The California Housing Finance Agency (CalHFA) has made incredible changes to its ADU grant program that grants $40K to homeowners developing ADUs. These new changes make it easier for more people to take advantage of the grant without having to take out a loan.

The grant program continues to evolve as policymakers try to make it easier for more people to take advantage of the program. Read on to find out more about these new changes and how you can take advantage of this opportunity.

$40k ADU Grant Recap

Before we dive into the changes, let us first recap what the CalHFA ADU grant program is and what it does.

The ADU grant program from CalHFA allows low-to-moderate-income homeowners access to up to $40,000 for pre-construction costs for an ADU. 

It is designed to encourage ADU development to combat the growing homelessness crisis plaguing the state of California. The more people who build ADUs, the more affordable living options there will be for low-income families.

There were many stipulations to the grant program when it was first created, including that you needed to obtain a loan from their short list of lenders to qualify for the grant. Most of those loans required you to refinance your primary mortgage, making it not an ideal option for individuals who already had a good mortgage rate.

CalCon Mortgage did come out with a loan that took a second position. However, it had a $200,000 borrow minimum that was much too high for people undergoing garage conversions or developing JADUs. Although it was a step in the right direction, it still did not solve many of the issues with the program ADU developers were facing.

Luckily, though, more changes were made, and now there are many more approved lenders and the option to obtain the grant without taking out a loan.


No Loan Needed for ADU Grant

The CalHFA grant has increased the number of approved lenders you can use to gain access to the grant. If you need a loan for your ADU, these are excellent options to consider to ensure you can also receive the $40K grant. A few of the approved lenders include:

  • Evergreen Home Loans
  • Flagstar Bank
  • Priority Financial Network
  • Supreme Lending

CalHFA has also added a list of special financing grant program participants including:

The one special financing grant program participant you want to pay close attention to is HPP Cares. HPP Cares is a consumer credit, debit, and housing counseling agency devoted to meeting people where they are and moving them forward. They allow you to access the grant without acquiring a loan of any kind. Therefore, you do not have to complete any form of refinancing to gain access to the $40K.


How To Get the Grant Without a Loan

HPP Cares is one of 5 Special Financing Grant Program Participants that can help you get the grant. What makes them so special is that they have three options for you to finance your ADU: through a loan, using cash savings, or a combination of both. 

To receive the grant without obtaining a loan, you can bring cash from your savings, 401k, previously closed HELOC, or cash-out refinance. Anywhere you have cash in a closed account, whether it came from an approved lender or not, can be used to finance your ADU.

Bring the cash to HPP Cares and they will put it in a managed escrow from a third party outside of HPP Cares that is licensed and bonded as a fund control. Once it is in the managed escrow account, that cash in the account will be what you use to fund your ADU and get approval for the $40k grant.

The 40k will be wired into the same managed escrow account and distributed as phases of the development are completed. All projects are overseen by HUD Certified Inspectors who determine when funds are distributed. If there are any surpluses of funds upon the receipt of the Certificate of Occupancy, they will be refunded.

This option is great for people who want to use the money they already have to finance an ADU. If you are looking to build an ADU yourself, have calculated your ADU costs, and know you have enough money to afford it without taking out a loan, going through HPP Cares is your best option.


What Is a Managed Escrow?

A common question many people have after learning about HPP Cares no loan option is: what is a managed escrow?

A managed escrow is a fund control account. It is managed by escrow agents who only release the funds within the account upon the fulfillment of predetermined contractual obligations. So, in this case, they will not release funds until specific phases of your ADU project are complete.

They manage and verify the construction budget, drawing documentation, and work progress to ensure you don’t receive funds for the next step until the previous step is completed. Essentially, they preserve the $40k to ensure you use it for what it is intended for and do not use more of it than you need.


HPP Cares Loan Option

The other main option HPP Cares offers is to finance your ADU through a loan. HPP Cares will pair you with their lending partners so that you may get a HELOC, Second Mortgage, or Cash Out Refinance to fund your ADU development. Once you have secured a loan, the proceeds will be wired into the managed escrow account and then the $40k is added to that.

This is an attractive option for individuals who still need a loan but do not want to be forced to refinance their current mortgage.


