California ADU Laws 2026: SB 9, AB 68, and How to Finance Your Accessory Dwelling Unit

California’s accessory dwelling unit (ADU) laws have undergone a dramatic transformation since 2017 — making it easier than ever to add a rental unit to your property, generate income, or house multigenerational family members. For homebuyers and homeowners, understanding these laws opens the door to properties that can genuinely offset your mortgage payment, improve your purchasing power, and build long-term wealth.

What Is an ADU?

An Accessory Dwelling Unit (ADU) — sometimes called a granny flat, in-law suite, backyard cottage, or casita — is a secondary housing unit on a single-family or multifamily residential lot. ADUs can be:

• Attached ADU: An addition connected to the primary home (e.g., converting a garage with a new living area added)
• Detached ADU: A separate structure on the property (e.g., a backyard cottage or converted garage)
• Junior ADU (JADU): Up to 500 sq ft created within the existing walls of the primary home, typically with a separate entrance
• Internal conversion: Converting existing space within the home (basement, attic, bonus room) into a separate unit

California’s ADU Law Evolution: 2017–2026

Before 2017, California cities and counties could effectively block ADUs with onerous requirements: minimum lot sizes, setbacks, owner-occupancy mandates, and utility connection fees that made projects impractical. A series of landmark state laws changed that:

SB 9: The Duplex and Lot Split Law

Senate Bill 9 (effective January 1, 2022) is arguably the most significant California housing reform in a generation. It allows homeowners in most single-family zones to:

1. Build a duplex on their lot (up to 2 residential units), replacing the existing single-family home
2. Split their lot into two parcels and build up to 2 units on each — resulting in up to 4 units on what was previously a single-family lot

Combined with ADU rights, this means a standard single-family lot in most of California can now theoretically accommodate up to 4 dwelling units (2 primary units on each parcel from an SB 9 lot split, plus ADUs on each). This is transformative for property values and rental income potential.

SB 9 does not apply to:

• Properties in historic districts or with historic designations
• Properties within a high fire hazard severity zone in most cases
• Properties within a special flood hazard area
• Agricultural land or certain coastal zones
• Cities with a population under certain thresholds (some exemptions apply)

How ADU Rental Income Can Help You Qualify for a Mortgage

This is where ADU laws become genuinely powerful for homebuyers. Fannie Mae and Freddie Mac now allow lenders to count projected ADU rental income when qualifying borrowers — even if the ADU doesn’t yet exist at the time of purchase.

Existing ADU: Counting Rental Income

If the property has an existing, permitted ADU that is currently rented or rentable:

• Fannie Mae allows up to 75% of the market rent (from an appraisal rent schedule) to be counted as qualifying income
• If you have a signed lease and rent history, you can use 75% of the actual rent
• The rental income reduces your effective housing payment for DTI purposes

Example: You’re buying a $900,000 home in Oakland with a detached ADU that rents for $2,200/month. 75% = $1,650/month in qualifying income. If your PITI is $5,500/month, your effective housing payment for DTI purposes becomes $5,500 − $1,650 = $3,850/month. At $15,000/month gross income, that’s a 25.7% front-end ratio — very comfortable.

Proposed ADU: Qualifying on Plans

Fannie Mae’s ADU guidelines (updated 2023–2024) allow lenders to count projected rental income from a proposed or under-construction ADU in certain situations, with proper documentation. This is particularly useful when you’re buying a home with the specific intent to build an ADU to offset the mortgage.

How to Finance ADU Construction

If you’re buying a home and plan to add an ADU, several financing options exist:

HOA and ADU: What AB 3182 Means

Assembly Bill 3182 (effective 2021) prohibits California HOAs from unreasonably restricting ADUs or JADUs. If your property is in an HOA community:

• The HOA cannot prohibit you from building an ADU or JADU that is otherwise permitted by state law
• The HOA cannot prohibit renting an ADU (though they can require owner-occupancy of the primary home)
• HOA restrictions that conflict with state ADU law are void and unenforceable

Always review HOA CC&Rs with an attorney if your plans involve an ADU — while state law sets the floor, the specific HOA rules and approval processes still matter for design and aesthetics.

ADU Property Tax Treatment

Adding an ADU triggers a partial property tax reassessment — only the new construction value is reassessed, not your entire property’s existing value. Your existing Prop 13 base year value remains protected.

Example: You paid $850,000 for your home in 2022 (assessed value = $850,000). You add a $150,000 ADU. Only the $150,000 improvement is added to your assessed value → new assessed value = $1,000,000. Your existing $850,000 base is unchanged.

Buying a home with an ADU or planning to add one? DiVita Home Finance can help you count rental income toward qualification, explore ADU financing, and find the right loan structure. Contact us for a free consultation.

→ See: California Prop 13 — How ADU Additions Affect Your Taxes

→ See: Bank Statement Loans for Self-Employed California Borrowers

→ See: First-Time Homebuyer Programs in California 2026