Outline:
- Constructing small homes in backyards may beexpensive. The price of the units can vary — from less than $100,000 to more than $300,000.
- Three states will assist with expenses by offering grant funds to homeowners.
- Below are the programs, the amount homeowners can receive, and the individuals who qualify to apply.
If you have explored the idea of constructing atiny homein your own yard, you’ve likely found out what many people have: Although they can help you save money over time, they can be costly to construct.
These backyard homes, called accessory dwelling units, or accessory dwelling units, are compact living spaces that can range from 150 square feet to 1,200 square feet, depending on your location.
The typical price of a unit may vary between$100,000 to $300,000,not to mention the permit fee, and securityobtaining a loan to construct an accessory dwelling unit can be difficult.
In California, where the majority of backyard homes are being constructed, ADU building permits range from $450 to $15,000 — even prior to the start of construction, according to Backyard Unlimited, a company specializing in ADU construction.
That’s not everything: Additional expenses might involve site preparation, covering tasks such as inspections to installing utility lines.
In other words, if you lack immediate cash or the means to obtain funding for the project, it may become too expensive.making it harderstudies have indicated that it is actually feasible for middle- and low-income homeowners to construct one.
To address this imbalance, encourage fairness, and ultimately accelerate the development of essential housing, some states—as well as non-profit organizations in certain cities—have created grant initiatives to offer support.
The deadlines for these programs differ across states. Individuals looking to construct an ADU should get ready for the upcoming application periods next year, as they typically face significant interest.
Below are the ADU programs available across the country.
California: Maximum of $40,000 per recipient
Previously, the state offered $40,000 to Californians for expenses related to building an ADU before construction began, such as design, permits, and soil testing. However, by 2026, no funds had been set aside for the initiative, according to a representative from the California Housing Finance Agency who spoke with Business Insider.
Who can apply? The application period has now ended. Previously, residents of California who met the low- to moderate-income guidelines were eligible.
Total funding available:A sum of $100 million was set aside in 2021, yet by 2023, all the funds had been given out. Additional financing of $25 million was added for the 2023-2024 timeframe, but by 2026, the program had exhausted its financial resources.
When are applications open?The application process has been closed.
Previous requirements:
- Homeowners are not required to reside in the main house or the accessory dwelling unit they construct.
- You may qualify for one ADU (either attached or detached) with a maximum size of 1,200 square feet and one Junior ADU not exceeding 500 square feet for single-family lots.
- In properties with multiple families, you have the option to construct several accessory dwelling units connected to current buildings and as many as two separate ADUs on the same land.
- Homeowners are allowed to construct an ADU with a minimum size of 800 square feet and a maximum height of 16 feet, and it must be placed 4 feet away from the side and back yards.
Office or Division responsible for distribution: California Housing Finance Agency
New York: Up to $125,000 for each recipient
The Plus One ADU Initiative offers qualifying New Yorkers a maximum of $125,000 to construct or modify an accessory dwelling unit on their land. This initiative is included in Gov. Kathy Hochul’s five-year housing strategy, designed to develop or maintain 100,000 affordable housing units.
Who can apply? Any local government is eligible to apply during the competitive funding cycle, and nonprofit housing groups can also pursue ADU funding in collaboration with municipal authorities.
Homeowners can apply directly with the nonprofit organizations, and families with incomes as high as 120% of the local median income qualify.
Total funding available:In 2026, the New York State Homes and Community Renewal (HCR) intends to launch a fourth funding cycle, allocating the leftover money approved as part of the $85 million, five-year housing initiative.
HCR states that almost $74 million has already been distributed to 85 towns across the state. The fourth phase is anticipated to fund the building of over 550 accessory dwelling units.
When are applications open?Applications are not yet available; HCR willupload them to its website once they become available.
Requirements:
- Candidates need to verify that local zoning regulations clearly permit accessory dwelling units, ideally via an officially adopted local resolution.
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For homeowners:
- An ADU may be located within the current house, like a basement or attic apartment, a mother-in-law suite, or a separate and standalone building.
- A 10-year restriction is in effect to guarantee that the house continues to serve as the owner’s main home and that the accessory dwelling unit is maintained in a suitable living state.
- The accessory dwelling unit needs to be inhabited by a tenant or a relative, and it cannot be leased for short periods.
