Whether it’s a granny
flat, in-law suite, or cottage, all are common names for ADUs, all with the
advantage of extra living space that’s sure to be the envy of every neighbor. A
desirable addition with limitless uses, ADUs have become more popular in recent
years. Still, for some people building an ADU can seem out of reach
financially.
This is where the CalHFA grant comes in! A grant
program creating housing opportunities for families all across the state, it
provides funding to mitigate costs, making this project a reality to more and
more homeowners. If you’re a California resident looking into building an ADU, or if you want to make
an ADU in Culver City, California, for the extra space in your house, stick around and find out how to make
the CalHFA California ADU grant program work for you!
WHAT IS AN ADU?
An ADU, or accessory
dwelling unit, is a second housing structure that’s built on the same lot as a
primary living unit. Generally, they act as a fully functional living space to
include a bathroom, kitchen, rooms and the like. ADUs come in many shapes and
sizes to fit the lifestyle and needs of all homeowners; There’s something to
fit every existing structure!
For example,
an ADU can be attached to a ground level structure like most envision when they
think of a home addition. They can also be attached above a garage or upper
floor. Converting a garage or creating a basement are also ADU options.
Finally, you can have a completely detached ADU that offers an entirely
separate structure from the original.
WHAT IS CALHFA?
CalHFA, or the California
Housing Finance Agency, offers financing to California residents who fall into
a lower income category. They also offer programs to the same demographic to
aid in renting homes. CalHFA can also help first time home buyers navigate and
secure loans and down payments.
Among their
portfolio are certain grant programs, the $40,000 ADU grant program being one
of them.
WHAT IS THE $40K CALHFA’S ADU GRANT AND
WHO QUALIFIES?
The CalHFA ADU grant is
best described by CalHFA itself stating, “The ADU Grant provides up
to $40,000 towards pre-development and non-recurring closing costs associated
with the construction of the ADU. Predevelopment costs include site prep,
architectural designs, permits, soil tests, impact fees, property survey, and
energy reports.”
This grant
program prides itself on $100 million in grants with a $40,000 maximum per
family creating the potential for 2,500 ADUs to be financed. While the grant
money is usually allocated by the end of the year, CalHFA continues to provide
important information about the program making it possible for financiers to
prepare grants for the following fiscal year.
As far as who
qualifies, the broad answer is California residents who are classified as low
to moderate income households; There are income limits for this grant. Those
figures in specific are determined county by county though. For examples, see
the low income limits for popular counties below:
For specific low income limits and access to the county search tool, check out
the CalHFA’s eligible limits website.
HOW DOES THE CALHFA’S ADU GRANT PROGRAM
WORK AND HOW DO I APPLY?
In short, there’s 5 steps
to the CalFHA ADU grant program process. The entire process has been
streamlined making for a seamless process from start to finish.
- Application: Homeowners will want to start by identifying approved lenders and
then applying for a construction loan through one of those. They’ll then apply
for the CalFHA ADU grant program via their application forms.
- Loan Approval: At this point, the homeowner will have to wait on approval of the
construction loan from their lender of choice. After receiving approval the
lender can then grant prequalification to the homeowner for the $40,000 ADU
grant.
- Pre-Development: Any pre-development work needed on the project can start at this
point, all paid through the construction loan acquired by the selected lender.
The lender will now forward any invoices accrued from pre-development to CalHFA
along with the original grant application.
- Grant Disbursement: When and if CalHFA approves the homeowners grant, the money will
then be dispersed to the construction loan account. The amount dispersed from
the CalHFA California ADU grant program will lower the total principal
owed.
- Construction: Finally, it’s time to start the main construction on the ADU
funded by the construction loan; The total cost of which was lowered by the ADU
grant.
As far as how
it works with regard to the money disbursement, you won’t just receive the
funds outright. If you’re approved for the CalFHA ADU grant program, they’ll combine
the money with the loan you took out to cover the remainder of the construction
costs. For example, if the total cost of your project is $150,000, your loan
will pay $110,000 of the project cost with the CalHFA ADU grant taking care of
the remaining $40,000.
