Get up to $40k off your ADU with a CalHFA Grant!

In this post, we’ll tell you everything you need to know about the CalHFA ADU grant: what it is, who qualifies, how it works, and what you can do with it.

Last updated 
November 21, 2022
Get up to $40k off your ADU with a CalHFA Grant!

Get up to $40k off your ADU with a CalHFA Grant!

It’s common knowledge at this point that accessory dwelling units—also called ADUs, casitas, or granny flats—are a great investment that can provide extra living space or consistent rental income. Like most great investments, they require a significant upfront cost: often upwards of $150k for a garage conversion and $200k or more for a ground-up new construction. But two recent developments have made ADUs more accessible than ever for homeowners of all income levels.

The first of these developments is Freddie Mac’s new ADU financing options, which you can learn more about here.

The second is the 2022 expansion of the CalHFA ADU grant program. With this grant, qualifying homeowners can get their ADU pre-construction costs (including designs and permits) for free—and without having to take out a loan!

In the following blog post, we’ll tell you everything you need to know about the CalHFA ADU grant: what it is, who qualifies, how it works, and what you can do with it.

What is CalHFA?

The California Housing Finance Agency (CalHFA) was established in 1975 as an independent and self-supporting state agency that operates within the California Department of Housing and Community Development. CalHFA offers grants, low-rate housing loans, and mortgage relief programs to qualifying renters, homeowners, and home-buyers with the goal of making housing more affordable for low- to moderate-income Californians.

Although CalHFA isn’t a lender, they partner with several approved lenders to help distribute funds.

What is the CalHFA ADU grant?

The CalHFA ADU grant provides up to $40,000 to qualifying homeowners, which can be used to reimburse pre-development and non-recurring closing costs associated with ADU construction.

Unlike a loan, the grant does not need to be paid back; it’s essentially a gift from the state government!

What are the new changes to the grant?

The government of California recently added $100 Million in grant funds to the CalHFA ADU program.

Additionally, select lenders now include second loan options. Previously, only construction loans were eligible for the grant, which often hold higher interest rates and need a full refinance after completion of the project. With a second loan, you can finance an ADU without losing the low interest rate on your primary mortgage.

You can now also qualify for the grant even if you don’t use a loan! Until recently, only lenders were approved to manage the grant funds, which means applicants paying for their ADU in cash were ineligible. CalHFA has now approved several organizations to disperse grant funds as well—including HPP Cares, CCEDA and the Pasadena Second Unit ADU Program—so loans are no longer required.

How to qualify for the CalHFA grant

The grant is available to low- to mid-income borrowers. In Los Angeles County, individuals making less than $180k a year are eligible. If you live elsewhere in California, refer to the CalHFA income limits chart to see if you qualify.

Note: only the borrower’s individual income is considered, not their combined household income.

Additionally, the CalHFA ADU grant is currently available to homeowners only, not investors. The ADU must be built on the property owner’s primary residence. This is enforced via a signed owner-occupancy affidavit.

Applicants must use a CalHFA approved lender or organization to manage the project finances and ensure certain requirements are met. Refer to the CalHFA ADU grant website for a full list of approved partners or contact Otto for recommendations based on your needs.

A limited number of grants are available, but since the budget was expanded, there’s still a lot of funding left in 2022!

How the CalHFA grant funds can be used

CalHFA grants can be used for pre-construction (or “soft”) costs, including:

  • Pre-construction and planning costs
  • ADU plans and permits
  • Architectural designs
  • Site prep
  • Soil tests
  • Impact fees
  • Property surveys
  • Energy reports
  • Utility hookups
  • Non-recurring financing costs

Grants cannot be used for the following:

  • Construction costs
  • Labor & materials

How the CalHFA grant process works

With a Loan

Grant applicants must first apply for a loan from a loan officer approved and trained by CalHFA (see list of approved lenders above).

Once the loan is approved, predevelopment of the ADU begins.

Then, the lender submits the grant application on behalf of the homeowner, along with invoices for predevelopment costs.

Once CalHFA approval is secured, the approved grant funds are wired to the loan account, lowering the amount of loan principal repaid by the homeowner.

Paying Cash

Grant applicants must first apply to reserve their funds from an approved CalHFA ADU Special Financing Grant Program Participant trained by CalHFA (like HPP Cares).

The organization opens a managed escrow account for your project.

Once CalHFA approval is secured, the approved grant funds are wired to the escrow account, adding to the available funds that can be used for the project.

CalHFA ADU grant: Pros and Cons


The main advantage of the grant program is obvious: free money! If you were already planning on paying for your ADU with a loan, the grant can help lower the amount you’ll have to pay back. It’s particularly helpful for ground-up ADUs, where soft costs can easily reach $40k.

Additionally, second loans and construction loans usually offer higher borrowing power than traditional refinance loans.

And since loans are no longer an eligibility requirement, even more homeowners qualify.


While there’s no arguing with free money, you’ll want to weigh some factors and make sure it’s the right option for you and your project.

Timelines are a bit uncertain, and grant processing might take a while as CalHFA and lenders navigate the new process together.

There are tax implications for the free money that you receive. Consult with a tax professional about how this will impact your annual taxes.

The application requires lots of documentation and steps to follow to ensure the homeowner receives the grant. Your builder will also have to work with the lender to provide progress documentation and arrange site inspections. All the more reason to work with a trusted expert partner like Otto! We know our way around the grant program and can help you get the funds to help build your ADU.


Q: What documentation will I need for my CalHFA ADU grant application?

A: You’ll need to submit the following documents with your CalHFA ADU grant application:

  • Proof of Income
  • Tax Returns from last year (2021)
  • Utility Bill (Water, Electricity, Gas)
  • Scope Of Work

Q: I’m not ready to build my ADU yet. Should I apply now? How long do I have to use the grant funds?

A: As of right now, there is not an ADU completion deadline for the grant funds. This may change over time, as there are thousands of homeowners eager to use the grant. We recommend applying now to reserve your funds even if you are in the early stages of ADU planning.

Q: Are the grant funds taxable?

A: Yes, CalHFA grant funds are taxable. Consult with your tax advisor to plan accordingly.


The CalHFA grant can be a great option to help fund your ADU, and it’s now available to most homeowners in Los Angeles. And Otto can help!

As an HPP Cares Preferred Partner, Otto is very familiar with the CalHFA ADU grant program and can help guide you through the process. And if you need a loan, Otto can match you with an approved lender. Talk to an Otto representative today about the grant process and start planning the backyard cottage of your dreams.

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