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 Installment 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.
The dream of homeownership just became more attainable for California first-time homebuyers thanks to an innovative new loan program. The California Housing Finance Agency (CalHFA) recently launched the Forgivable Equity Builder Loan to help first-timers cover down payments and closing costs.
This loan provides an interest-free second mortgage of up to 10% of the purchase price. If you live in the home for 5 years, the entire loan balance is forgiven. Even better, it requires no monthly payments during those 5 years.
For first-time buyers struggling to come up with a down payment while paying high rents, this loan can be a total game changer Let’s take a closer look at how the CalHFA Forgivable Equity Builder Loan works and who’s eligible.
Overview of the CalHFA Forgivable Loan
The CalHFA Forgivable Equity Builder Loan provides first-time buyers with a subordinate loan to assist with the down payment and/or closing costs Here are the key details
- Loan amount – Up to 10% of the purchase price or appraised value, whichever is less
- Term – Matches the term of the first mortgage, up to 30 years
- Payments – None required for the first 5 years
- Forgiveness – 100% of the loan balance is forgiven after 5 years of occupancy
- Income limits – Below 80% of county’s area median income
- Usage – Down payment and eligible closing costs
To qualify, you must use the Forgivable Loan with a CalHFA first mortgage such as one of their FHA, VA, USDA, or conventional loan programs. This subordinate loan piggybacks on the first mortgage.
The program launched in April 2022 to help improve equitable access to homeownership CalHFA will fund it using a mixture of state funds and taxable mortgage revenue bonds.
Top Benefits of CalHFA’s Forgivable Equity Builder Loan
This subordinate loan offers huge benefits to first-time homebuyers in California:
1. Zero monthly payments for 5 years
Since you don’t need to make any monthly payments on the Forgivable Loan for 5 years, this reduces your total monthly housing costs, making ownership more affordable.
2. Immediate home equity
Even better, you get an ownership stake in your home right away since the loan provides down payment funds. This instant equity sets you up to start building wealth through your home.
3. Down payment assistance
Saving up enough for a standard 20% down payment is often the biggest hurdle for first-time buyers. This forgivable loan gives you up to 10% of the purchase price to put toward the down payment.
4. Help with closing costs
First-time buyers can also use loan proceeds for closing costs like lender origination fees, appraisal fees, and prepaid interest. This saves you cash.
5. Forgiveness after 5 years
As long as you occupy the home as your primary residence for 5 years, CalHFA will forgive the entire loan balance. It’s a 0% interest, deferred payment loan.
Who Qualifies for the CalHFA Forgivable Loan?
To qualify for the Forgivable Equity Builder Loan, homebuyers must meet these eligibility standards:
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First-time buyer – Cannot have owned a home in the past 3 years
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Below 80% of county AMI – Check income limits based on property location
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Purchase an owner-occupied property – Must be your primary residence
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Meet CalHFA first mortgage requirements – Credit, income, etc.
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Citizen/permanent resident – Social Security number required
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Complete homebuyer education course
CalHFA allows some exceptions to the first-time buyer requirement. Borrowers affected by a California natural disaster declaration within the past year may still qualify.
The program is available whether you’re purchasing a single-family home, townhome or condo. Use CalHFA’s income lookup tool to see if your income falls under the limit.
How to Apply for CalHFA’s Forgivable Home Loan
Since this is a CalHFA program, you must work with a CalHFA-approved lender to receive the Forgivable Equity Builder Loan. Here are the steps:
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Get pre-approved for a CalHFA first mortgage – Confirm you meet credit, income requirements
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Ask your lender to reserve down payment assistance – Lender submits reservation through CalHFA
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Complete homebuyer education course if needed
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Make an offer and enter escrow on your home
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Provide income/asset documentation to lender
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Lender reviews and approves your CalHFA loan application
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Close on your home and move in within 60 days!
This subordinate loan may be combined with CalHFA first mortgages such as:
- CalPLUS FHA
- CalPLUS Conventional
- CalHFA FHA
- CalHFA VA
- CalHFA USDA
As you can see, the CalHFA Forgivable Equity Builder Loan makes it possible for just about any first-time homebuyer to realize the dream of ownership. And you get to live payment-free for the first 5 years.
Check if your income qualifies and ask your lender about applying today. This free down payment from CalHFA could be what helps you finally purchase your first home!
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.
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.
New FORGIVABLE EQUITY BUILDER LOAN from CalHFA – 10% Down Payment Assistance!!
FAQ
Is the forgivable equity builder loan still available?
Can CalHFA loans be forgiven?
What is the maximum loan amount for CalHFA?
What is a forgivable equity Builder loan?
The California Housing Finance Agency (CalHFA) is introducing the Forgivable Equity Builder Loan, which helps homebuyers with a loan of up to 10 percent of the purchase price. If the homebuyer stays in the home for five years, they do not have to repay the junior loan, making homeownership more attainable for Californians.
Can a first-time homebuyer get a forgivable equity Builder loan in California?
California offers a new home loan program for first-time homebuyers who need to pay a down payment. The California Housing Finance Agency (CalHFA) offers the Forgivable Equity Builder Loan program, where first-time homeowners can obtain forgivable loans for up to 10 percent of the purchase price.
Does CalHFA offer a home loan?
The California Housing Finance Agency ( CalHFA) offers a loan program for up to 10% of the purchase price with 0% interest for those who qualify. If the borrower stays in the home for a period of five years, they will not have to repay the loan. Loans can be used for down payment or closing costs, including rate reductions.
Can a first-time homebuyer use a CalHFA loan?
Your first-time homebuyer, with income < 80% AMI can use this Forgivable Loan for down payment and closing cost assistance. This program is only available through a CalHFA-approved lender. Brokers must work through a CalHFA-approved wholesale lender to process your CalHFA loan.