The cost of living in California can be astronomical, and the real estate market reflects that. You may think your only option is to rent a home with bad credit because qualifying for a home loan is impossible but think again!
Residents of California may now have access to two new forgivable loan programs! Suppose you are struggling to find or keep affordable housing in The Golden State. In that case, you may be able to qualify for financial assistance.
Keep reading to learn more about mortgage loans and loan forgiveness programs for homeowners.
What To Know About Buying Homes in California
Before you move forward with the home-buying process in California, it is essential to understand the current real estate market.
Owning a California home is a dream for many. Still, the cost can prevent that dream from becoming a reality for many low-income families. In January 2023, the median home price of a home was reported to be $693,800. This is significantly higher than the national average.
According to Redfin, the median sale price of a U.S. home is $400,706, which is $293,094 cheaper than the median cost of buying a home in California.
Many mortgage lenders in California require a 20% down payment, which generally costs $138,760. Many people do not have that much money saved up for their first home. But if you have enough to provide 20%, you may get a low-interest rate and avoid paying for private mortgage insurance (PMI).
If you qualify for a low-down-payment mortgage program, you could pay as little as 0% or 3% for a down payment. Suppose you apply for a conventional mortgage with a 3% minimum down payment. In that case, you only need to provide $20,814 as a down payment.
What Is a Forgivable Equity Builder Loan?
The California Housing Finance Agency (CalHFA) offers a new forgivable subordinate loan program called the Forgivable Equity Builder Loan. This down payment assistance program was designed to boost home ownership in California by helping first-time homebuyers get immediate equity in their new home. But this program may only be used with a CalHFA first mortgage.
The Forgivable Equity Builder Loan is meant to help qualified, first-time homebuyers cover down payment costs, closing costs, and rate buydowns. California residents can borrow up to 10% of a home’s purchase price through this program and get a zero-percent interest rate. And if the borrower continuously occupies the house as their primary residence for at least five years, the loan can be forgiven! But if the homeowner does not occupy the property for at least five years, there may be tax consequences. In the event a Forgivable Equity Builder Loan is partially forgiven, CalHFA loan servicing will annually issue a 1099 Form to borrowers during tax season.
Who Qualifies for a Forgivable Equity Builder Loan?
In order to qualify for a Forgivable Equity Builder Loan, interested borrowers must meet the following qualification requirements:
- The applicant must be a first-time home buyer in California.
- The applicant must have a minimum credit score of 660.
- The applicant must occupy the purchased property as a primary residence.
- The purchased property must be a single-family, one-unit residence.
- The applicant must earn less than 80% of their county’s annual median income.
- The applicant must spend less than 45% of their monthly income on expenses.
According to the CalHFA, approved condominiums, planned unit developments, guest houses, granny units, and in-law quarters may be eligible. Manufactured housing can also be bought using a Forgivable Equity Builder Loan.
In addition to the requirements listed above, CalHFA borrowers must successfully complete homebuyer education counseling and earn a certificate of completion through an eligible homebuyer counseling organization.
Interested California residents can use the California Housing Finance Agency website to look up county income limits determined by Fannie May for their respective counties. Keep in mind that income limits are subject to change. Refer to the Fannie May or CalHFA website for up-to-date information on income limits.
Suppose you want to buy a property in Orange County with a Forgivable Equity Builder Loan. Since the income limit is $78,320, your monthly expenses must be less than 45% of that amount. To determine the maximum amount you can spend in your county, divide the income limit by twelve, and multiply the answer by 45%. If the income limit for Orange County is $78,320, then you must spend less than $2,937 monthly.
Suppose you meet the requirements for a Forgivable Equity Builder Loan. In that case, you may contact a CalHFA Preferred Loan Officer in your county. For a complete list of participating Preferred Loan Officers, visit the CalHFA website. But remember that CalHFA is not a direct lender. However, the mortgage products they offer are provided by private loan officers.
What Are the CalHome Awards?
In 2022, the Department of Housing and Community Development (HCD) announced they would start providing more than $67 million in grant funding for 33 CalHome Program projects in California. These projects help low and very low-income households become or remain homeowners across the state.
The grant money will help individual first-time homebuyers get deferred-payment loans, which can be used for:
- Down payment assistance.
- Acquisition of a property.
- Affording home repairs.
- Homebuyer counseling.
- Self-help mortgage assistance.
- Technical assistance for self-help homeownership.
According to the HCD Director Gustavo Velasquez, programs like CalHome are essential for reaching the “…ultimate goal of 2.5 million homes in California over the next eight years.” CalHome focuses on creating and preserving affordable housing in California to help homeowners and prospective homebuyers of all income levels.
If you are interested in seeing the complete list of local public agencies and nonprofit corporations that will receive CalHome Program grant funding, you can send an email to alex.traverso@hcd.ca.gov.
References:
State Announces Two Programs for Current or Future California Homeowners│National Council of State Housing Agencies
California First-Time Home Buyer: Grants & Programs 2023│The Mortgage Reports
Forgivable Equity Builder Loan Income Limits│California Housing Finance Agency
