Everything You Need to Know About California’s ADU Grant Program

Building an ADU in California is a significant investment, but it offers great potential. There is an estimate that a simple garage conversion in the Los Angeles area ranges from $100,000 to $140,000, while a detached one-bedroom ADU may cost between $225,000 and $300,000. Although these costs are substantial, many homeowners successfully fund their projects through home loans. 

The good news is that California has launched a grant program designed to help you with ADU construction costs. Recent updates to the program have expanded eligibility, making it easier for more people to benefit from the grant. 

Why Build an ADU? 

ADUs are fully functional living units built on a property’s existing space. Homeowners are increasingly embracing ADUs for their promising investment opportunities. By renting out these spaces, you can enjoy additional income while significantly boosting property value. 

Why Does the ADU Grant Program Exist? 

The ADU Grant Program actively promotes the creation of affordable housing units across California. CalHFA underscores the importance of this initiative by stating, “California must seize every opportunity to build more housing for its residents. The ADU Grant Program empowers homeowners to invest in and share their property, helping to address a significant need.” 

In 2021, CalHFA secured $100 million to launch the Accessory Dwelling Unit (ADU) grant program. The state general fund contributed $81 million, while CalHFA allocated $19 million from its own resources. This program offered a $40,000 grant to low- and moderate-income homeowners, helping them build ADUs by covering pre-development and closing costs, including interest rate buydowns. The program quickly gained popularity due to its substantial benefits. 

Grants were distributed across 44 of California’s 58 counties, with 42% of the funds directed to socially disadvantaged areas. This initiative primarily supports low- and very low-income borrowers, with over half of the grants awarded to the Black, Indigenous, and People of Color (BIPOC) community, ensuring a positive impact on these communities. 

What’s the CalHFA ADU Grant Program? 

The California Housing Finance Agency (CalHFA) actively supports first-time and lower-income homeowners by offering affordable home financing. Also, the state approved a budget allocating $100 million in grants to assist homeowners with ADU construction. 

To distribute these funds, CalHFA launched the ADU Grant Program, which provides eligible homeowners with up to $40,000 to help cover typical ADU project costs. 

Since this $40,000 is a grant, not a loan, homeowners can enjoy the financial support without any repayment obligations. 

Requirements to Apply for the ADU Grant Program 

To apply for the $40K Grant, ensure you meet these requirements: 

• You must own and live on the property where the ADU will be built. 
• Your household income must be at or below 80% of the area median income. 
• Your property must be a single-family home zoned for ADUs. 
• Your property should be free of any outstanding liens or judgments. 

Applications for the ADU grant program are considered on a first-come, first-served basis. 

Getting a Grant for Your ADU 

Here are the key ADU grants required at each phase of the building process: 

• Building Permit 

Once you secure planning and zoning permits, often required by cities, the next step is obtaining the building permit to start construction. This permit ensures your ADU plans, covering the foundation, framing, electrical, and plumbing systems, meet all code requirements. 

• Electrical and Plumbing Permit 

You need an electrical permit to install wiring, outlets, lighting, and electrical panels in your ADU. This permit ensures that your electrical systems meet safety standards and comply with electrical code requirements. 

Similarly, a plumbing permit is required for any plumbing work, such as installing or modifying water supply lines, drainage systems, fixtures, and appliances. This permit ensures that your plumbing installations are done correctly, reducing the risk of leaks and potential health hazards. 

• Local Permits in California 

In California, each city or county issues specific local permits that homeowners can easily obtain from their community’s planning and building divisions. These permits often cover zoning, grading, excavation, environmental impact, and historic preservation. 

Who is Eligible for the Grant? 

If you have a low or moderate income, you can qualify for the grant. The income limits are quite generous: in Los Angeles County, you can earn up to $180,000 per year, and in Orange County, you can earn up to $235,000 per year and still be eligible. 

You’ll need to live in the home (you’ll have to sign an affidavit to confirm this) and continue living there throughout the construction process. Both single-family and multifamily homes (such as duplexes) are eligible. 

However, investment properties and homes owned by an LLC are not eligible for this grant. 

Conclusion 

Many homeowners finance their projects through home loans. California’s ADU Grant Program offers a $40,000 grant to help cover construction costs, making it easier for eligible low- and moderate-income homeowners to build ADUs. This program, funded by $100 million from CalHFA and the state, supports affordable housing and has expanded eligibility. ADUs provide valuable rental income and increase property value, making them a promising investment. The grant program supports homeowners who meet specific income and residency requirements and excludes investment properties and LLC-owned homes. 

For further inquiries, you can contact us at BFPMInc.