Seeking to undo an ambitious goal of boosting homeownership in California, the state has launched a new repayable loan program for first-time home buyers.
The program, Forgivable Equity Builder Loan, allows first-time qualified buyers to borrow up to 10% of the purchase price of a home and obtain debt forgiveness if the buyer lives in the home for five years. The loans are available to middle-income families earning less than 80% of their county’s annual median income, or less than $120,000 in all Bay Area counties.
California lawmakers have earmarked $100 million in the state budget for early homeowner loans. The goal is to help working families with enough income to pay a mortgage, but not enough savings to pay a down payment.
Eric Johnson, spokesman for the California Housing Finance Agency, said the state wants to encourage families to build generational wealth through long-term homeownership. The generational wealth gap has been particularly large in black, Hispanic, and some immigrant communities. “The down payment and closing costs are a real bump,” he said.
The new effort comes as housing costs in the Bay Area have hit record highs and rising interest rates have pushed monthly payments up by hundreds of dollars. The median price of a home in the Bay Area in March was $1.4 million, according to the California Association of Realtors (CAR). Raising a standard down payment by 20% — over $200,000 for many starter homes — is beyond the reach of many potential buyers.
Affordability for first-time buyers has been particularly difficult, according to CAR surveys. About two in five Bay Area residents could afford the single-family home at the median price at the end of 2021. The minimum qualifying income was $150,000 for a typical home just over $1 million. .
Zillow senior economist Jeff Tucker said a program increasing a buyer’s payment by 10% “makes a significant difference.”
The forgivable loan allows a homeowner to build equity much faster and could help a first-time buyer refinance at a lower interest rate after the five-year term ends, he said.
But, Tucker noted, early buyers in the Bay Area face a tough market. After two years of historically low interest rates, mortgage costs have climbed above 5%. Between rising rates and accelerating home prices, Bay Area buyers paid 37% more in monthly costs in March than they did a year ago. “It’s not affordable for most people,” he said.
California’s forgivable loan program has already received a dozen applications, Johnson said. The agency does not limit the size of the loan. It requires buyers to attend a homeowner’s first class and use a recommended loan officer who is familiar with state programs. The first step is to speak with a preferred loan officer listed on the CalHFA website.
Loan eligibility in the Bay Area ranges from a median annual income of $119,000 in Santa Clara County to $107,000 in San Francisco, San Mateo, Alameda and Contra Costa counties, according to Fannie Mae. .
The California Department of Housing and Community Development also announced $66 million in new grants to boost homeownership for low-income residents. The program will provide funding for 33 low- and middle-income housing projects across the state.
In the Bay Area, $5 million will go to Santa Clara County Housing Authority, $5 million to Santa Clara County, $2.5 million to Marin County Housing Authority, and Habitat for Humanity will receive several grants for projects in the region.
The grants are intended to help low-income residents become homeowners or renovate and maintain their current homes.