ADU $40,000 Grant

The $40,000 ADU Grant

Molly Ellis and I met when I moderated a Homesteps event for the California Association of Realtors. I had heard about the $40,000 ADU Grant, and free money will always capture my attention! Molly and I scheduled a time to Zoom together to dive deeper into what this all means.

Molly is the Director of Training and Outreach for CalHFA – California Housing and Finance Agency. This organization is charged with helping us find ways to purchase housing in California.

What is the ADU Grant Program?

Molly: We are a state agency and usually live in the space of down payment and closing cost assistance for first-time home buyers. But, we are trying to help with some of our inventory shortages.

The ADU Grant is a $40,000 grant that credits to the construction escrow any pre-development costs like permits, design, and a laundry list of pre-development items, just not the actual construction.

It’s a $40,000 grant that is forgiven, but the money is only paid to a construction escrow. Let’s say you had a $200,000 total project budget. You would get a $160,000 construction finance, and the $40,000 credit would fully fund the ADU project.

$40,000 is easy to spend when you do all the pre-construction stuff correctly.

Who Qualifies for The ADU Grant

The primary qualification for the ADU Grant is that the home must be owned and occupied as a primary residence and add just one ADU. There is also an income limit targeting low to moderate-income residents. This is a reasonable number based on local conditions. In Los Angeles County, the limit is $180,000. In Orange County, the limit is $235,000.

ADU Grant Income Chart

Now, this isn’t just a simple gross income calculation. It follows what any normal loan underwriter would consider as qualifying income. Typically that means gross income for a W-2 employee and net income for a self-employed entrepreneur.

A side (but very important) note– is that they are not looking at total household income. They are only looking at the income used to qualify for the loan. This means if only one person applies for the construction loan and that one person falls within the ADU Grant income guidelines, it doesn’t matter what anyone else in the household makes.

How Do You Get The ADU Grant

You must work with a lender that provides construction and renovation loans. This includes the 203k renovation loan, but there are many other options.

It doesn’t work if you use a HELOC or cash. A managed construction escrow is required to monitor the process and distribute the funds. The lender monitors the process and vets the service providers to protect the borrower from unscrupulous vendors.

Click here to read about how construction loans (and other ADU financing options) work.

Work With A Specific Construction or Renovation Lender

Eighteen different approved lenders are already approved to administer the ADU Grant. However, the number of lenders is growing. Check with your preferred lender to connect with the person who handles construction financing in that company.

The lender is the one who works with CalHFA to apply for and manage the ADU Grant, not the borrower. The process works simultaneously as standard loan processing, so there are no delays.

If You Are Shopping For An ADU Right Now

Kendyl: Can you apply today for an ADU grant before you get the ADU? After all, a hundred million dollars for the total fund sounds like a lot, but is it?

Molly: Yes- it is! That is enough for at least 2500 units and should last a couple of years. ADUs are not going away. The momentum is only getting stronger. I hope (and obviously can’t guarantee) that more funding will be available as the program catches on.

Kendyl: The most likely process is to purchase the ADU using a typical purchase loan and close escrow. It will take months to get your ADU permits, and a regular purchase loan is less expensive to maintain while you wait for your permits.  Once permit approval is near, obtain a construction or renovation loan, including the ADU grant.

Focus On The Big Picture

Molly cautions against going to extreme lengths to qualify for this grant. Some people have refinanced or even moved just to qualify as owner-occupied, and sometimes the “free money” isn’t worth it. 

For those with access to “friends and family” resources for labor, expertise, and funds… this grant is probably not for you. It works best for people who lack the resources and knowledge to manage an ADU build on their own.

Get Your Free ADU Consultation

Your head is spinning, and you wonder about the “what if” scenario that qualifies you for an ADU Grant. Or, you need even more basic information about how to get your own ADU.

Click here to schedule a free ADU consultation with us. We are friendly and knowledgeable and we’ve got your back.