CA To Issue Forgivable Down Payment Loans As Inflation Soars

CALIFORNIA — A new California home loan program provides a lifeline to first-time homebuyers unable to save up a down payment. Buyers struggling to enter California’s severely tight housing market can now get a helping hand in the form of a forgivable down payment loan with a zero percent interest rate.

The state’s new Forgivable Equity Builder Loan gives qualified buyers up to 10 percent of a home’s purchase price, and they don’t have to pay it back if they live in the home as their primary residence for five years. There is no cap on how much that 10 percent loan could be.

It might sound too good to be true, but it’s real.

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There is a catch, however.

Borrowers have to earn enough to qualify for a mortgage loan but do not earn so much that they exceed the program’s income requirements. In California, there are a great many low-income families or young professionals who can meet that requirement. Buyers must earn less than 80 percent of the area’s median income — in places such as San Diego, that is a family earning less than $76,080 a year; whereas in Santa Clara County, that would be a family earning less than $118,960 per year, according to the California Housing Finance Agency.

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Qualifying Income By County:

  • Holy Cross: $89,520
  • San Francisco: $106,880
  • Alameda: $106,880
  • Marine: $106,880
  • Sonoma: $82,640
  • Napa: $81,200
  • San Diego: $76,080
  • St. Clare: $118,960
  • Los Angeles: $68,880
  • Orange: $68,880
  • San Bernardino: $62,000
  • Riverside: $62,000
  • Sacramento: $72,720
  • Ventura: $79,040

In America, home equity is the chief way in which most families attain, build and pass on wealth, according to state housing officials. Families that can’t afford to save for a down payment are at a disadvantage that can affect them for generations.

“Home equity has proven to be one of the strongest ways for families to build and pass on intergenerational wealth and CalHFA is committed to improving equitable access to homeownership for all Californians,” said Tiena Johnson Hall, CalHFA’s executive director. “The Forgivable Equity Builder Loan, which gives first-time homebuyers a head start with immediate equity in their homes, will help California families build and pass on that wealth with a secure, stable home loan.”

There are some California counties where this program will work better than others.

“It just might not work in Orange County,” said California Housing Finance Agency spokesman Eric Johnson. This year, Orange County became the first Southern California county to exceed a median home value of $1 million. In places where affordable housing is scarce, it’s more challenging for a low-income earner to qualify for a loan high enough to buy.

In California, the median price of an existing single-family home hit a record high of $849,080 in March — a 2.6 percent increase over the previous record set in August.

Since the loan program launched in April, roughly a quarter of the approved applications have come from San Bernardino and Riverside counties.

“It’s places that still have a supply of less expensive real estate where this program is going to work best,” Johnson said.

For homebuyers who don’t quite qualify for the Forgivable Equity Builder Loan, there are other state programs that can help, Johnson said. Under the state’s My Home Assistance Programhigher-income first-time buyers can get deferred-payment loans for up to 3.5 percent of a down payment, he said.

Homebuyers can search for participating loan officers listed by county on the agency’s website.

The helping hand comes as the key 30-year loan this week reached its highest point since 2009.
The Federal Reserve on Wednesday raised its benchmark interest rate by a half-percentage point and signaled further large rate hikes are to come. The Fed’s move, its most aggressive since 2000, will bring higher costs for mortgages as well as credit cards, auto loans and other borrowing for individuals and businesses.

Mortgage buyer Freddie Mac reported Thursday that the 30-year rate rose to 5.27 percent from 5.1 percent last week, when it edged down after seven weeks of increases. By contrast, the average rate stood at 2.96 percent a year ago.

The average rate on 15-year fixed-rate mortgages, popular among those refinancing their homes, jumped to 4.52 percent from 4.4 percent last week.

With inflation at a four-decade high, rising mortgage rates, elevated home prices and tight supply of homes for sale, homeownership has become less attainable, especially for first-time buyers.
Some economists suggest that home sales this year could decline as much as 10 percent from 2021 levels.

The lack of housing affordability is a contributing factor to the Golden State’s homelessness crisis and shrinking population.

California’s population declined again in 2021 for the second consecutive year, state officials said Monday, the result of a slowdown in births and immigration coupled with an increase in deaths and people leaving the state. About 280,000 more people left California for other states than moved here in 2021, continuing a decades-long trend. Housing affordability is forcing people to flee the picturesque population centers of the coast for the relatively cheaper havens of the Inland Empire and the vast Central Valley or other states.

“It says something about how hard it is for people to afford living here,” said Eric McGhee, a senior at the Public Policy Institute of California, a nonpartisan think tank.

The Associated Press contributed to this report.

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