CalHFA issuing grants to help homeowners build accessory dwellings

The California Housing Finance Agency is providing low- and moderate-income homeowners with grants of up to $25,000 for the construction of accessory dwelling units on their property.

ADUs, also known as granny flats, in-law suites or casitas, have often been discussed as a way of addressing affordable housing shortages.

"California must make the most of every opportunity to build more housing for its residents, and the ADU Grant Program helps homeowners who want to invest in and share their property to help address a huge issue," said CalHFA Executive Director Tiena Johnson Hall in a press release. “Many homeowners have the land available in their backyard, and we want to make it as easy as possible for them with this grant program.”

The state legislature passed laws in 2017 that made ADUs legal in all of California's cities. In 2019 CalHFA entered into a pilot program with Self-Help Enterprises for $2.5 million in funds for ADU construction financing as part of the Clovis (Calif.) Cottage Home Program.

Approximately 25,000 building permit applications were issued for ADUs in 2019 and 2020 (15,600 in 2019 alone), following 5,911 permits issued in 2018, according to data from the UC Berkeley Center for Community Innovation.

Lower-income families lag in the creation of ADUs. A separate April 2021 survey from the UC Berkeley’s Center found that of homeowners who already have an ADU on their property, seven out of 10 have a household income over $100,000, compared to 40% of all Californians.

The grant amount could help significantly defray construction costs, as 37% of respondents paid between $50,000 and $100,000 for their ADU, while another 34% paid between $100,001 and $200,000.

Slightly more than half of the respondents, 52%, paid cash for all or part of the construction, with another 43% taking a loan from a bank. A 10% share got money from a friend or a relative, 7% used their credit card or some other form of unsecured debt, 1% took an early withdrawal from a retirement account and 1% got a government loan.

Of those that borrowed money, 177 took out a home equity line of credit, 111 refinanced their first mortgage, 20 received a construction loan and another seven applied for a personal loan; survey participants could pick more than one response.

To receive a grant, the homeowner applies with a CalHFA lender for a construction loan; they also fill out the ADU grant application forms.

The lender then approves the borrower for the loan and preapproves them for the grant. Predevelopment work starts, paid through the construction loan account, while the lender sends the package to the agency.

After CalHFA issues the grant, the funds are wired to the loan account, reducing the principal the borrower needs to repay.