Back in February 2024, we walked you through three major California's ADU changes: AB 1033, which opened the door for separate ADU sales as condominiums in cities and counties that opt in; AB 976, which removed owner-occupancy requirements for standard ADUs; and AB 1332, which required local agencies to create preapproved ADU plan programs. If you haven’t read that article yet, it’s still a useful primer on the basics.
California's legislature has a well-earned reputation for revisiting ADU law almost every single year, and 2025 and 2026 were no exception. Several new bills have taken effect since our last update — some tightening up loopholes, some handing buyers real new opportunities, and one that might be the biggest financing shift for ADU-equipped homes in years. Here's what's actually new.
The big one: lenders can now count ADU rental income toward your mortgage
This is the update we're most excited about, because it directly changes what buyers can afford.
Historically, if you were buying (or refinancing) a primary residence with an ADU, you generally couldn't use the ADU's projected rental income to help you qualify for a standard mortgage — unless you already had a documented history of renting the ADU or another property on your tax returns. That meant the income-generating potential of the ADU didn't actually help you get the loan to buy the house in the first place.
That's changed. Fannie Mae updated its Selling Guide to allow lenders to count projected ADU rental income toward a borrower's qualifying income on a purchase or limited cash-out refinance of a one-unit primary residence. The rental income used can't exceed 30% of the borrower's total qualifying income, and only one ADU's rent counts even if a property has more than one. The policy was announced in late 2025, and as of March 2026 it's fully built into automated underwriting — meaning lenders can apply it broadly, not just as a manual workaround.
What this means for you: If you're buying a one-unit primary residence that already has an eligible ADU, Fannie Mae now allows documented ADU rental income — subject to lender guidelines, appraisal/rent documentation, and the 30% cap — to be considered when qualifying.
If you're planning to build or add an ADU, there are financing options that may help, but you should confirm the income treatment with a lender before relying on future rent in your buying-power calculation.
Multifamily property owners can now add up to 8 ADUs
If you own (or are considering buying) a multifamily property, this one's for you. As of January 1, 2025, state law allows up to one detached ADU per existing unit on a multifamily lot, capped at eight ADUs per property. For an investor sitting on a fourplex or larger, that's a meaningful increase in buildable units — and buildable income — on land they already own.
Unpermitted ADUs finally have a path to legalization
This is a big one for buyers who come across a home with a garage conversion or backyard unit that was never permitted.
For sellers, an unpermitted unit can create real uncertainty before listing. Will it affect the appraisal? Will buyers get nervous? Will the city require corrections?
California law now provides a clearer pathway for ADUs and JADUs built before January 1, 2020 to be reviewed and, where appropriate, brought into compliance. Local agencies can no longer deny a permit solely because the unit lacks prior authorization. Instead, the review focuses on whether the unit has health and safety issues, using a substandard-housing checklist and inspection process to identify what needs to be corrected.
It's not a free pass — the unit still has to meet safety standards — but it replaces "no" with "here's what to fix."
What this means for you: If you’re selling a home with an unpermitted in-law unit, garage conversion, or backyard cottage, it may be worth investigating your options before you list.
And if you’re buying a home with one of these spaces, don’t assume it’s a dealbreaker — but do understand what has been permitted, what hasn’t, and what may be required to bring it into compliance.
A small but important update to JADU rules
Our 2024 post covered AB 976, which eliminated the owner-occupancy requirement for standard ADUs but left it in place for Junior ADUs (JADUs) — the smaller units built entirely within the walls of an existing home. That distinction just got more specific.
As of January 1, 2026, owner-occupancy for a JADU is only required if the JADU shares a bathroom with the primary home. If the JADU has its own separate, private bathroom, the property owner doesn't have to live on-site at all. One structural detail — the bathroom — now determines whether an owner can live off-site. Regardless of bathroom setup, JADUs are still subject to a 30-day minimum rental term, so short-term rentals are off the table either way.
Cities have less room to stall your application
Two more technical but genuinely useful changes:
- Faster completeness reviews. Local agencies must now determine whether an ADU application is complete within 15 business days of submission. If they don't, the application is automatically deemed complete — no more indefinite "we're still reviewing" limbo.
- Real consequences for noncompliant cities. If a local agency doesn't submit its ADU ordinance to the state's Department of Housing and Community Development on time, or ignores a finding that its ordinance conflicts with state law, that local ordinance can be rendered void entirely. (Note: the bill behind part of this, also numbered SB 9, is unrelated to the well-known 2021 lot-split law of the same name — just a case of California reusing bill numbers across legislative sessions.)
Together, these close a lot of the "your city can just sit on it" loopholes that used to slow ADU projects down.
Coastal properties caught up to everywhere else
ADUs in California's coastal zone used to face a slower, separate permitting track for their coastal development permit, outside the standard 60-day shot clock that applies elsewhere. That gap has closed — coastal development permits for ADUs are now subject to the same 60-day approve-or-deny timeline, and if an agency misses the deadline, the ADU is deemed approved by law.
However, keep in mind: the Coastal Act still matters, and ADU law does not override coastal resource protections.
Myth-busting: the $40,000 ADU grant is not currently available
You may still see this floating around — a $40,000 CalHFA grant to help cover ADU pre-development costs. It's worth correcting clearly: CalHFA's own program page confirms the last round of funding was fully allocated back in December 2023, and there's no open application or announced relaunch. CalHFA explicitly warns that anyone offering to help you "get" this grant right now is running a scam.
The good news is there are still real options. Some counties and cities run their own ADU financing or forgivable-loan programs. For example, San Mateo County's One Stop Shop, which we mentioned in our 2024 post, is still active, and California's Department of Housing and Community Development (HCD) maintains an up-to-date directory of similar local programs worth checking for your specific city or county.
The bottom line
California doesn't slow down on ADU legislation, and honestly, that's mostly good news if you're a homeowner or buyer. Since our 2024 post, the state has made it easier to legalize unpermitted units, easier to build multiple ADUs on multifamily lots, and — most significantly — easier to actually finance a home because of its ADU. If you're weighing whether an ADU makes sense for a property you own or one you're considering buying, I'm happy to walk through what applies to your specific situation and local jurisdiction.
The content above is purely for informational purposes. It should not be seen as financial, legal, or tax guidance. For advice tailored to your specific situation, please consult with the relevant professionals.
Sources & Further Reading
