California Dream For All Shared Appreciation Loan

by | Apr 7, 2023 | The Market Brew

The state of California is giving away free money to first time home buyers with their new California Dream for All Program. This money can be used for a down payment, or even closing costs. But is this the right program for you? This is the market brew.

Today I’m here to talk about this exciting new equity sharing home program that has just been launched by the state of California. Buying a home can be a dream come true, but for many first-time home-buyers, the high cost of homes in certain areas of California can make that dream seem out of reach. In my experience, the number one thing holding most first-time buyers back, is a lack of sufficient funds to provide a down payment. That’s why the California Housing Finance Agency (CalHFA) recently introduced the California Dream for All Shared Appreciation Loan program.

What is The California Dream for All Program

The California Dream for All is a new program offered by the CalHFA that aims to make home-ownership more accessible and affordable for first-time home-buyers. The program offers a loan to cover up to 20% of the home’s purchase price, which can be used for the down payment and closing costs.

But who is considered a first-time home-buyer? Surprisingly, even if you have owned a house before, you may still qualify. According to the CalHFA website, a first-time home-buyer is defined as someone who has not owned and occupied their own home in the last three years. That means if you’ve never owned a home, you’re a first-time home-buyer. It also means that if you owned your home three or more years ago, but sold it, you are right back to being a first-time home-buyer again, and you can take advantage of all the benefits of CalHFA’s first-time home-buyer programs.

So you may be wondering what’s the catch? California isn’t just going to give me a bunch of free money, are they? Well, yes and no. The California Dream for All is a Shared Appreciation Loan. This is an interest free loan, linked to your home’s appreciation, that doesn’t need to be paid back until you sell your home.

So, what does that mean exactly? Say for example, imagine that the state of California gives you $100,000 towards the purchase of your first home. When you finally go to sell that home years from now, you must pay back that $100,000 plus the appreciation on your loan. Say your home appreciated in that time by 20%, then you would need to pay back 120% of that original $100,000 loan, or $120,000. If you are a low-income buyer, then CalHFA will only share in 15% of the appreciation. The remaining equity in that home belongs to you.

Do note, that if the home has not appreciated in value, or if the home is sold at a loss, CalHFA will not require you to pay back anything beyond the original loan.

Currently the program is funded at $500,000,000, which may sound like a lot of money. However, you need to remember that this program is for the entire state of California, so the money will probably go pretty quickly. But do not fear if you miss out. Although this is just a pilot program, when those future loans are paid back, that money will be used to fund future iterations of this same program.

How to Qualify for California Dream For All

In order to qualify, you must meet certain credit, and income requirements. Home-buyers must have a credit score of at least 660. Low-income buyers must also earn a combined household income of less than 80% of the area median income. Moderate income buyers must earn a combined household income of between 80% and 150% of the area median income.

The median area income in Ventura County is $115,400, and $97,900 in Los Angeles County. So with that in mind, a first time buyer in Ventura County must earn less than $92,320 per year for low income, and between $92,321 and $173,100 for moderate income. In Los Angeles County, that figure is less than $78,320 for low income, and between $78,321 and $146,850 for moderate income.

In addition to credit and financial restrictions, buyers must occupy the property. And the property must be a single-family residence, PUD, condominium, or manufactured home. This program is not intended for multi-unit, income producing properties.

Borrowers must also complete an eight-hour home-buyer education course in addition to a one-hour, one on one counseling follow-up session. CalHFA firmly believes that home-buyer education and counseling is critical to the success and happiness of a homeowner, which is why they require home-buyer education and counseling for all first-time home-buyers using a CalHFA program.

Who is Going to Benefit?

I feel like the type of buyer that is going to benefit the most from this program within my area where housing prices are still relatively high, are those that maybe have a decent income and credit score, but don’t have the cash reserves for closing costs or a downpayment. Because at the end of the day, whether you qualify for this program or not, you still need to be able to qualify for a home loan of at least 80% of a homes value. With interest rates sitting where they are, monthly payments, even for a starter home, are going to be a large chunk of most people’s income. Hopefully, this program will allow certain individuals to bypass the largest hurdle in homeownership, which is the downpayment.

If you feel like this program may be for you, you should definitely get in touch with a CalHFA preferred loan officer sooner rather than later. As I said, the funding for this program is not going to last forever, and really, this is a great opportunity for many of you out there.