Southland Remodeling

How CalHFA’s ADU Grant Program Helps Homeowners Cut Costs for Their Projects

California continues to face a housing crisis, with demand outpacing supply and driving up home prices while forcing workers into longer commutes in search of affordable housing. To tackle this challenge, the state actively promotes Accessory Dwelling Unit (ADU) construction. Also known as granny flats, in-law units, backyard cottages, and secondary units, these small, self-contained homes offer a cost-effective way to expand housing options without large-scale developments.

How CalHFA’s ADU Grant Program Works

The California Housing Finance Agency (CalHFA) launched the ADU Grant Program to help homeowners finance ADU construction. Offering up to $40,000 in grants, the program covers pre-development and non-recurring closing costs, such as site preparation, architectural designs, permits, soil tests, impact fees, property surveys, energy reports, and utility hookups. By easing upfront costs, the grant allows more homeowners to build ADUs, ultimately increasing the state's housing supply.

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Income Eligibility and Low-Income Limits

To qualify for the grant, applicants should meet CalHFA’s income limits, which are set at 80% of the Area Median Income (AMI). As of 2023, the income limits for some of California’s major cities are:

Los Angeles: $84,160
San Francisco: $126,560
San Diego: $93,440

These limits help direct funding to homeowners who might not have the resources to build an ADU on their property.

The Application and Loan Process

1. Apply for a Construction Loan

The homeowner starts by applying for a construction loan through a CalHFA-approved lender. This loan covers both the construction and pre-development costs.

2. Include Pre-Development Costs

The lender rolls eligible pre-development costs into the loan, reducing the homeowner’s upfront expenses. These costs can include permits, architectural plans, soil tests, and impact fees.

3. Submit the ADU Grant Application

After securing the loan, the homeowner works with the lender to submit the CalHFA ADU grant application. The lender includes necessary documents, such as a cost breakdown and approvals.

4. Loan and Grant Approval

The lender prequalifies the homeowner for the grant, and CalHFA reviews the application to determine eligibility. If approved, the homeowner receives up to $40,000 for pre-development and closing costs.

5. Pre-Development Work Begins

Once the grant is approved, pre-development activities such as site preparation and permitting can start, funded through the construction loan.

6. Lender Submits Funding Request

The lender compiles invoices and cost breakdowns and submits them to CalHFA for verification.

7. Grant Funds Disbursed

Upon approval, CalHFA transfers the grant funds up to $40,000 directly into the construction escrow. This reduces the total loan amount, ensuring the homeowner does not need to pay for these costs upfront.

8. Construction of the ADU

With funding secured and grant funds applied, the homeowner proceeds with the ADU’s construction, following all zoning and building requirements.

Affidavit Requirements for the ADU Grant Program

As part of the application process, both the lender and the homeowner must submit affidavits certifying specific requirements. The affidavits confirm compliance with CalHFA’s guidelines and are necessary for grant approval and fund disbursement.

1. CalHFA Participant Affidavit (Lender/Loan Officer Responsibility)

The lender or financial institution handling the loan must certify the following:

The ADU construction will comply with Fannie Mae/FHA ADU feature requirements.
All locality permit and impact fees have been paid.
All eligible income has been included in the income calculation—no applicant’s income can be excluded or reduced to meet CalHFA’s income limits.
A certificate of occupancy will be provided upon the ADU’s completion.

2. CalHFA Applicant Affidavit (Homeowner Responsibility)

The homeowner applying for the grant must certify that:

They will live on the property and use the ADU for rental or intergenerational housing purposes.
The ADU complies with local zoning ordinances and building codes.
They understand they will receive a Form 1099-G from CalHFA, which may have income tax implications.

The CalHFA ADU Grant Program represents a significant step toward expanding housing opportunities in California. By reducing the financial barriers to ADU construction, the program allows more homeowners to take advantage of this housing option, ultimately increasing the state’s overall housing supply and affordability.

Find out how much value an ADU could add to your property.

To learn more about ADU Regulations, check out California new ADU laws article. It offers valuable details on development opportunities and key regulations.