An accessory dwelling unit or ADU is defined as an improvement or addition to a residential home. This addition creates an independent living space which may be attached or detached but is typically on the same land or within the same physical structure of the primary home.
People build ADUs for many reasons. They are often used as “granny flats” or “mother-in-law apartments”. Sometimes referred to as “backyard cottages”, an ADU can be a more affordable way to gather family and extended family in the area, provide housing, and without the expense of building an entire typically-sized house.
Accessory dwelling units are an affordable way to increase housing opportunities, which is one reason why the California Housing Finance Agency or CalHFA created an ADU grant program to help homeowners pay for these projects.
The CalHFA ADU Grant offers up to $40,000 per family for “pre-development and non-recurring closing costs” of building an ADU. An example of pre-development costs includes prepping the site, working with an architectural firm for designs, obtaining permits, surveys, and other expenses.
These grants are funded by CalHFA to the tune of $100 million, with approximately 2,500 grants projected. This is a program aimed at low-to-moderate income applicants, and by-county income limits will apply. As an example only, the 2022 income limit for Orange County was $235,000. That number is provided as an example only, your experience may vary.
It should be noted that this grant is not intended to fully offset the cost of building an ADU. Applicants must apply for a construction loan through the CalHFA network of participating lenders, and tell the lender they wish to apply for the ADU grant.
Some CalHFA programs require borrowers to be first-time buyers, they must attend homeowner education courses, and meet income restrictions. This program is a bit different in that there is no education or first-time home buyer requirement. The only requirement listed on the CalHFA official site to apply is the income restriction which is established by county.
A borrower must find a CalHFA participating lender and apply for an ADU construction loan. As part of this application process the borrower should ask the lender for a CalHFA ADU grant application.
The lender, upon approving the applicant for the construction loan, will also pre-approve them for the ADU grant. Any pre-development costs under this grant program will be included in the loan amount with little or no up-front cost to the borrower, according to the CalHFA official site.
The predevelopment work on the ADU will begin before the grant has been officially approved, the lender submits the grant application, and once approved will wire funds to the lender for the pre-development costs, “lowering the ADU loan principal the homeowner has to repay”.
There are many participating lenders who may be able to assist you with an application. Not all lenders participate in this CalHFA program but those who have in the past include:
- Academy Mortgage Corporation
- American Financial Network, Inc.
- American Pacific Mortgage
- CalCon Mortgage, Inc.
- Caliber Home Loans
- CMG Mortgage, Inc.
- Envoy Mortgage, Ltd.
- Evergreen Home Loans
- Guild Mortgage, LLC
- Flagstar Bank
- Homebridge Financial Services, Inc
- Land Home Financial Services
- Mortgage Management Consultants, Inc. dba MMC Lending
- Platinum Home Mortgage Corporation
- Primary Residential Mortgage, Inc.
- Priority Financial Network
- Supreme Lending
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Joe Wallace has been covering real estate, mortgage and financial topics since 1995. His work has appeared on ABC, The Pentagon Channel, Veteran.com plus a variety of print and online publications. He is a 13-year veteran of the United States Air Force and a former reporter for Air Force Television News.