Over the past several years, California has grappled with a significant housing shortage. The state's housing production hasn't kept pace with the growing market demand, leading to skyrocketing home prices and limited availability. Many Californians are now forced to endure long commutes from distant locations just to find affordable and suitable housing. To address this crisis, alternative housing solutions like Accessory Dwelling Units (ADUs) have gained popularity. ADUs—also known as granny flats, in-law units, backyard cottages, or secondary units—offer an innovative and cost-effective way to add much-needed housing across the state.
In this article, you'll learn about:
- 1. The Reason Behind the Program's Existence
- 2. CalHFA's Role in the ADU Grant Program
- 3. Understanding the CalHFA ADU Grant Details
- 4. Eligibility Criteria for Applicants
- 5. How to Apply for the ADU Grant Program
- 6. CalHFA income requirements
- 7. Step-by-Step Guide to Securing a CalHFA ADU Grant in California
- 8. Frequently Asked Questions (FAQs)
- 9. Summary
The Reason Behind the Program's Existence
The ADU Grant Program was established to actively promote the creation of affordable housing units throughout California. Recognizing the urgent need for more housing, the California Housing Finance Agency (CalHFA) emphasizes the importance of utilizing every opportunity to build ADUs. By empowering homeowners to invest in and share their properties, the program addresses a significant housing need while also fostering community growth.
CalHFA, or the California Housing Finance Agency, is a state agency established to provide financing and programs that help low- and moderate-income Californians find affordable housing. CalHFA offers various loans, grants, and assistance programs aimed at promoting homeownership, building affordable housing, and addressing the state's housing challenges. The CalHFA ADU Grant Program is one of its initiatives, designed to help homeowners finance the construction of Accessory Dwelling Units (ADUs) by covering pre-development costs.
In 2021, CalHFA secured a substantial budget of $100 million to launch the ADU Grant Program. This funding comprised $81 million from the state general fund and an additional $19 million allocated by CalHFA itself. The program offers grants of up to $40,000 to low- and moderate-income homeowners, helping them cover pre-development and non-recurring closing costs associated with constructing an ADU. The initiative quickly gained traction due to its substantial benefits, distributing grants across 44 of California's 58 counties. Notably, 42% of the funds were directed toward socially disadvantaged areas, with over half of the grants awarded to Black, Indigenous, and People of Color (BIPOC) communities.
CalHFA's Role in the ADU Grant Program
The California Housing Finance Agency plays a pivotal role in facilitating the ADU Grant Program. CalHFA is dedicated to supporting first-time and lower-income homeowners by offering affordable home financing solutions. By launching the ADU Grant Program, CalHFA aims to distribute the allocated funds effectively to those in need, ensuring that the grants make a meaningful impact on the housing crisis. The agency not only provides financial assistance but also oversees the proper allocation and use of the grant funds to maximize the program's benefits.
Understanding the CalHFA ADU Grant Details
The CalHFA ADU Grant Program provides eligible homeowners with up to $40,000 to offset common costs associated with ADU projects. These grants are designed to cover pre-development expenses and non-recurring closing costs, which can include:
- Site preparation
- Architectural designs
- Permitting fees
- Soil tests
- Impact fees
- Property surveys
- Energy reports
An important aspect of the program is that the $40,000 is a grant, not a loan. This means homeowners are not required to repay the funds, allowing them to enhance their property without the burden of additional debt.
Eligibility Criteria for Applicants
To qualify for the ADU Grant Program, applicants must meet several criteria:
- Ownership and Residency: You must own the property and use it as your primary residence where the ADU will be constructed.
- Income Requirements: Your household income must be at or below 80% of the area median income. Income limits can be quite generous; for example, in Los Angeles County, you can earn up to $180,000 per year, and in Orange County, up to $235,000 per year and still be eligible.
- Property Type: The property must be a single-family home or a multifamily dwelling (such as a duplex) zoned for ADUs.
- Financial Standing: The property should be free of any outstanding liens or judgments.
- First-Come, First-Served Basis: Applications are processed in the order they are received, so timely submission is crucial.
How to Apply for the ADU Grant Program
Applying for the ADU Grant Program involves several steps:
1. Gather Required Documents:
Ensure you have all necessary documentation in PDF format, which includes:
- - Proof of Income
- - Recent Utility Bill (Water, Electricity, Gas)
- - Tax Returns
- - Scope of Work for your ADU project (budget or cost estimate)
2. Submit Your Application:
Complete the application process, providing all required information and documents. Missing documents can delay your application or cause you to miss the submission window.
