a homeowner in California. Additionally, the property where you plan to build the ADU must be your primary residence where you actually live.
• Property Type: Your property should be a single-family home. Some multi-family properties, such as 2 - 4 units, might also qualify, but single-family homes are the primary focus.
• Income Limits: The program may have income limits to ensure that funds are directed to those who need them most. Eligibility is usually based on a certain percentage of the Area Median Income (AMI). Remember that the income limit varies by county, so be sure to check the current limits for your area on the program’s website or with an approved lender.
• Creditworthiness: You must demonstrate good creditworthiness, as having a good credit score can strengthen your application. While specific credit score requirements can vary, having a solid credit history shows you are financially stable and will improve your chances of approval.
• Zoning Compliance: Your property must comply with local zoning laws and regulations regarding ADUs. Ensure that your plans meet all local building codes and zoning requirements.

Loan Requirements

The ADU grant money is given through approved lenders, so you must first take out a loan from an approved lender before receiving the grant. This grant typically reimburses you for expenses covered by the loan. To secure financing, you must meet the lender’s loan requirements, which include providing necessary documentation and meeting their credit criteria.

At RenoFi, you can easily qualify for a home renovation loan that can be applied toward your ADU project. This is especially helpful if you can’t meet CalFHA’s lender requirements or the grant is no longer available. 

We can connect you with experienced lenders who can work with you to figure out the best loan for your situation. Apart from giving you more borrowing power, RenoFi loans often come with way lower fees and interest rates than similar products from banks.

Expenses Covered by the CalHFA ADU Grant

The CalHFA ADU Grant Program offers up to $40,000 to help cover the costs of building your accessory dwelling unit. To make the construction process more affordable and manageable, the grant is designed to reimburse you for two major categories of expenses: pre-development costs and non-recurring closing costs.

Pre-Development Costs

The grant covers several upfront expenses, including:

• Site Preparation: Getting your property ready for construction
• Architectural Designs: Paying for professional plans and blueprints
• Permits: Covering the cost of required building permits
• Soil Tests: Making sure the ground is suitable for construction
• Impact Fees: Paying for fees that local governments may charge for new development
• Property Surveys: Professional assessments of your property’s boundaries
• Energy Reports: Evaluations of energy efficiency requirements
• Utility Hookups: Connecting your ADU to essential services, such as water, electricity, and sewage

Non-Recurring Closing Costs

The grant also helps with certain non-recurring closing costs related to ADU construction. These are one-time fees that you won’t have to pay again.

Is the ADU Grant Free?

Yes, the CalHFA ADU Grant is free money, so you don’t have to repay it. However, there are a few important points to keep in mind:

• The grant covers only the key upfront costs of building an ADU, not the actual construction costs.
• The grant money is provided directly to the construction escrow account and can’t be used to reimburse costs you’ve already paid out of pocket. However, any pre-development or closing costs you’ve covered upfront can be reimbursed through a principal reduction on your construction loan for the ADU.
• Although the grant itself is free, you may need to pay taxes on the funds you receive. CalHFA usually issues a 1099 form for the year the funds were wired into the construction escrow account. It’s a good idea to consult a professional to understand any taxes you may have to pay.

Other Ways to Finance Your ADU Without the Grant

Building an ADU is anything but cheap. However, it is a lot quicker to construct and more affordable than a standard home, but it still requires a significant amount of money. Even with the ADU grant, you’ll still need more funding to cover the entire cost of building from start to finish.

RenoFi is a new way to finance your ADU project. ADUs not only increase your home’s value after renovation - e.g. the value of your property after the ADU has been built - 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

Getting Started With Your ADU Project

Whether you get a grant or take out a loan, it’s important to carefully plan your ADU project. Before you start building or making design choices, there are a few essential steps you should take to ensure everything goes smoothly and meets legal requirements.

• Understand Zoning and Building Requirements. Know the local zoning laws and building codes, such as setbacks, height restrictions, and ADU size limits, to make sure your ADU project complies with regulations.
• Explore Pre-Approved Plans. Check if there are pre-approved ADU plans available from your local authorities. Using these can make it quicker to get permission to build.
• Evaluate Your Property. Consider how the new unit will affect existing structures and make sure it’s easy to connect to utilities like water and electricity. This will help you find the best spot for your ADU.
• Select a Contractor. Research and select qualified contractors or builders with experience in ADU construction. This way, you can rest assured that they will provide quality workmanship and comply with building codes.

Make Your ADU Plans a Reality With RenoFi

The CalHFA ADU Grant Program can reduce the financial burden of building an accessory dwelling unit. It’s essentially free money to help offset some of the initial upfront expenses of ADU construction. However, the grant may not be readily available when you need funds for your project.

The good news is you don’t have to put your ADU project on hold indefinitely just because the grant program is not accepting applications. With RenoFi’s flexible loan products, you can access the funds to start your project right away.

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.