Pasadena’s $225K ADU construction loan program
Pasadena is one of very few LA County cities that offers
its own publicly funded ADU construction loan program. Most
builders don't mention it, because the program doesn't fit
a premium design-build budget. It's worth knowing about
anyway: for the right household, it is the cheapest ADU
capital available in Southern California.
What the program is
The Pasadena Second Unit ADU Loan Program,
administered by the Pasadena Department of Housing, offers
up to $225,000 in construction financing
at 1% simple interest with a three-year
deferred-payment term. Payments are deferred during
construction; once the ADU is complete and rented to a
Pasadena Housing Choice Voucher (HCV) tenant for six
continuous months, up to $100,000 of the principal
converts to a 20-year silent third mortgage at 0%
interest and the remaining balance is refinanced
into a conventional mortgage. The program is funded by the
state's Permanent Local Housing Allocation (PLHA) and
CalHOME programs — not City general funds — and the money
is real.
What you have to agree to
- Rent to a Pasadena HCV tenant for 7 continuous
years. The Housing Choice Voucher program
(Section 8) pays the market-rate rent directly to the
landlord on behalf of the tenant. Rents are set by HUD's
Fair Market Rent schedule for Pasadena and are
competitive with the lower end of private-market rent.
- Five-year affordability covenant recorded against
title. The covenant survives resale — if you
sell the property during the covenant period, the buyer
must honor the remaining term.
- Owner-occupancy of the main house for the life
of the loan. You must live in the primary
dwelling; the ADU cannot be used to turn the whole
parcel into a rental.
- No short-term rentals. Stays of less
than 30 days are prohibited for the life of the loan.
Program constraints you should know up front
- ADU size capped at 750 sqft. The program
will not finance larger ADUs, even though state law and
Pasadena's ordinance allow up to 1,000 sqft detached.
- Pre-approved plans required for new detached
ADUs. Loan participants must build one of the
City's catalog plans. Custom design is not eligible.
- Not available on historic structures.
Properties with Landmark or Historic Monument designation
are excluded, as are properties in some Landmark and
Historic Districts — verify with the City's Housing
Department before investing in an application.
- Junior ADUs and condominium parcels are not
eligible. Single-family detached parcels with a
new or converted ADU only.
- Credit and equity underwriting applies.
Typical thresholds: credit score > 650, debt-to-income
ratio < 40%, combined loan-to-value < 80%.
Who the program actually fits
The loan program is a real solution for a specific kind of
Pasadena homeowner: you own your home, you have equity and
decent credit, you are willing to rent to a voucher tenant
for seven years, and a 750-sqft pre-approved ADU plan
meets your needs. For a family building a small unit for
long-term rental income where the 1% interest rate
meaningfully beats a HELOC or construction loan, it
pencils.
It does not fit: investors, non-owner-
occupants, buyers who want a larger or custom design,
historic-property owners whose parcel is excluded, or
anyone planning to sell within the covenant period.
Where CALI ADU fits — and doesn't
Our Signature Homes are not currently in Pasadena's
pre-approved catalog, and most of our lineup is sized above
the program's 750-sqft cap. We do not participate
in the loan program today. We flag it during every
Pasadena Backyard Review because it is the cheapest ADU
capital you can find in LA County, and in some household
situations it is the right call.
If you have already decided to pursue the loan program,
work directly with the Pasadena Department of Housing and
a contractor enrolled in the program. If you are weighing
the loan program against private financing for a larger
Signature Home, your Backyard Review includes the math
both ways: 750-sqft pre-approved plan at 1% interest vs. a
1,000–1,200 sqft premium two-story at private construction-
loan rates. For many households the premium path produces
more gross rent, more resale value, and fewer long-term
constraints — but that is a decision that turns on your
specific numbers.
Read the handbook or apply:
cityofpasadena.net/housing/community-development/second-unit-adu-program
Terms summarized from the Pasadena 2nd Unit ADU Loan
Program Handbook (3rd Round, Rev. 12/2025). Program
terms, funding availability, and eligibility change
between funding rounds; confirm the current handbook
before committing.