Office or Division responsible for distribution:New York State’s Office of Homes and Community Renewal
Vermont: Maximum of $50,000 per recipient
This programenables residents of Vermont to obtain as much as $50,000 for constructing an accessory dwelling unit on their land. Both property owners who rent out their homes and those who live in them are qualified.
Who can apply?Every homeowner in Vermont has the opportunity to apply via these five regional groups: RuralEdge, Champlain Housing Trust, NeighborWorks of Western Vermont, Downstreet Housing and Community Development, and Windham and Windsor Housing Trust. These groups evaluate applications and manage initiatives.
Total funding available:By 2023, Vermont’s budget amounted to $15 million.
When are applications open?Currently open, with continuous availability.
Requirements:
- Individuals who are awarded a grant are required to follow specific guidelines.stipulations, such as adhering to local regulations, ensuringHUD Fair Market rent, and matching at least 20% of the grant money.
- The project needs to be finished within 18 months after the grant agreement is signed.
- Individuals who utilize their ADU as a rental property are required to sign a rental agreement or a loan forgiveness contract, pledging to set the rent at or below the Fair Market Rent for the entire term of the agreement.
Agency or Department in charge of distribution: Vermont Housing Improvement Program
Colorado: A fresh funding initiative is still in the process of being implemented
In 2024, Colorado passed HB24-1152to help homeowners construct accessory dwelling units. The Colorado Department of Local Affairs (DOLA) collaborates directly with local governments as they make regulatory adjustments to meet the requirements of HB24-1152.
DOLA operates the Accessory Dwelling Unit Grant Program (ADUG), offering $5 million to areas that align their regulations with requirements and promote ADUs.
Who can apply? For ADUG, regions may seek financial support to offer technical help to homeowners with low and moderate incomes.
The Colorado Housing and Finance Authority (CHFA) is also launching initiatives that specifically assist home owners.
Total funding available:The state has allocated $5 million for ADUG.
The main initiative led by homeowners allocates $8 million to CHFA’s ADU Financing Programs, offering financial assistance via loans, credit improvements, and reduced interest rates to assist home owners.
When are applications open? The second phase of funding applications will begin on Monday, February 2, 2026.
Requirements: Local authorities—regardless of whether they fall under HB24-1152—must receive certification from DOLA as an ADU Supportive Jurisdiction according to the law.
Office or Division responsible for distribution:The Colorado Office of Local Affairs, Colorado Housing and Finance Authority
Hawaii: Some counties offer financial assistance or benefits for building accessory dwelling units
To assist in increasing the availability of workforce housing, Maui County initiated theʻOhana Assistance program to assist homeowners in constructing accessory dwelling units, either attached or detached, on their land.
The Kaua’i County provides financial support to homeowners who construct a secondary unit on their property via the Affordable Additional Rental Unit (ARU) initiative.
Who can apply?Homeowners with properties designated for residential use may qualify to apply for both the ʻOhana Assistance program and the Kaua’i Affordable Additional Rental Unit program.
Total funding available:The ʻOhana Assistance Pilot Program offers funding of up to $100,000 to eligible homeowners.
The ARU program on Kaua’i eliminates specific county development and licensing charges for homeowners who commit to maintaining the unit’s affordability for families earning no more than 90% of the local median income over a minimum of five years.
Kaua’i’s websitestates that the total of fee waivers and subsidies for an ARU certified via the program can reach almost $20,000.
When are applications open?Candidates should reach out to Maui’s Department of Housing and Human Concerns regarding the ʻOhana Assistance program. Kaua’i accepts applications throughout the year.
Requirements:
The Ohana Support Program: Individuals receiving grants are required to establish ADU rental rates according to the county’s workforce housing standards. The ADU must also be leased to full-time Maui County residents for at least a decade.
Kaua’i’s Low-Cost Additional Rental Unit initiative:
- Homeowners are required to have property located in a zoning area that permits accessory dwelling units.
- The ARU should not exceed 800 square feet, and an extra parking spot is typically needed, depending on zoning regulations and county requirements.
- The ARU is not suitable for short-term leasing and is intended for long-term residential purposes.
Office or Division responsible for distribution:
Have you constructed an accessory dwelling unit on your land? We’d like to hear your story. Contact the reporter, Alcynna Lloyd, via email atalloyd@ to share your story.
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