In case you haven't heard, the California Housing Crisis is still very much a thing. The state has a severe shortage of housing, which is driving up rents and home prices. Cities are struggling to keep up with the demand for housing, and many people are being priced out of the market. And while there are no easy solutions, the state is currently incentivizing homeowners to build Accessory Dwelling Units (ADUs) on their property as a way to increase the state's housing stock.
The state of California is making it rain on Accessory Dwelling Units in 2022. They've set aside millions of dollars for a CalHFA ADU grant program and are making a lot of changes that will allow more homeowners to get their hands on the money.
“California Comeback Plan funds new $100 million grant program for low- to moderate-income homeowners to build accessory dwelling units”
CalHFA has really stepped up its game in the past few months. I highly recommend you check out their website. Things are moving quickly and we believe the incentives will only get better with time.
What is an ADU?
An ADU, or Accessory Dwelling Unit, is defined as a "self-contained living quarters complete with a kitchen, bathroom, and sleeping area, which is attached to or detached from a single-family home.", also known as “in-law units” or “granny flats”.
In 2017, the California Legislature made it easier for homeowners to build ADUs by suspending many of the state’s frustrating building code requirements for these types of projects. This makes it possible for more homeowners to take advantage of this opportunity to build additional living space on their property.
If you're a California homeowner looking for a way to help solve the state's housing crisis, building an ADU on your property is a great option. Keep reading to learn more about why ADUs are awesome, followed by the process for applying for a grant.
What are the benefits of having an ADU?
There are plenty of other benefits to having an ADU, both for the homeowner and for the community, if you couldn't care less about spending the time and money to build something that will just be hijacked by your in-laws or kids. Just to name a few...
- An ADU can provide homeowners with rental income while also providing renters with a cost-effective way to live in a single-family residence. Just make sure to read about your city’s restrictions on short-term rentals via platforms like Airbnb to determine if a longer-term rental might make more sense.
- Building an ADU is a great way to improve your home’s resale value drastically. Depending on your property and location, ADUs can increase your home’s resale value by over 50%. At Chloe, we’re developing supplemental tech-enabled tooling that uses local contractor data to calculate what kind of return on investment (ROI) you can expect from home improvement projects like an ADU.
It's always beneficial to consult a contractor and do your research before taking any further steps in building an ADU. You could also read our other blog for more tips on how to choose a contractor wisely. We've had first-hand experience and heard numerous horror stories about projects gone wrong – most of the time, it's because of inadequate planning and hiring an unprincipled contractor.
What You Need To Know About California’s ADU Grant Program
Here’s a snippet taken directly from The CalHFA’s (California Housing Finance Agency) website.
“The ADU Grant provides up to $40,000 towards pre-development and non-reoccurring closing costs associated with the construction of the ADU. Predevelopment costs include site prep, architectural designs, permits, soil tests, impact fees, property surveys, and energy reports.”.
You could also roll the $40,000 into the construction loan instead for no or minimal upfront costs in securing the loan. The CalHFA broke down the process very nicely here.
These pre-development costs are very expensive in many local jurisdictions, especially in Southern California. Having access to $40,000 in essentially free money to cover those costs is a huge win and something homeowners should definitely think twice about taking advantage of.
But to get the grant, you need to also get a loan from one of their pre-approved lenders. Initially, there weren’t as many lenders, and given mortgage rates were a lot lower, some even supposedly had requirements where you had to refinance your mortgage, which now would be a huge deal breaker. However, now, there are so many lenders to choose from that makes finding an ideal option for you more likely.
Who is eligible?
As of 09/21/2022, the CalHFA states the only eligibility requirement to be “Homeowners with low or moderate income”. You can view the income limits directly from their website by clicking here. I’ve also included a picture below, however, this photo won’t automatically update so be sure to check their website for the most accurate information.
Although for some, these figures feel a bit vague we can assume that your household income needs to be less than what's shown as the eligibility requirement for your county.
How to apply
If you’ve decided that you’re eligible, or even if you’re still not 100% convinced, it’s time to start collecting some of the documents listed below so you can contact one of the CalHFA’s ADU Grant Program Lenders.
- Pay Stubs
- Bank Statements
- Employment History
- Previous Tax Returns
This makes it easier for the lender’s certified loan officers to answer any questions you may have about the loan required to secure the grant before taking any steps to apply for it.
If the lender you choose approves the construction loan, they'll do it at the same time as prequalifying you for the grant. Once the pre-development work starts, paid for by your new loan, the lender sends your completed ADU Grant application along with a list of costs and invoices for predevelopment to CalHFA. They'll then approve the grant and wire the funds to your loan account, effectively reducing the amount you owe on the construction loan.
Are there any other resources available to California homeowners?
Some local jurisdictions have their own pilot programs for ADUs, it seems. San Diego and West Hollywood, to name a couple of cities, have their own separate programs for developing ADUs. We highly recommend checking with your city for any programs that might be available.
Overall, ADUs are the perfect choice for homeowners who want to make a killing on their investment – or at least make a little extra money. Especially in SoCal, where the demand for suitable homes far outweighs the supply, these small units are a great way to help solve the housing crisis.
What is Chloe?
Chloe’s mission is to improve financial outcomes for homeowners by harnessing the power of their home equity. We’re building a home equity-backed credit card that makes tapping into your equity a breeze. We’re also supplementing this with data-driven educational tooling that turns your home’s data into digestible insights and actionable steps you can take to build wealth or reduce expensive debts using your home equity.
If this tickles your fancy, you can join our waitlist here and we'll let you know when we launch in your area.
In the meantime, check out HomeSweet. It's a newsletter that once a week delivers an email with curated stories, resources, and tips to make you a better homeowner. We know that homeownership is no joke – so we promise to not make any 😈.