CALHFA CALIFORNIA ADU GRANT PROGRAM PROS
There’s plenty of
advantages to the CalHFA California ADU grant program. Take a look at some of
them below when making the decision to apply.
1. No Repayment: Let’s be honest, the
fact that the CalHFA ADU grant program requires no repayment is the best
advantage of all. Pre-development costs can come at a hefty price depending on
the type of project. The fact that you can put $40,000 of free cash toward this
bottom line only gives you more to spend elsewhere.
2. Increase in Property Value: This grant
helps to propel your property into a higher value bracket. More space isn’t all
the ADU adds; It offers a unique flex space not found in your average home.
Taking advantage of the grant to complete your project means more resale value
on the other end. It’s truly a win-win!
3. Reasonable Qualifications: The basic
qualifications for this grant are very fair. For instance, you need to be a
full time employee and at least 18 years old. You need to be a U.S. citizen and
resident in the state of California for at least 3 months prior to submitting
an application. 4. Borrowing Power: You can go
into the grant process knowing that you’re going to be on the winning side of
borrowing power. Secondary loans typically grant higher borrowing power so long
as your credit score and finances are in order. That power combined with the
$40,000 ADU grant means more than enough for project completion.
CALHFA CALIFORNIA ADU GRANT PROGRAM CONS
Before starting the
application process for the CalHFA California ADU grant program, it’s important
to consider these drawbacks.
- Grant Cap: This particular grant
has a cap of $40,000 per household. While that’s no small number, it might not
cover the majority of a larger project. Depending on the home owners finances,
it may not be an affordable project even with the granny money in hand.
- Income Limit: Depending on your
financial situation and the county you reside, the CalHFA grant might not be an
option for your ADU project. Even the slightest overage on dollar amount can
disqualify you from the grant process.
- Specified Use: The CalHFA grant can
only be used for pre-development purposes such as surveys, permits, site prep
and similar construction preparation or on non-recurring closing costs. It will
not cover anything outside of these parameters.
- Timeline: Since the ADU grants
coincide with a construction loan and these loans have to be repaid short term,
the repay timeline can be stressful. Likewise, construction on these loans have
to be finished on a short timeline.
ADU GRANT VS ADU LOAN
When it comes to the
financial aspect of funding your ADU, many people get lost in the weeds with
the terminology. Simply put, an ADU grant is money toward your project that
does not need to be paid back. An ADU loan on the other hand, needs to be paid
back to the lender within the specified timeframe agreed upon in your loan
process.
This seems
easy enough but the CalHFA ADU grant leaves some scratching their heads when it
states you need a loan too. The reason for the ADU loan is to cover actual
construction costs for your project. Remember, the CalHFA grant only applies to
pre-development costs incurred by your build. You’ll need a loan to cover the
rest.
While the
CalHFA grant is great, it’s best to get pre-approved from a lender for the
estimated construction cost before you do anything else. The amount they are
willing to loan hinges on your income, credit, and many other factors. See what
you can afford by the lender’s standards prior to moving forward.
WHAT ARE MY LOAN OPTIONS?
There’s several types of
loans you can apply for to build your ADU. Here’s a quick rundown of the top
choices:
- Construction Loan: The most
common loan surrounding this topic is a construction loan. These loans usually
come with a fixed interest rate, total customization in the building process, a
lower monthly payment and other notable benefits. Unfortunately, they do
require a larger down payment and you will have to refinance once construction
is complete.
- HELOCs: A home equity line of credit
is another frequently used loan for ADUs and in short, means you’re using your
current home’s equity as collateral for the loan. HELOCs allow you to use what
you need rather than being loaned a lump sum and they often come with a low APR
given that you qualify. You should consider the risk you take in using your
home as collateral though, especially when it reduces the equity you’ve built
in your home.
