ADU financing

ADU financing options in California

Most homeowners can't write one check for an ADU. Here's what's actually available in California right now: the status of the state's ADU grant, the main kinds of loans people use, what FHA, Fannie Mae, and Freddie Mac say about ADUs, and a few city programs. This page explains options; it doesn't recommend any lender or loan.

Last reviewed October 19, 2026

1 · The short answer

Short answer

The CalHFA ADU Grant is not open. CalHFA says its latest round of ADU grant funding was fully allocated on December 28, 2023. As of October 19, 2026, that notice is still posted, and CalHFA warns that anyone who says they can help you get an ADU grant is running a scam.
Most ADU owners have paid with savings or home equity. In a 2021 statewide survey of ADU owners, 53% used cash and 43% used bank loans (many used more than one source).
Common loan types: a home equity line of credit (HELOC) or home equity loan, a cash-out refinance, a renovation loan, or a construction loan. FHA, Fannie Mae, and Freddie Mac each allow financing on homes with ADUs.
ADU rent can sometimes count as income. FHA and Freddie Mac allow a portion of expected ADU rent to count toward a borrower's qualifying income on a one-unit home with an ADU, with limits. Fannie Mae allows it for its HomeReady loans.
Some cities run their own ADU loan programs, such as San Diego (through the San Diego Housing Commission), Pasadena, and Long Beach.

Sources: CalHFA ADU Grant Program page · UC Berkeley Center for Community Innovation, Implementing the Backyard Revolution (April 2021, PDF) · HUD Mortgagee Letter 2023-17 (PDF) · Freddie Mac, Accessory Dwelling Units fact sheet (February 2026, PDF) · Fannie Mae Selling Guide B5-6-02, HomeReady Mortgage · San Diego Housing Commission, ADU Finance Program · City of Pasadena, Second Unit ADU Program · City of Long Beach, Backyard Builders Program

2 · The state grant

Is there an ADU grant in California in 2026?

CalHFA ADU Grant Program. CalHFA's program gave grants of up to $40,000 to reimburse pre-development and non-recurring closing costs for building an ADU. Pre-development costs included site prep, architectural designs, permits, soil tests, impact fees, property surveys, and energy reports. HCD's ADU Handbook says the grant was for qualifying homeowners building an ADU or JADU on a lot with an owner-occupied single-family home.

Status as of October 19, 2026: closed. CalHFA's ADU page says: "December 28, 2023 - The latest round of ADU funding has been fully allocated." CalHFA's lender bulletin from that date says the funds for the window that opened December 11, 2023 were exhausted and the reservation portal closed. CalHFA's announcements page lists no new ADU grant round since then (newest item checked: August 26, 2026). HCD's March 2026 Handbook also says the funds have been exhausted.

Scam warning. CalHFA says: "If anyone approaches you saying they can help you get an ADU Grant, it is a financial scam." It asks people to forward any names or phone numbers to marketing@calhfa.ca.gov.

Application, income limits, and requirements. Because the program isn't taking applications, we don't list its old application forms or income limits here. If CalHFA opens a new round, its ADU page is the place to check.

State funding through cities and counties. HCD says some of its funding programs that go to local agencies, including CalHome, the Permanent Local Housing Allocation, the Prohousing Incentive Program, and the Local Housing Trust Fund Program, can be used for ADUs and JADUs. That money reaches homeowners only if your city or county sets up a program. Long Beach's ADU loan, for example, refers to CalHome in its loan terms.

Sources: CalHFA ADU Grant Program page · CalHFA Program Bulletin #2023-14 (PDF) · CalHFA, Press Releases, Program Bulletins and Announcements · HCD ADU Handbook (March 2026, PDF) · City of Long Beach, Backyard Builders Program

3 · How owners paid

How ADU owners have paid for their ADUs

In the 2021 UC Berkeley Center for Community Innovation survey of owners of ADUs permitted or completed in 2018 or 2019, homeowners used some combination of cash (53%), loans from a bank (43%), and money from friends or relatives (10%). The survey didn't capture how much each source covered. A 2020 Terner Center brief found most owners funded their ADUs with cash, a home equity line of credit, or a cash-out refinance, and many needed more than one source.

Sources: UC Berkeley Center for Community Innovation, Implementing the Backyard Revolution (April 2021, PDF) · Terner Center and CCI, Reaching California's ADU Potential (August 2020, PDF)

4 · Loan types

Home equity line of credit (HELOC) or home equity loan

A HELOC lets you borrow against your home equity (your home's value minus what you owe on your mortgage). The federal Consumer Financial Protection Bureau (CFPB) explains that you can draw on it during a "draw period," that HELOCs usually have variable interest rates, and that monthly payments are often much higher once the repayment period starts. The CFPB also warns that if you can't repay on schedule, you could lose your home. The 2020 Terner Center brief notes that when interest rates are high, a smaller second loan such as a HELOC may make more sense for some owners than refinancing a first mortgage at a higher rate.

