What is the CalHFA ADU $40,000 Grant Program?

Good news for California homeowners! The state wants to give you an ADU grant of $40,000 to construct an ADU (accessory dwelling unit)!

CalHFA (California Housing Finance Agency) is providing a $40k grant to extend your renovation loan or ADU construction. Do you know what a grant is? Well! It’s money that you do not have to pay back.

We are very excited about this recent funding program. As this financing program gains some strength in the coming years, it will surely make a big difference for eligible homeowners.  S40k grant plus a new finance option by Freddie Mac shows that both the federal and state government are concentrating on assisting homeowners in financing ADUs.

You can contact us without hesitation to investigate your property’s ADU potential. We will help you interact with experienced ADU designers, lenders and GCs (general contractors). Experience matters in ADUs.
How does the $40,000 ADU grant work?

CalHFA $40k grant works together with a construction loan. If you have sufficient money to construct an ADU without taking construction or renovation-type loan, that’s perfect! But remember! You will not be qualified for this $40k grant.

Different lenders call construction or renovation-type loans with different names. Still, the key point is that the loan has a structured escrow, where the lenders provide funding when various phases of ADU construction are finished.

Moneylenders need a fixed-price plan from GCs to approve renovation or construction loans. Usually, general contractors don’t provide a fixed-price plan without construction blueprints. So, you will require an ADU containing those blueprints before you submit an application for a loan.

CalHFA sets eligibility criteria for a $40k grant based on the same standards that your lender uses for your ADU loan approval. Your moneylender can tell you if you are qualified for an ADU grant or not from your loan application. If you are eligible for that, your lender will apply for it.


Who is eligible for the grant?

The main purpose of the grant is to assist moderate and low-income homeowners in building their ADUs. You have your own primary house to be eligible for this grant.

• You must sign an affidavit confirming that you are occupying the home currently.
• You have to be in the process.
• It is not important how long you have been your house owner.
• When ADU is under construction, you have to occupy the house.
• Investors are not eligible for the loan. You must own the home and currently reside in the home.

Limits for ADU Grant income:

The folks of CalHFA know about the high cost of living in California. The meaning of their moderate definition illustrates this, so don’t be discouraged that your income is high to be eligible for this grant.

Income thresholds for the grant are different for different areas of the state. For instance, the maximum annual household income in Yuma Country is $159,000, while it’s $300,000 in Marin Country. You can check your income limit from the list updated in June 2022.

ADU grant costs will include:

The CalHFA ADU grant is only for pre-development expenses, also known as soft costs. These cover the things as follows:

• Permits
• Architectural designs
• Property surveys
• Development impact fees
• Soil tests
• Energy reports for ADU
• Site preparation (such as tree removal, etc.)
• Engineering and other information related to ADU

Other items can also be included in them! It is excellent news that the grant consists of Development Impact (DI) fees. If your ADU is below 750 square feet in California, you don’t have to pay DI fees. But if it’s greater than 750 square feet, the DI fee can be as much as $10,000.

Another good news is that if your soft costs are less than $40k, you can submit an application for extra funds to purchase interest on your loan and other non-recurring closing costs. So this $40,000 will not be wasted.

CalHFA will include $40,000 to the cash your moneylender has approved and will be issued to finance these soft costs. You will not get $40k personally. Your lender will distribute all the money according to the work done.
The ADU grant from CalHFA is not for labor or construction materials.

The CalHFA ADU grant is not for the workers who construct the ADU and also not for hard construction costs; it includes construction materials like cement, lumber, etc. But these $40k are for the soft costs; it implies that owners will get those reports, fees and services free of cost.

In some cases, GCs will consider soft costs in their detailed plan, especially when you are collaborating with design/build organizations. In such situations, the lender and the contractor will determine what costs can be supported by grant money.

Can I be repaid for my out-of-pocket soft costs before I receive the grant?

It is not possible but keep all those receipts. Your moneylender can use that money to lessen the principal on your loan.

Do ADUs have other limitations?

When your ADU is constructed, you can use it for any purpose and rent it out to anyone you want. The lender and the state will not be engaged in any matters. Here is a simple rule: it is not allowed to use ADU as a short-term rental.

Is there any tax on the grant money?

You will get 1099 for the grant amount, and your tax professional and accountant can tell you how it will affect your yearly taxes.

Where can I get your $40k grant?

Currently, only lenders listed on the CalHFA ADU website are offering grants.
CalHFA is currently trying to expand the ADU grant program to more moneylenders as well as to countries, cities, redevelopment agencies and credit unions that support ADUs. If you are linked with any of these companies, ask them about the $40,000 ADU grant, as it may be available soon.

Also in progress: Some moneylenders are expanding loans for ADUs that will permit you to keep your existing loan on your primary residence. These second mortgages for ADUs will allow you to enjoy the benefits of CalHFA ADU grants. Stick around because these products will develop soon in the coming months.

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