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San Jose ADU Loan Program - 0% interest and no payments for 6 months

Ryan O'Connell

San Jose Mayor Sam Liccardo Announces New 0% ADU Loan

Read about the loan in the city’s press release:

SAN JOSE MAYOR JOINS PARTNERS TO ANNOUNCE PILOT PROGRAM TO SPUR ADU DEVELOPMENT

Innovative financial program offers a 0% interest loan to 20-30 San Joseans to build backyard homes

Post Date:05/12/2021 3:15 PM

“The launch of the first and only 0% interest loan for accessory dwelling units (ADU) on the market. The San Jose Scaling Accessory Dwelling Unit (ADU) pilot program will provide 20-30 qualifying applicants a 0% interest loan for six months to finance 100% of the costs associated with permitting and building an ADU.“

There’s a 39 minute video announcement attached to the press release too.

Fill out this pre-qualification form at prefabADU

Mayor Sam Liccardo and Steve Vallejos CEO of prefabADU
photo courtesy of prefabADU

Highlights:

  1. 0% interest loan for 6 months

  2. No payments for 6 months

  3. No financial need requirement (because it’s not using public money)

  4. For San Jose residents

  5. You have to use one of prefabADU's plans (they're good)

  6. The ADU has to be under 750 sq ft

  7. You cannot be building in a WUI, flood zone, geohazard zone, seismic landslide zone, or historic landmark area

  8. Your project can't involve retaining walls or shoring (ie flat lots preferred)

  9. After 6 months, you’re supposed to do a take-out loan because prefabADU should have completed construction already (they do really fast panelized installs). If you do not do a take out loan by then, “interest rates will go up to 9.95% to encourage homeowners to refinance through a traditional lender for long term financing”

How this works and why it matters

Building ADUs makes good economic sense, but there aren’t a lot of lending products designed for ADUs.

Usually, this pushes resourceful homeowners to use HELOCs, cash-out refis and other clever ways to access equity in their existing home. But that option isn’t available to everybody.

Construction loans are products that are better-suited for development projects, but until now, they’ve featured a lot of drawbacks that make them less appealing in a lot of situations (higher rates, more strings attached, and sometimes catering more for renovations than whole house construction).

This loan capitalizes on the fact that prefabADUs is very very fast. They build off-site and do panel installations, reducing construction time and on-site costs. And they promise 3 months (which is very very fast).

That makes it much easier for a lender to offer a cheap, tempting construction loan like this one. At the end of six months, they’re hoping that the homeowner has finished their project and approached a lender about a take-out loan which can now count the value of the finished ADU.

If this pilot program works and more lenders adopt construction loan terms like this for ADUs that are built faster than 6 months, it couls service tens of thousands of homeowners where the math wouldn’t pencil out before a loan like this existed.

I’m watching the lending program closely and would love to hear from you if you apply for the loan. Email me at ryan@how-to-adu.com if you’d like to share your experience.

Please share this blog post with anybody you know in San Jose

The URL for this post is http://bit.ly/san-jose-adu-loan

The prefabADU website says this is “first come - first serve” so don’t delay.

If you know anybody who might  benefit from this loan, share this blog post with them and encourage them to share their project with How To ADU for free.

I will keep you in the loop when news like this is breaking so you get in line as fast as possible.

Helpful links:

Note: I have no affiliation with the city of San Jose, prefabADU, 29th Street Capital, or First Capital Trust Deeds. I’m a big fan of prefabADU and considering work with them but I’m not being asked or compensated for this post. The reason I’m sharing this information is because it’s useful to homeowners who want to build ADUs and this website exists for that very purpose!