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New California program lets first-time homebuyers borrow down payment at 0% interest

California state officials in April launched a new program that lets first-time homebuyers borrow a down payment at a 0% interest rate.

The program, the Forgivable Equity Builder Loan, provides forgivable loans to homebuyers for up to 10% of the home’s purchase price.

“We have to use every tool in our toolbox to tackle the housing affordability crisis head-on,” Gov. Gavin Newsom said in an April statement announcing the program.

And the biggest upside? If the homebuyer stays in the home for five years, they won’t have to repay the junior loan, according to the California Housing Finance Agency.

Borrowers may, however, have to pay back a portion of the loan if they stay in the home for less than five years, officials said.

The loan has an interest rate of 0%, according to the California Housing Finance Agency.

“Interest rates on the CalHFA first mortgage will vary depending on your financial circumstances, lender fees, and other factors. Interest rates can also change daily. We recommend that you check with a Preferred Loan Officer to receive an accurate rate quote for this program,” the Housing Finance Agency website states.

State officials said the goal of the program is to give first-time homebuyers a head start with immediate equity, which will help Californians build and pass on intergenerational wealth.

The help comes as California’s median home prices soar to new highs and interest rates reach their highest levels in more than two years.

Just 24% of California households could afford to purchase the $797,000 median-priced home during the first quarter of 2022 — down from 27% in the first quarter 2021, according to the California Association of Realtors.

“Owning a home represents belonging, stability and has long been recognized as one of the best ways to build wealth, but for far too many Californians the dream of home ownership remains just out of reach,” said Business, Consumer Services and Housing Agency Secretary Lourdes Castro Ramírez.

The loan is available to Californians whose income is less than 80% of the Area Median Income in the county where the property is located.

That means the income limit will be different based on where people want to buy a house.

So for example, a Sacramento family can make up to $72,700 and qualify for the loan, while in Santa Clara County, the limit is $118,960.

In Los Angeles County, people would need to make no more than $68,880 to qualify for the program, according to the Fannie Mae Lookup Tool.

The loan can be used for down payment or closing costs, officials said.

Other borrower requirements

  • Be a first-time homebuyer

  • Use the property as a primary residence

  • Complete homebuyer education counseling and get a certificate of completion through an eligible homebuyer counseling organization.

Any requirements for the type of home you need a loan for?

It has to be a single-family, one-unit residence. (That includes approved condominium/PUDs.)

How to apply

Families who think they’re eligible and want to apply can click Find a Loan Officer and contact one in their area.

When contacting the loan officer, you will need to have these documents handy to answer questions:

  • Pay stubs

  • Bank statements

  • Employment history

  • Previous tax returns

More information on the program can be found here.


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