3. Await Confirmation:
Once your application is submitted, you will receive an email with your reservation number, confirming that your application is being processed for final approval.
4. Utilize the Funds:
If approved, the grant funds will be placed into a managed escrow account along with any of your own funds or financing. These funds will be safely disbursed to approved third-party vendors throughout your ADU project.
5. Financing Options:
If you need additional financing to bridge the gap between your resources and the total project cost, CalHFA offers second mortgages through pre-approved lenders. The grant can also be used to cover non-recurring closing costs or to buy down the interest rate on these loans.
CalHFA income requirements
The 2023 Low-Income Limits for the CalHFA ADU Grant Program vary significantly across California's counties, with limits set to ensure access to financial assistance for low-income households. These limits are based on 80% of the Area Median Income (AMI) in each region, effective from November 1, 2023. For example, counties like Santa Clara and San Benito have the highest limits, both at $143,040, while Imperial and Tulare counties have some of the lowest, at $54,320 and $54,160 respectively. Larger metropolitan areas such as Los Angeles and Orange have limits around $84,160, while more rural areas like Colusa and Lassen are set at $67,040. These income thresholds ensure that homeowners across various income brackets can access funds to support the construction of accessory dwelling units (ADUs), contributing to more affordable housing solutions statewide.
Here is the complete list of Low-Income Limits by county:
- Alameda: $126,560
- Alpine: $91,680
- Amador: $80,960
- Butte: $73,280
- Calaveras: $76,960
- Colusa: $67,040
- Contra Costa: $126,560
- Del Norte: $67,040
- El Dorado: $91,120
- Fresno: $63,520
- Glenn: $67,040
- Humboldt: $67,040
- Imperial: $54,320
- Inyo: $68,320
- Kern: $58,080
- Kings: $58,080
- Lake: $67,040
- Lassen: $67,040
- Los Angeles: $84,160
- Madera: $65,280
- Marin: $126,560
- Mariposa: $67,040
- Mendocino: $71,760
- Merced: $53,920
- Modoc: $67,040
- Mono: $76,640
- Monterey: $80,320
- Napa: $103,680
- Nevada: $90,000
- Orange: $84,160
- Placer: $91,120
- Plumas: $67,040
- Riverside: $75,600
- Sacramento: $91,120
- San Benito: $143,040
- San Bernardino: $75,600
- San Diego: $93,440
- San Francisco: $126,560
- San Joaquin: $80,240
- San Luis Obispo: $90,480
- San Mateo: $126,560
- Santa Barbara: $85,840
- Santa Clara: $143,040
- Santa Cruz: $106,240
- Shasta: $69,600
- Sierra: $67,040
- Siskiyou: $67,040
- Solano: $90,080
- Sonoma: $102,480
- Stanislaus: $74,080
- Sutter: $60,880
- Tehama: $67,040
- Trinity: $67,040
- Tulare: $54,160
- Tuolumne: $78,160
- Ventura: $98,800
- Yolo: $91,120
- Yuba: $60,880
Step-by-Step Guide to Securing a CalHFA ADU Grant in California
The process of obtaining a grant for building an Accessory Dwelling Unit (ADU) in California is designed to support homeowners in financing their projects with minimal upfront costs. Through the CalHFA ADU Grant Program, eligible homeowners can receive up to $40,000 in grant funding to cover pre-development expenses, reducing the total construction loan they need to repay. To benefit from this program, homeowners must follow a structured process that ensures smooth coordination between the grant and construction loan. Below are the key steps involved in applying for and securing the grant.Step 1. Application
The process starts with the homeowner submitting a construction loan application to an approved lender. At this stage, the homeowner must also complete the necessary forms for the CalHFA ADU grant.Step 2. Loan Approval
Once the application is submitted, the lender reviews it for approval. During this step, the lender also prequalifies the homeowner for the CalHFA ADU grant.Step 3. Pre-Development
After the loan approval, pre-development work begins. This includes expenses such as architectural designs, permits, soil tests, and utility hookups, which are paid through the construction loan. The lender sends the ADU grant application package to CalHFA, including all pre-development costs and invoices.Step 4. Grant Disbursement
Upon approval by CalHFA, the grant funds are wired to the construction loan account. This reduces the principal of the construction loan, thereby lowering the amount the homeowner needs to repay.Step5. Construction
With the grant disbursed, the construction of the ADU can proceed, financed by the construction loan, ensuring that the homeowner incurs minimal upfront costs during the pre-development phaseSome Frequently Asked Questions (FAQs)
Is the ADU grant truly free money?
