Struggling to find financing for your ADU? These cities make it easier!

Struggling to find financing for your ADU? These cities make it easier!

Some cities in California are offering solutions for Homeowners who need financing. See what’s available to you!

A Dire Need for Financing

According to the Terner Center for Housing Innovation, the largest barrier of entry to homeowners looking to build a Second Unit on their property is finding financing for their project. While Accessory Dwelling Units (ADUs) are substantially cheaper than building a new single family home, they still require a not insignificant investment. ADUs can be constructed for anywhere between $50,000 to $250,000 depending on labor and permitting costs. Not everyone has this amount of cash on hand, and the money has to come from somewhere, so homeowners are turning to a number of different ways to finance their projects.

Luckily, some cities are taking initiative, creating their own programs by for people who construct or renovate ADUs in their jurisdiction - sometimes partnering with nonprofits who focus on affordable housing. These programs are aimed in a number of different areas - some are loan forgiveness programs, while others are simply low interest-rate agreements with borrower friendly terms. Here’s a look at a couple different cities and counties in California providing options to help fight the housing crisis.

Santa Cruz County

One of the most ADU-friendly cities , Santa Cruz County generously offers an ADU loan forgiveness program to those in Unincorporated Santa Cruz County, offering homeowners up to $40,000 for permitting, impact fees, design costs, and utility connections as approved by the Housing division. According to the program, “The ADU Loan is provided at 3% simple interest, deferred for 20 years, and will be forgiven after 20 years if the ADU has been rented in compliance with the low-income restriction for the entire 20-year term. Homeowners may opt out of the deed restriction agreement at any time by paying back the loan in full (principal plus accrued interest) when they wish to opt out."

It may be good to keep in mind that many ADU projects often cost more than $40,000, and the city requires that the homeowner must contribute at least 10% of the total ADU project cost. However, this is still a great option for homeowners looking to rent out their unit for passive income.

During the rental agreement, the program requires certain rent prices be maintained, as the aim of the program is to create affordable housing for the county’s residents. You can read more details about the rent, as well as the rest of this program here.


The city of Clovis has set their eyes on ADUs in order to build density in desirable areas of the city center and revitalize the city. Like many other cities looking to capitalize on the rising trend of ADUs, Clovis is streamlining the ADU process by providing pre-approved plans to homeowners with single family residences built on their lots. Along with this, Clovis has partnered with Self Help Enterprises in order to help provide those who undertake these projects with more attractive and available financing options.

While pre-approved plans help accelerate a project, you will still need to find help drafting the site plans. Ensuring that you’re able to fit those plans onto your specific property, or that you’re able to build an ADU at all, is one of the most important steps of the process. While we can’t offer financing, we can provide feasibility and drafting services, even if you choose to go with the city’s Pre-approved plans.

The loan provides from $50,000 up to $140,000 with a 10-12 year term at a variable interest rate, 1.40-3.08%, dependent upon the loan amount and term. Eligibility is based on a number of factors, including ownership and FICO credit scores. Borrower income must also not exceed a certain amount, adjusted on a county level. You can read more about the policies and of this program on this document, and more about the process here. We’re excited that some cities are offering homeowners help directly to where they need it most!

Monterey Bay/City of Santa Cruz

Habitat for Humanity, with funding from CalHOME, has worked on providing ADU assistance to homeowners for over 14 years. Santa Cruz currently suffers from having one of the least affordable renting markets in California. Primarily focused on low-income seniors who are unable to make mortgage payments, the program helps those who want to age-in-place by living in either the converted unit or the primary home, and renting the other living space out to tenants.

In order to qualify, you may need to prove that you are low income and that you can obtain a $40,000 loan. Once you can show that you qualify, you may be eligible for a flexible borrower-friendly loan. You can see a quick decision-tree to see if you are eligible here

Partnering with nonprofits is an excellent way to provide resources to homeowners who may not be able to fully fund their own ADU project out of pocket.

Santa Clara County, or East Palo Alto

Housing Trust Silicon Valley has developed a loan program to homeowners in Santa Clara County or East Palo Alto looking to build an ADU. This nonprofit aims to combat the current housing crisis in California by investing in affordable housing solutions like ADUs. The program accomplishes this by working with homeowners to teach them about ADUs and how to navigate the building process. By assisting homeowners in the financing stage, the program can help provide relief to many renters who seek affordable rents. The program does this by limiting tenants to only those whose income is <120% of the median income in that area.

If you qualify, you can apply for a construction loan of up to $200,000 or 97% of the property’s combined loan to value, whichever is lower. Along with a rent restriction, there are some other specifications of the program. The program is aimed to help develop ADUs that are about 500 square feet, so projects above $200,000 may have to pay for additional costs out of pocket, as the funding cannot be in the form of a loan on the property. There is also an Owner-occupancy requirement, meaning that the borrower must reside in the main unit during the duration of the loan.

You can read additional details about the specific loan here, and you can read more about the mission of Housing Trust Silicon Valley here.

We’re happy to see cities recognize problems standing in the way of progress, and tackle them one at a time.