Our Guide to California’s $40k ADU Grant - CalHFA

Update November, 2023: The $40k ADU grant program through the state of California is reopening in early December 2023. There is a limited amount of funding and last year the funding ran out in a month. If you want to take advantage of this program to fund your Abodu, book a call with an Abodu lending consultant to get started and let us help you submit your application.**

Update March 1, 2023: The California Housing Finance Agency (CalHFA) is no longer accepting grant applications at this time.

In recent years California has recognized Accessory Dwelling Units (ADUs) as a powerful tool to help solve the state’s housing crisis. Also known as backyard homes or granny flats, there are a lot of benefits to getting an ADU, including adding extra livable space to their existing property.

As a result of this effort, the state has passed a number of initiatives to encourage ADU construction and expand affordable housing. One of these initiatives is the California Housing Finance Agency (CalHFA) ADU Grant Program.* Below we outline how the grant can be used, who qualifies, and requirements.

What is the CalHFA ADU Grant Program?

The ADU Grant Program provides low-to-moderate-income homeowners with a grant of up to $40,000 to cover the pre-construction costs of building an ADU. This sum is a grant, not a loan, so you don’t have to pay it back.

Pre-construction costs (also known as “soft” or “pre-development” costs) include expenses from planning and design phases, including:

• Architectural designs

• Permits

• Site prep

• Soil tests

• Impact fees

• Property survey

• Energy reports

The grant cannot be used for building materials or other construction costs. If your pre-construction expenses end up totaling less than $40,000, you can use the remainder to cover one-time closing costs such as loan fees or buying down loan interest.

At Abodu, we want to help you capitalize on this $40,000 opportunity. Our contracts and processes are structured to help homeowners take full advantage of the ADU Grant Program, and our team of experts is ready to help you through each step of the process with our turn-key solution to ADUs.

How do I qualify for the ADU Grant Program?

You Must be Below the CalHFA Income Cap

The first is that homeowners must be below the income cap that CalHFA assigned to their county. Before you think you don’t qualify, know that the income caps are quite generous — and they apply to the individual grant recipient (or borrower), not the total household income. The current income cap for San Mateo and Santa Clara counties is $300,000; in Sonoma county, it’s $223,000 (see the CalHFA’s list of income limits by county).

Meet Owner-Occupancy Requirements

The second eligibility factor is an owner-occupancy requirement — the recipient must live in and own the property where the ADU will be built. In other words, the grant cannot be put toward an ADU at an investment property.

What’s the catch? The ADU Grant Program loan requirement.

A key factor of the ADU Grant Program is that it requires homeowners to also get a loan from an approved lender to finance the ADU construction.

There are currently 17 approved lenders listed on the CalHFA ADU Grant Program website, and they offer various loan types including cash-out refinancing loans, home equity loans & HELOCs, renovation loans, and construction loans. The state is continuing to add more lenders to their approved list, so be sure to check the CalHFA ADU Grant Program website for the latest information.

ADU Loan Types

There are a number of different loan types available for ADUs. The most common financing options people use for an ADU include:

• HELOCs: Homeowners can use their home equity to secure funds for building an ADU, which use your home as collateral.

• Construction loans: This type of loan is a short-term loan — typically up to one year — that finances the building of a new home. Once it’s built, the borrower must refinance into a permanent home loan.

Renovation loans: This type of loan uses the post-renovation value of the ADU, meaning you can use future equity for building your ADU.

How does the ADU Grant Program work?

CalHFA lays out the ADU Grant Program process in five steps:

1. Application: The homeowner applies for a construction loan with an approved lender and completes the grant application paperwork.

2. Loan approval: The lender approves the construction loan, prequalifying the homeowner for the ADU grant.

3. Pre-development: The pre-development work starts, paid through the construction loan account. Meanwhile, the lender sends the ADU grant application to CalHFA, including invoices for predevelopment costs.

4. Grant disbursement: CalHFA approves the grant and wires the fund to the loan account.

5. Construction: Your ADU construction is completed and financed with the loan.

Applying for the CalHFA ADU Grant

The best way to get started with your application for the CalHFA ADU grant is to talk to one of the approved lenders on the CalHFA’s website. The lender will determine whether you’re eligible for the grant and take you through the entire process. Below is an outline of the CalHFA grant process, for more details, see the 5-step road map from CalHFA.

As we’ve discussed, you’ll need to apply for a loan in order to be eligible for the grant. In order to assess the value of your ADU and determine the loan amount, you’ll need to provide the architectural drawings or structural plans to the lender.

You’ll then complete the CalHFA ADU grant application and once your loan has been approved, the project will move into the pre-development phase, which is paid through the construction loan account. Your lender will send the ADU grant application package to CalHFA, including the list of costs and invoices.

CalHFA will then approve the grant and wire the grant funds to the loan account, which lowers the ADU construction loan principal the homeowner has to repay.

ADU Grant Program: Final thoughts

The $40,000 ADU Grant Program is designed to encourage California homeowners to add ADUs to their property. While the program will require some extra paperwork, the grant will help cover significant expenses in your project. And Abodu’s team of experts is here to help you through the process so you can make the most of this program.