Essential Details on Orange County’s Affordable ADU Loan Program

If you are a homeowner in Orange County and you want to build an accessory dwelling unit (ADU) on your property, you might be interested in a new loan program that can help you finance the construction and provide affordable housing for low-income tenants.

What is the Orange County Affordable ADU Loan Program?

The Affordable ADU Loan Program is offered by the Orange County Housing Finance Trust (OCHFT), a nonprofit organization that was founded in 2019 by participating cities and the county to support the homeless population and those who are living with extremely low incomes.

The program’s advocacy is to increase the supply of affordable housing in Orange County by encouraging homeowners to build ADUs and rent them out to very low-income tenants. This way, the program can help address the housing crisis and homelessness in the region, as well as provide homeowners with extra income and equity.

The program will provide eligible homeowners a loan of up to $100,000 to complete construction for rental ADUs for very low-income tenants. These 20-year loans are partially forgivable, deferred, and low-interest as long as the homeowner rents their ADU to income-qualified tenants for the first 10 of the 20 years.

Benefits of the Orange County Affordable ADU Loan Program

Here are some of the benefits and requirements of the program:

• You must live in the main house and rent out the ADU to a very low-income tenant for the first 10 years. A very low-income tenant is someone whose income is less than 50% of the area median income.

  

• You don’t have to make any monthly payments on the loan. The loan will be due as a balloon payment after 20 years, or when you sell or refinance your property, whichever comes first.
• Depending on your tenant’s income and whether they have a Section 8 housing voucher, you could have up to 48% of your debt forgiven, or pay an interest rate of 0% to 3%. For example, if your tenant has a Section 8 voucher, your interest rate will be 0%. If your tenant is very low-income without a voucher, your interest rate will be up to 3%. If your tenant’s income exceeds the very low-income limit, your interest rate will be higher.
• You don’t need to qualify for a formal mortgage to get the loan. The OCHFT will approve applications for funding based on your property value, equity, and credit score. You will also need to submit lease information and annual audits to verify your tenant’s income.
• The loan can be used for new construction or conversion of existing space into an ADU. The ADU must meet all local zoning and building codes and regulations.

What are the Eligibility & Requirements To Apply?

To be eligible for the loan, homeowners must meet the following criteria:

1. Be building a new ADU at their primary residence, which is in a Trust member city or unincorporated area. Legalizing existing ADUs and ADUs that are already approved for occupancy aren’t eligible.

2. Be building a legal and feasible ADU (including lot maximums, zoning, permitting, tree removal, parking, and any other requirements)

3. One Affordable ADU Loan Program per property.

4. Have commitments for the remainder of the funds needed for construction but no more than two other loans on the property (including an original mortgage) and a loan-to-value that is no higher than 90% for all loans (including the Trust’s ADU loan)

5. Be working with an experienced ADU professional (ADU consultant, builder with previous ADU experience, or another qualified professional), and all contractors must be licensed in California. The contractor needs to provide liability insurance and worker’s compensation.

Some of the documents you will need to submit are:

• Proof of ownership (such as deed or title)
• Proof of property value (such as appraisal or tax assessment)
• Proof of equity (such as mortgage statement or payoff letter)
• Proof of credit score (such as credit report or score)
• Proof of income (such as tax returns or pay stubs)
• Proof of insurance (such as homeowners insurance or liability insurance)
• Proof of ADU plans (such as drawings or permits)

Homeowners are encouraged to register on the interest list at any stage in the development of their ADU. However, the application includes documents that must come from an ADU consultant. We recommend that you start conversations with these professionals like Yifu Design Studio in order to be best prepared for the application if you are invited to apply.

“Proof of ADU plans” refers to the necessary documentation required to demonstrate your intent and ability to construct an Accessory Dwelling Unit (ADU). This typically includes architectural drawings, site plans, and other related documents that detail the proposed structure and its compliance with local building codes and regulations.

At Yifu Design Studio, we understand that navigating the planning and permitting process can be complex and time-consuming. That’s why we’re committed to assisting you every step of the way. Our team of experienced professionals will handle the creation of detailed ADU plans, including all necessary drawings. We’ll also manage the permit application process on your behalf, ensuring all paperwork is accurately completed and submitted in a timely manner.

How To Apply For the Orange County Affordable ADU Loan Program?

If you want to apply for the program, here are the steps you need to follow:

1. Visit the OCHFT website  and fill out an online interest form. You can also download a brochure that explains the program in more detail. Groups of interested homeowners will be contacted on a rolling basis to invite them to complete the application for the loan. Selection will be made via weighted lottery
2. The OCHFT staff will contact you and provide you with an application packet and a list of required documents (see above).
3. The OCHFT staff will review your application and determine if you are eligible for the program. They will also help you find a contractor who can build or convert your ADU according to the program guidelines.
4. Once your application is approved, you will sign a loan agreement with the OCHFT and start the construction process. The OCHFT will disburse funds directly to the contractor as the work progresses.
5. After the construction is completed, you will receive a certificate of occupancy from your city and start renting out your ADU to a very low-income tenant. You will need to report your tenant’s income and rent amount to the OCHFT every year.

TIPS FOR SUCCESS

Some helpful tips from the OCHFT for how to have a successful experience in the Affordable ADU Loan Program.

Design your ADU with your future neighbor in mind.

Surveys show that private access, outdoor space, and plenty of storage are
highly desirable for renters of ADUs. Bike storage in particular, would be handy if
you aren’t providing a parking spot

Keep potential rents in mind when budgeting for construction.

We don’t cap the construction cost for your ADU, but more expensive ADUs with large amounts of debt will have a harder time covering the cost of debt with restricted rents for the first ten years.

Maximize forgiveness and reduce interest.

Homeowners who don’t meet the 60-month minimum will find these loans more expensive than other financing options. Plan to participate for at least 60 months, but for the best financial impact, aim for all 120 months of the affordability period.

This is a great opportunity for homeowners in Orange County to create more housing options for people in need and generate extra income for themselves. Don’t miss this chance to build an ADU with the help of the OCHFT!

Resources

If you want to learn more about the Loan Program, ADUs and how they can benefit you and your community, here are some useful resources:

• Affordable ADU Loan Program Guidebook 
• Affordable ADU Loan Program Brochure
• The California Department of Housing and Community Development has a website dedicated to ADUs, where you can find information on state laws, local ordinances, design guidelines, best practices, and FAQs. Visit https://www.hcd.ca.gov/policy-research/accessorydwellingunits.shtml for more details.
• The Orange County ADU Resource Center is a website that provides homeowners with tools and resources to plan, design, and build ADUs in Orange County. You can find information on local regulations, financing options, design ideas, and case studies. Visit https://www.ocadu.org/ for more details.
• The Orange County Housing Finance Trust is a nonprofit organization that offers the Affordable ADU Loan Program, as well as other programs and services to support affordable housing in Orange County. You can find information on their mission, vision, goals, partners, and projects. Visit https://ochft.org/ for more details.