01/23/2024
CalHFA “Dream for All” Loan is Back (call me)
Here are the details:
When the CalHFA offered no-interest, no-monthly-payment loans in the spring to help lower-income residents come up with a down payment and fees to buy their first home, the entire budget of nearly $300 million was gobbled up in only 11 days.
During the state budget negotiations last year, lawmakers steered an additional $225 million into the program, and CalHFA aims to award those funds this spring.
But there won’t be a dash for cash this time — instead of handing out the loans on a first-come, first-served basis, the state will choose qualified applicants by lottery.
The program has also tightened its requirements, requiring applicants not just to be non-homeowners but also to have parents who are not currently homeowners. The point is to focus the program more tightly on Californians who need the state’s help the most.
Limited to covering the down payment and closing costs on a first home, the “California Dream for All Shared Appreciation Loans” max out at $150,000 or 20% of the home’s purchase price, whichever is smaller.
They’re treated as second mortgages but require no payments until the home is refinanced, resold, or its first mortgage is paid off; at this point, the state loan must be repaid in full.
What makes the loans unusual — and attractive — is that they don’t accrue interest. Instead, their value rises over time with the value of the home.
When a Dream for All loan comes due, the borrower repays the principle plus a percentage of the increase in the home’s value that matches the percentage of the purchase price covered by the loan. Nothing is added to the Dream for All loan if the house doesn't increase in value.
For example, if the Dream for All loan covered 18% of the purchase price and the borrower sold the home for $100,000 more than they paid, the borrower would have to repay the Dream for All loan plus 18% of $100,000, or $18,000.
Borrowers with incomes of 80% or less of the county’s median income get an additional break, paying a smaller percentage of the increase in value.
Who can obtain a Dream for All loan?
To meet the definition of a first-time, first-generation homeowner:
1) The borrower must not have held a stake in a house in the U.S. in the last seven years.
2) Also, their parents may not currently hold a stake in a home.
3) If the parents are deceased, they may not have owned a home.
4) The program is also open to any Californian “who has at any time been placed in foster care or institutional care,” CalHFA says in the program manual.
5) If more than one buyer is involved, at least one must be a current California resident, and at least one must be a first-generation home buyer.
6) Borrowers must also be U.S. citizens or noncitizens authorized to be in the country,
7) they must make the home they buy their primary residence within 60 days.
8) The annual income limit for qualified borrowers is 120% of the area median income, which varies from county to county.
For example, it’s $155,000 for borrowers in Los Angeles County, $202,000 in Orange County, and $195,000 in Ventura County.
How will applicants be chosen?
CalHFA will accept prequalification letters for about a month, and they’ll all be treated equally regardless of when they arrive.
After reviewing the letters to ensure the applicants are qualified, the agency will THEN hold a lottery to select which borrowers will receive vouchers for the Dream for All loans.
The total budget for the program is enough for about 1,670 loans of $150,000. Many borrowers will take out smaller amounts, so the program expects to support 1,700 and 2,000 loans.
What happens after buyers receive a voucher?
Getting approved for a Dream for All loan doesn’t mean buyers can buy a house.
Buyers still have to find one for sale that they can afford, persuade the owner to choose buyer bid, and then qualify for the mortgage loan from a bank, credit union, or other lender.