HPP Cares Combined Option

Another thing that makes HPP Cares so special is that they offer a combination option that lets you combine both the cash and finance option. Having this option is great for individuals that have saved up some money that they want to put towards the ADU, but still need a loan to obtain the rest of the funds. That way, they do not have to take out a loan for the entire amount that they will have to pay back with interest.


Filling Out ADU Grant Application

When filling out the application to work with HPP Cares or any loan officer, make sure you provide as much information as possible. For anything you do not have yet, like a contractor, put N/A. Make sure you communicate with them that you are searching for one and have not decided yet. Just be sure that you do not leave anything blank.

Never disqualify yourself either. The lenders are there to help you. As professionals, they often know loopholes for how to get you the grant that you may not have considered. Let them be the ones to decide you do not qualify, otherwise, you might miss out on a great opportunity because you didn’t give it a try.

When contacting a loan officer, be sure to have ready:

  • Pay stubs
  • Bank statements
  • Employment history
  • Previous tax returns

They will ask for these things, so if you have them all together it will make the process go much smoother.

Another thing to be aware of is that you must make sure that as a participant in the CalHFA $40k grant fund, you are an owner occupant (your name is on the deed). You also need to ensure that you do not exceed the income limit for your county. If you exceed it as a couple, consider applying as an individual.

Finally, you need to ensure you meet property guidelines as well. Freddie Mac recently made changes to their policies allowing you to qualify for an ADU loan if you are the owner occupant of a single or multi-family unit with 1-4 units.


Financially Prepare for ADU Grant

Grants are for a specific amount of money determined by how much the department can give out and do not have to be paid back. However, the $40k ADU grant does have tax implications. So, although you don’t need to pay the $40k back, you will need to pay taxes on it.

Due to this, we highly recommend that before you submit your application for the grant, you talk to a certified public accountant or your tax advisor. This way you can ensure you can pay your taxes the following year. Your taxes could go up significantly, so you need to be sure you can plan for that huge increase before accepting the grant money.


What Happens If You Don’t Use the ADU Grant?

A common question many people have is: what happens if you reserve the grant, but your project falls through?

There is no penalty for reserving a grant and not being able to do the project. If you do not start building within 3 to 6 months, your funds will be receded and given to someone else. 

With that being said, it is important to be sure you are ready to build your ADU once you submit your application. If you don’t start construction within 6 months, your $40k will likely be taken away. To help you get your ADU construction underway as quickly as possible, consider using free ADU floor plans or buying customizable ADU floor plans.

If you are not sure where to start your ADU, have no idea what ADU zoning laws are, or what ADU size limits are, you may want to do some more research about ADUs before applying for the grant and diving into construction.


Will There Be More CalHFA ADU Grant Updates?

The ADU grant from CalHFA has seen many changes since it was first created. With that being said, we don’t think it is a far-reach to believe that more changes will be coming to make it even easier for people to access.

For example, grant program participants like HPP Cares are pushing to allow investors and people who have completed ADUs access to the $40k grant. Currently, these types of individuals cannot participate in the program. Whether or not they will be allowed to in the future is up to CalHFA.

We could see more approved lenders and the type of people who are allowed to participate change in the coming months.


Learn More About ADU Grant Program

If you have more questions about the ADU grant program that this article did not address, you can contact an ADU professional. They will be able to help you determine whether you qualify for the $40k grant and which path to financing it will work best for you.

Here at Levi Design Build, we are dedicated to helping individuals build the accessory dwelling units of their dreams. With over 20 years of experience, our team of experts collaborates closely with our clients to find them the best ADU financing options available.

If you don’t have the funds needed to build your ADU, you can always work with our trusted partner Land Home Financial to get the funding for your project and the approval for the $40k grant.


Start ADU Development Today

If you are ready to build the ADU of your dreams, let us help! We can walk you through the various steps needed to develop an ADU and help you secure the funding you need to do so.

Levi Design Build is committed to offering a personalized approach to every project, starting with a free consultation. We have completed hundreds of successful projects on time. Let us add your ADU to our growing list of quality ADUs.

Have more questions about ADU development? Check out our Free ADU Guidebook and consider taking our eCourse to learn more about the process.

Contact us today with any of your ADU questions and let us guide you through your ADU development journey!