Yes, the ADU grant provided by CalHFA is free and does not need to be repaid. However, recipients will receive a 1099 form for the tax year in which the grant funds were disbursed into escrow. This means you may be responsible for taxes on the grant amount when filing your taxes the following year. It's advisable to consult with a tax professional or accountant to understand any potential tax implications based on your personal financial situation.
Do the updated income guidelines apply to all applicants?
Absolutely. CalHFA's new income limits are applicable to all applicants of the ADU Grant Program, including those who have previously applied. Unfortunately, this means that some existing applicants who no longer meet the revised income criteria may not qualify for the grant. CalHFA is exploring alternative programs to assist those affected by these changes.
What expenses can the ADU grant funds cover?
The grant is intended to cover pre-construction expenses related to your ADU project. Eligible costs include feasibility studies, architectural designs, permit fees, impact fees, property surveys, energy reports, soil tests, site preparation (such as demolition, utility connections, septic systems, and tree removal), and other necessary expenses before construction begins. Additionally, if you secure financing through a CCEDA-approved lender, the grant can be used to reduce your interest rate as a non-recurring closing cost.
Can I use the grant if I've already paid for pre-development costs out of pocket?
While the grant cannot reimburse you directly for expenses you've already paid, it can be used to pay outstanding invoices to third-party vendors. If your vendors can provide invoices for the amounts you've paid, the escrow account handling your grant funds can pay these vendors directly. Alternatively, if you obtained a loan through a CCEDA-approved lender to cover these costs, the grant funds can be applied to reduce your loan balance upon completion of your ADU.
What costs are not covered by the grant?
The grant does not cover most of the hard construction costs associated with building the ADU. This includes expenses for the foundation, framing, interior finishes, fixtures, labor, materials, and solar installations.
Can I still qualify for the grant if my ADU is already completed?
Unfortunately, no. If you have already received a Certificate of Occupancy for your ADU, you are not eligible for the grant. The program is designed to assist with costs incurred before and during construction, not after completion.
Is it possible to receive the grant if my property is held in a trust?
Yes, you can still qualify for the grant if your property is in a trust. You must prove that you are the trustee or a beneficiary of the trust and that you reside on the property as your primary residence. All beneficiaries living in the home must be included in the application, and their combined income will be considered for eligibility under CalHFA's income requirements.
Do manufactured homes qualify for the ADU grant?
Manufactured homes may qualify if they are modular homes permanently attached to a foundation and recognized as ADUs by your local city or county. If the manufactured home is on a chassis and not permanently affixed, you'll need to verify with your local authorities whether it can be permitted as a legal ADU. Any ADU that is legally permitted and meets the program's criteria is eligible for the grant.
Can I apply for the grant to build an ADU on my parents' property if I'm financing it?
The grant application must be completed by the property owners who reside at the address where the ADU will be built. If you are financing the project for your parents, you can provide the funds as a gift. Your parents, as the homeowners and occupants, would then apply for the grant using their income information to determine eligibility.
Is it possible to receive the grant for both my rental property and my primary residence?
No, the grant is only available for your primary residence. You must live on the property where the ADU is being constructed, whether that's in the main home or the new ADU. The program does not allow for multiple grants to be awarded to the same individual for different properties.
Final Thoughts
Please be aware that some of the information provided in this article may now be outdated, as it is based on grant details from 2023. To obtain the most current and accurate information, we highly recommend consulting with specialists who focus on this area. Our team at SFBayADU possesses up-to-date knowledge and can assist you in formulating an effective action plan to secure a grant for your construction project.
As a company experienced in working with grant-funded initiatives, SFBayADU is well-equipped to support your project through every phase—from preparing documentation to overseeing construction. We are committed to helping you save time and resources. In certain cities like San Jose, we already have ready-to-use, city-approved plans, which can significantly shorten the approval process and expedite your project's timeline.
With 25 years of civil engineering experience, our company is dedicated to putting our expertise to work for you. Let our seasoned professionals at SFBayADU make your ADU project a seamless and successful endeavor.