These States Will Pay Homeowners To Build Accessory Dwelling Units or ADUs in Their Backyards

The cost of building one such ADU can range between $100,000 to $300,000 excluding the cost of the permit.

UPDATED JAN 22, 2024

Cover Images Source: YouTube | Los Angeles Times

Building a tiny home in the backyard can come in handy. It can be turned into a garage or even be treated as an extension to your actual home. These backyard homes, referred to as "accessory dwelling units" or ADUs, are small housing units that homeowners can build ranging from 150 square feet to around 1200 square feet. The cost of building one such ADU can range between $100,000 to $300,000 excluding the cost of the permit.

According to Business Insider, there can be other costs as well, like site preparation, inspections, running utility lines, etc. All these factors make it pretty hard to actually build an ADU in the background. To combat the issue, some state governments have started grant programs to make it a tad easier for people to build ADUs in their backyards.

California: Up to $40,000 per grantee

The details of the program are still pretty much under wraps at the moment. However, the past iterations of this program provided $40,000 to Californians that could be used on pre-construction ADU costs, which include designing the unit, or getting a soil inspection. Any Californian who falls in the range of low to moderate-income groups can sign up for the program. The funding available for the program is $50 million, but there are no updates on the application dates as of now, as per California Housing Finance Agency, via Business Insider.

New York: Up to $125,000 per grantee

Households in New York can receive up to $125,000 to build or even bring an existing ADU. Any person who makes below or just 100% of the area median income can apply for the program. The total funding available for the program is $85 million over the next five years. The next round of funding is yet to be announced, as per New York State Homes and Community Renewal.

Vermont - Up to $50,000 per grantee

Representative Image of an ADU | Pexels | Harry Cooke

Any Vermonter can get up to $50,000 to build an ADU in their backyard. There are certain conditions for the grant. They must comply with the local ordinances, maintain a HUD Fair Market rent, match at least 20% of the grant funds, and complete the project within 18 months of signing the grant agreement. Any Vermont owner can apply for the program through the following organizations, Champlain Housing Trust, NeighborWorks of Western Vermont, RuralEdge, Windham and Windsor Housing Trust, and Downstreet Housing and Community Development. Total funding for the program is reportedly $15 million. Applications are currently open on a rolling basis, as per the Department of Housing and Community Development.

Is it worth building an ADU?

ADUs are extremely versatile and super customizable when it comes to their size, style, and design. The space can be used for a houseguest or an older family member. Additionally, you can build an ADU to simply increase the property's value. According to a survey by Beach Resort Property Management, an ADU can add between 10% to 25% to a property's overall value. ADUs can also be used for passive income. You could consider renting out the space for additional income. This can be an amazing way to actually cover your mortgage cost of the house. You can rent and rent out your house at the same time.

Which type of ADU is the most valuable?

There are two types of ADUs, a detached one and an attached one. A separate or detached ADU can be a better option if you want to increase the value or even in the case of renting it out. Any ADU with full bathrooms and a kitchen that is separate will always have more value than something being an extension of one big space.