Looking to build extra space on your property? You’ve probably heard about the CalHFA ADU grant program that offered up to $40,000 to help cover building costs. While this specific ADU grant program is currently closed, understanding how it worked can help you prepare for future opportunities.
Plus, there are other ways to finance your accessory dwelling unit right now. Let’s break down what you need to know about this initiative and explore your options today.
Understanding the California ADU Grant Program in 2025
The funding helped people across 44 counties before it ran out in December 2023.
Right now, the ADU grant program isn’t accepting new applications. However, California’s housing needs haven’t changed one bit. Many experts believe future funding rounds could happen soon.
Who is Eligible for the CalHFA ADU Grant?
When the ADU grant program was active, not everyone could apply. You had to meet specific criteria to qualify for the funding. Income limits varied by county, but generally you needed to earn less than 80% of your area’s median income.
For example, Los Angeles County had limits around $84,160. Meanwhile, Santa Clara County reached $143,040. These generous thresholds helped more families qualify than you might expect.
Homeowner Requirements and Property Qualifications
The property rules were pretty straightforward. You had to own and live in the home as your primary residence. Investment properties didn’t qualify at all. LLC-owned homes were out too.
Your property needed to be a single-family home or duplex zoned for ADUs. Also, you couldn’t have outstanding liens or tax judgments hanging over your head. These requirements helped ensure the money went to homeowners who really needed the support.
The CalHFA ADU Grant Program Application Process
The application process required working with approved lenders. You couldn’t just apply directly to the state on your own. First, you needed architectural plans for your accessory dwelling unit ready to go. Then you’d apply for a construction loan through a CalHFA-approved lender. The lender would handle submitting your information to the state for you.
If approved for the ADU grant program, the $40,000 went into a managed escrow account alongside your loan funds. The money got released in phases as construction progressed step by step. This setup protected everyone involved and made sure the project stayed on track.
The best part? You never had to pay back the funding because it was a true gift, not a loan.
How to Finance Your ADU Project with Grant Funds
The funding covered what builders call “soft costs” or pre-development expenses. Think site preparation, architectural designs, and all those permits you need. You could also use it for soil tests, impact fees, property surveys, and energy reports. Some folks even used it to buy down their loan interest rates, which was pretty smart.
Understanding Construction Loans for ADU Creation
Here’s what many people don’t realize. You needed a construction loan to get approved for the ADU grant program in the first place.
The state designed it this way to help homeowners already taking on projects. Your approved lender would set up the loan first. Then the funding got added on top of that. Together, these covered different parts of your building costs. The loan handled hard construction costs while assistance paid for planning and permits.
Building an ADU: From Plans to Construction
Building an accessory dwelling unit takes careful planning and patience. Most projects cost between $150,000 and $300,000 depending on size and features you want. You’ll need to work with architects, contractors, and local building departments throughout the process. Getting your plans approved can take several months, so don’t rush things. Budget wisely and expect some surprises along the way.
Before you start building anything, check your local zoning rules carefully. Every city has different requirements for setbacks, height limits, and parking spots. Some areas make it way easier than others to add units. You’ll also want to think about utilities, access, and how the new space connects to your existing home.
Don’t forget about budgeting for unexpected costs. They almost always pop up during construction, trust me.
Current ADU Financing Alternatives in 2025
Even without the active ADU grant program right now, you have several solid options to finance your project. Many homeowners successfully build units using other methods that work just as well.
Home equity loans let you borrow against your property’s value at reasonable rates. HELOCs work similarly but give you a flexible credit line instead. Both use your home as collateral, so rates tend to be lower than personal loans.
Construction loans are another popular choice for building. The Fannie Mae HomeStyle Renovation loan is particularly useful for these projects. It bases your loan amount on your home’s future value after the unit is built completely.
This means you can access more money upfront when you need it most. Some cities and counties also offer their own local financing programs:
- San Diego Housing Commission provides up to $250,000 plus planning help
- Orange County has affordable loan options for low-income rentals
- Many local governments offer technical assistance and reduced fees
- Cash-out refinancing can free up equity if you have a low rate
Making the Most of Your New ADU: Conclusion
Building an accessory dwelling unit adds real value to your life and property long-term. Whether you rent it out for extra income or house family members, the investment pays off.
While the CalHFA ADU grant program sits on pause right now, don’t let that stop your plans completely. Other financing paths exist, and future state funding could return when you least expect it.
Stay informed about new developments by checking the CalHFA website regularly for updates. Connect with approved lenders now so you’re first in line when funding reopens down the road.
Meanwhile, explore local programs and traditional financing to get started today on your project. Your backyard cottage or converted garage could become reality sooner than you think.
The housing California needs starts with homeowners like you taking action.
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Frequently Asked Questions
Can I still apply if I already started building my ADU?
Unfortunately, no. The program required you to apply before starting construction work on your property. You needed those architectural plans ready, but actual building had to wait until after approval came through.
Here’s why that matters. The funding was meant to help with pre-development costs and getting projects off the ground. Once you’ve already broken ground, those initial expenses are behind you. The state wanted to catch people at the planning stage.
If funding reopens, make sure you apply early in your process. Don’t order materials or hire contractors until you hear back about approval.
What happens if the program reopens while I'm mid-construction?
You probably won’t qualify for that round of funding either. The application process takes time, and construction moves fast once you get started. Most projects finish within six to twelve months anyway.
Your best bet is planning ahead. Keep an eye on CalHFA announcements if you’re thinking about building next year. Sign up for their email updates so you don’t miss anything important about new funding rounds.
Focus on finishing your current project strong. A completed unit adds value regardless of whether you got state help. You can always refinance later if better rates come along.
Are there any tax implications if I receive the grant in the future?
Yes, you might owe taxes on the money. Grant recipients could receive a 1099-G form from the IRS. That means the $40,000 counts as taxable income for that year, which catches some people off guard.
Talk to your accountant before applying. They can help you plan for the tax hit and maybe adjust your withholding. Some folks set aside a portion of the funds specifically for taxes to avoid surprises in April.
The tax bill still beats paying back a loan with interest though. Even after taxes, you’re ahead financially compared to borrowing that same amount from a bank or credit union
How long does it typically take to build an ADU in California?
Most projects take about six to twelve months from start to finish. That’s after you get all your permits approved, which can add another three to six months. So realistically, you’re looking at a year to 18 months total.
Some simple garage conversions finish faster, maybe four to six months. Detached new construction usually takes longer because you’re building from scratch. Weather delays happen too, especially during rainy season in Northern California.
Budget extra time for unexpected issues. Permitting delays are super common in busy cities. Contractor availability also affects your timeline, so book early if you can and stay flexible with your schedule.
Can I use the grant money for a garage conversion?
Absolutely! Garage conversions counted as eligible projects under the program rules. Converting existing space often costs less than building new, which made the $40,000 go even further for these projects.
The same requirements applied though. Your conversion needed a full kitchen, bathroom, and separate entrance to qualify. It had to meet all building codes and local zoning requirements just like any other type of unit.
Many homeowners chose conversions because they’re faster and cheaper. You already have walls, a roof, and foundation in place. That cuts both time and money compared to starting from nothing in your backyard.