Article By: Jim Porter – March 29, 2023
CALHFA released the “Dream for All” down payment assistance program this week and has 300 million $$ to invest with first-time home buyers with incomes less than $215,000 per year and FICO scores above 680. I have read through all the guidelines and had a telephone briefing with our contact up at CALHFA and now feel like I have all the answers to my questions. CALHFA has been our GO-TO source for first time home buyer down payment assistance for years, but this new equity share program is the first of its kind and absolutely a dream come true for some buyers.
For my fellow sceptics, I want you all to know that unlike some of the crazy adjustable-rate loans done between 2003 and 2007 that allowed buyers to purchase a home for $800,000 without 1 penny out of their pocket and no proof of income, the Dream for All program is different. The Dream for All program requires a minimum FICO score of 660 for low income (80% of AMI) and 680 for income levels up to $215,000 in Solano County along with an overall debt ratio no higher than 45% and a Fannie Mae desktop loan approval.
Here is a snapshot scenario of how it works and who it can help. Let’s assume we have a schoolteacher and a nurse, and this 30-year-old couple makes $180,000 per year, renting at $3500 per month with a couple kids, 700 FICO, $70,000 in student loan debt at $600 per month and no other debt, a whopping $20,000 in savings, a couple small 401k plans and no gift funds available from family.
This equity share program will allow them to buy a home for $800,000. The state will lend them $160,000 for the 20% down payment with a 20% shared appreciation agreement that requires the buyer to pay back the $160,000 plus 20% of the appreciation when they sell the house.
The first mortgage loan as of this week would be a 30-year fixed rate loan with no PMI at 6.375% with up to a 2% loan origination fee which creates an estimated APR of 6.55%. CALHFA told me today that after 12 months, they will subordinate their 2nd position once for the homeowner to refinance to a lower rate with no cash out and because this is so new, further limitations may follow.
Back in the mid to late eighties, private equity-share investors became an option for buyers in the high-end coastal markets where wealthy investors would partner with high income young couples on houses in San Francisco, Marin, and San Mateo. The investor would produce the 20% down and the kids would pay the mortgage and maintain the house with an agreement to sell the house in 5 to 7 years and split the equity growth 50-50.
This California program will allow a buyer to live in the house for 30 years before any repayment is required. After the 30-year first mortgage loan is paid off, a balloon payment of this $160,000 plus 20% of the gross equity becomes due and payable. Let’s assume the value of the house in 30 years is 1.4 million. The kids that are now 60, will have to pay the original $160,000 plus 20% of the $600,000 in equity via a loan or by selling the house and pay $280,000 to the State of California.
The equity share partner will not be responsible for 20% of the roto rooter bill or any of the other repairs and home improvements made over the 30 years. Another thing to consider is that if the buyer sells the house in a few years, the State will get 20% of the gross equity and not have to participate in any of the selling costs for commissions, repairs and closing costs.
The best way to view this program and this $800,000 scenario is to see it as a loan for $160,000 with an equity share agreement in lieu of traditional guaranteed interest payments. I predict the 300 million $$ will be sold out in less than 6 months so have your kids investigate this ASAP or better yet, call me and I will show you how you can lend your kids the $160,000 for the down payment because I am sure they would prefer to be equity share partners with you. 😊
This is a no brainer program that will make homes more affordable for thousands of first-time home buyers that are willing to partner with California. The total payment for the nurse and teacher above would be $4940 per month including property taxes and homeowners’ insurance assuming the property tax rate is 1.25% annually and the home is not in a fire or flood zone.
Jim Porter, NMLS No. 276412, is the branch manager of Solano Mortgage, NMLS No. 1515497, a division of American Pacific Mortgage Corporation, NMLS No. 1850, licensed in California by the Department of Financial Protection and Innovation under the CRMLA / Equal Housing Opportunity. Jim can be reached at 707-449-4777.
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