- Refinancing: Also making use of the
home equity you already have, refinancing your current mortgage could help in
paying for your ADU. Unlike HELOCs, you’ll acquire a lower rate and have the
opportunity for a fixed rate mortgage if you’re coming from an adjusted rate
loan. It’s important to remember, monthly payments could be larger depending on
what you select. The upfront cost might be too much to handle for some, even
though the long term savings are worth considering.
- Renovation Loan: The option
for renovation loans is great for those with a smaller down payment of around
3.5% and a lower credit score (even as low as 600). Oftentimes you’re able to
borrow more than other loan programs depending on what the home will appraise
for upon completion. These loans can be a pain though, requiring detailed
scheduling from the contractor that goes beyond the normal scope of
things.
Keep in mind, this
is just a shortlist of the loan options you have for your ADU financing. While
less conventional, you could always take on a personal loan or even use credit
cards if you have the available limits for such a project.
WHO WILL FINANCE AN ADU LOAN FOR MY
CALHFA GRANT?
Once you decide on which
loan type you want to take out, it’s time to find a lender. Not all lenders
offer ADU loan programs, especially ones familiar with the CalFHA grant. Even
so, there’s enough to give you the choices you need. For an exhaustive list of
these lenders by county, you can use CalHFA’s approved lender search tool.
Here’s some of the approved lender to get you started:
- Envoy Mortgage
- Supreme Lending
- Platinum Home Mortgage
- New American Funding
- Loandepot.com
Always check
with your current lender to determine if they offer ADU loans. While several of
the lenders mentioned above are larger companies, it’s worth looking into local
lenders and any incentives they may offer within.
STEPS IN BUILDING YOUR ADU USING CALHFA’S
GRANT
Grant process aside, the
steps of actually building your ADU has its own procedures. While it’s an
intricate project with no lack of moving parts, the steps below give you a
birds eye view of the operation.
1. Acquire Contractor: One of the most important decisions you’ll make in the ADU build
process is your choice in contractor. It’s important to pick someone who is
known for meeting deadlines and who communicates well. Be sure they’re licensed
and insured and someone who specializes in or is at least familiar with the ADU
building process. Price is always on consideration as well. To ensure you’re
not being taken advantage of, try getting multiple bids on the project for
comparison purposes.
2. Financial Review: Explained in detail in the “How Do I Apply” section above, you’ll
find the steps you need to take in order to receive the CalHFA funding and how
that fits into your loan. That aside, you’ll want to review your contractor’s
bid, decide which financing option best fits your needs, and discuss adjusting
your design if need be based on your project’s total cost.
3. Feasibility Study: This study is a crucial part of the build process as it ensures
your build is doable given the utilities from the main house, available lot
space, local requirements, and the like. Ensuring that your space is viable for
the project and meets building code will save you a huge headache in the end,
avoiding possible pitfalls that are identified in the study itself.
4. City Consult & Permitting: If all is well with the feasibility study, your contractor can
now submit a complete set of drawings to the city. Alongside these drawings,
they’ll begin working on the permitting needed for everything. Pulling these
permits allows the work to be done legally and safely for all involved.
5. Finalize Aesthetics: Probably the most fun step in the process is finalizing the
materials used in your ADU build. Most people already have an idea of how
they’d like their ADU to look both inside and out. If not, their contractor can
supply them with 3D mock ups and material options from siding to
flooring.
6. Construction Begins: Finally,
with all the nitty gritty details pegged down, your build out can officially
begin! Completion times vary depending upon how big or small your project is
and what customizations are being added. You can usually expect a build from
beginning to end to take anywhere from 7 to 16 months.
CONCLUSION
An
accessory dwelling unit can serve many purposes that are beneficial for
expanding families, guests and the like. Even so, it’s no secret that finances
can pose an obstacle in making this dream a reality. That’s why the CalHFA
California ADU grant program is worth investigating. This grant program takes
the sting off the bottom line, offering a more affordable project with the
extra space many families want or even need.