Sources: CFPB, What is a home equity line of credit (HELOC)? · Terner Center and CCI, Reaching California's ADU Potential (August 2020, PDF)

5 · Loan types

Cash-out refinance

A cash-out refinance replaces your mortgage with a larger one and pays you the difference. Freddie Mac lists cash-out refinance as an allowed loan purpose for properties with ADUs. FHA doesn't allow ADU rental income to be counted as income to qualify for a cash-out refinance.

Sources: Freddie Mac, Accessory Dwelling Units fact sheet (February 2026, PDF) · HUD Handbook 4000.1, FHA Single Family Housing Policy Handbook (August 12, 2026 update, PDF) · HUD Mortgagee Letter 2023-17 (PDF)

6 · Loan types

Renovation loans (finance the ADU with your mortgage)

Fannie Mae HomeStyle Renovation: Fannie Mae says borrowers buying or refinancing a one-unit home can use a renovation loan to build or install a new ADU.
Freddie Mac CHOICERenovation: Freddie Mac says buyers and owners refinancing can use CHOICERenovation to build a new ADU or renovate an existing one. It also allows a "no cash-out" refinance to pay off short-term financing used for ADU work completed before the new loan closes.
FHA 203(k): FHA's 203(k) rehabilitation program can be used to convert a one-family home to a one-family home with an ADU, to add an ADU that will be attached to an existing structure, or to renovate an existing attached or detached ADU. FHA's list doesn't include building a new detached ADU. HCD's Handbook also says the 203(k) loan may only be used to build an attached ADU.

Sources: Fannie Mae, Accessory Dwelling Units · Freddie Mac, Accessory Dwelling Units fact sheet (February 2026, PDF) · HUD Handbook 4000.1, FHA Single Family Housing Policy Handbook (August 12, 2026 update, PDF) · HUD Mortgagee Letter 2023-17 (PDF) · HCD ADU Handbook (March 2026, PDF)

7 · Loan types

Construction loans

Fannie Mae: borrowers building a new one-unit home with an ADU can use a construction-to-permanent loan for both.
FHA: a single-family home with an ADU is an allowed property type for FHA new construction financing.
Local programs: some city programs, below, are construction loans.

The 2020 Terner Center brief found that homeowners often had a hard time getting ADU financing because banks had been slow to design loans for ADUs. Ask lenders directly whether they offer ADU construction loans and how they value the finished ADU.

Sources: Fannie Mae, Accessory Dwelling Units · HUD Mortgagee Letter 2023-17 (PDF) · Terner Center and CCI, Reaching California's ADU Potential (August 2020, PDF)

8 · Rental income

Can ADU rent count toward qualifying for a mortgage?

Sometimes. Each agency has its own rules:

Program	Can expected ADU rent count as income?	Key limits (from the agency's own rules)
FHA (HUD Handbook 4000.1, from Mortgagee Letter 2023-17)	Yes, for a one-unit home that has or will have an ADU	Without a rental history, the lender uses 75% of the lesser of the appraiser's fair market rent or the lease. ADU rental income can't be more than 30% of the total monthly income used to qualify. Not allowed for cash-out refinances.
Freddie Mac	Yes, on a one-unit primary residence (purchase or "no cash-out" refinance), and on some investment properties	Rent documented by a lease counts at no more than 75% of the lease amount. Qualifying ADU rent can't be more than 30% of total qualifying income. Appraisal must include a comparable sale with an ADU and at least three comparable rentals, one of them a rented ADU.
Fannie Mae	For HomeReady loans, yes, on a one-unit principal residence with an accessory unit	Fannie Mae's general rule is that rental income from your own one-unit home can't be used to qualify, with exceptions including accessory units; HomeReady lists a one-unit home with an accessory unit as one of those cases.

Lenders can add their own requirements on top of these. Ask yours how it handles ADU rental income.

Sources: HUD Mortgagee Letter 2023-17 (PDF) · HUD Handbook 4000.1, FHA Single Family Housing Policy Handbook (August 12, 2026 update, PDF) · Freddie Mac, Accessory Dwelling Units fact sheet (February 2026, PDF) · Fannie Mae Selling Guide B5-6-02, HomeReady Mortgage · Fannie Mae Selling Guide B3-3.8-01, General Rental Income Information

9 · What counts as an ADU

What FHA, Fannie Mae, and Freddie Mac count as an ADU

These rules matter if you're buying a home with an ADU or refinancing after you build:

FHA: a one-unit home with a single ADU stays a one-unit property. The ADU must have its own way in and out and be subordinate in size to the main home.
Fannie Mae: only one ADU is allowed on the parcel of a one-unit home, and ADUs aren't allowed with a two- to four-unit property. The ADU must be smaller than the main home and have its own entrance, kitchen, sleeping area, bathing area, and bathroom. Fannie Mae doesn't finance properties with more than one ADU.
Freddie Mac: one ADU is allowed on one-, two-, and three-unit properties, and it generally must meet local zoning.

California law allows some lots to have more than one ADU. If you're planning more than one, ask your lender early how that affects your loan options.

Sources: HUD Mortgagee Letter 2023-17 (PDF) · Fannie Mae Selling Guide B2-3-04, Special Property Eligibility Considerations · Fannie Mae, Accessory Dwelling Units · Freddie Mac, Accessory Dwelling Units fact sheet (February 2026, PDF) · Cal. Gov. Code §66323 (ADU combinations)

10 · City programs

City and county ADU loan programs (examples)

These are examples we checked on October 19, 2026, not a complete list. Programs open and close, and each has its own income, credit, and property rules. Check with the program before you plan around it.

San Diego (City of San Diego), San Diego Housing Commission ADU Finance Program. A construction loan of up to $250,000 at a 3% fixed rate, plus free technical assistance, for homeowners with income up to 80% of area median income (AMI). The property must be a detached single-family home in the City of San Diego with an owner-occupied main home, and the minimum credit score is 680. The loan must be repaid after construction (for example, by refinancing or a home equity loan). The ADU must be rented at affordable rents to tenants earning up to 80% of AMI for seven years, and not to a family member during that time. SDHC lists a $2,500 application fee, due at loan closing. Its page showed "Apply Now" when we checked.

Pasadena, Second Unit ADU Program. A construction loan of up to $250,000 at 1% simple interest with no payments for three years, plus a city-assigned construction manager for design, permitting, and construction. The city's page describes renting the ADU to a Pasadena Housing Choice Voucher tenant. The city's page said "Application window is now open" and that applications are reviewed on a rolling basis.

Long Beach, Backyard Builders Program. A loan of up to $250,000 (or the ADU's actual cost, if less) at 2% interest, 30-year term, with payments deferred for the life of the loan, plus a city-appointed project manager. Round 2 applications are scheduled for November 1–30, 2026. Applicants must own and live in the home, earn under the state's "low income" limit for Los Angeles County, have a credit score of at least 620, and be in a state-designated program area. The funded ADU must be under 500 square feet, single-story, and use standard finishes. The loan must be repaid on sale, transfer, the end of owner occupancy, or after 30 years.

Other cities and counties may have programs. Ask your city's housing department.

Sources: San Diego Housing Commission, ADU Finance Program · City of Pasadena, Second Unit ADU Program · City of Long Beach, Backyard Builders Program

Before you borrow

A short checklist before you take on a loan.

Find out your fees and get written bids first, so you know how much you need. See our pages on ADU costs, ADU fees, and ADU contractor bids in California.
Ask more than one lender which ADU loans they offer, whether they'll count ADU rent, and how they appraise homes with ADUs.
Ask your city or county housing department about local ADU loans, fee reductions, or standard plans.
Be wary of anyone promising grant money. CalHFA's grant is closed and CalHFA calls such offers scams.
Consider talking with a nonprofit housing counselor or a financial advisor.

Sources: CalHFA ADU Grant Program page

Quick answers

Is the CalHFA ADU grant available in 2026?

No. CalHFA says its latest round of ADU grant funding was fully allocated on December 28, 2023, and that notice was still posted on October 19, 2026. CalHFA warns that anyone offering to help you get an ADU grant is running a scam.

How much was the CalHFA ADU grant?

Up to $40,000, to reimburse pre-development and non-recurring closing costs such as plans, permits, soil tests, impact fees, surveys, and energy reports.

Can I use a HELOC to build an ADU?

Many ADU owners have. A 2020 Terner Center brief found most owners paid with cash, a HELOC, or a cash-out refinance. A HELOC is borrowed against your home, so the CFPB warns that falling behind could mean losing your home. Your lender decides how much you can borrow.

Can I get a mortgage or construction loan to build an ADU?

Possibly. Fannie Mae offers HomeStyle Renovation and construction-to-permanent loans that can include an ADU, Freddie Mac offers CHOICERenovation, and FHA allows new construction financing for a home with an ADU. Whether you can get one depends on the lender and your finances.

Can I build an ADU with an FHA 203(k) loan?

FHA's 203(k) list includes converting a one-family home to a home with an ADU, adding an attached ADU, and renovating an existing attached or detached ADU. It doesn't list building a new detached ADU.

Can ADU rent help me qualify for a loan?

Sometimes. FHA counts 75% of the lesser of market rent or the lease, up to 30% of your qualifying income, on a one-unit home with an ADU (not for cash-out refinances). Freddie Mac has similar 75% and 30% limits. Fannie Mae allows it on HomeReady loans.

Are there ADU loan programs in San Diego, Pasadena, or Long Beach?

Yes, when we checked on October 19, 2026: the San Diego Housing Commission's ADU Finance Program, Pasadena's Second Unit ADU Program, and Long Beach's Backyard Builders Program (Round 2 applications November 1–30, 2026). Each has income and other requirements.

Sources

The agency pages, handbooks, and research this page is based on. Checked October 19, 2026.

Check ADU rules for your address