State releases new Dream for All fairness share program
CALHFA launched the “Dream for All” down payment assistance program this week and has $300 million available for first-time homebuyers with incomes under $215,000 per year and FICO scores above 680. I have read all of the policies and Received a telephone briefing with our contact at CALHFA and now feel like I have all the answers to my questions.
CALHFA has been our go-to source for first down payment assistance for homebuyers for years, but this new stock program is the first of its kind and for some buyers it’s a dream come true.
For my fellow skeptics, I want you all to know that unlike some of the crazy adjustable rate loans that were made between 2003 and 2007 that allowed buyers to buy an $800,000 home without a penny out of their pocket and with no proof of income , the Dream for All program is different. The Dream for All program requires a FICO minimum score of 660 for low income (80% of the AMI) and 680 for income levels up to $215,000 in Solano County, along with an overall debt ratio of no more than 45% and a desktop loan by Fannie Mae approval.
Here’s a snapshot scenario of how it works and who it can help:
Let’s say we have a teacher and a nurse, and this 30-year-old couple makes $180,000 a year, rent $3,500 a month with a couple of kids, 700 FICO, $70,000 in student loan debt at $600 a month and none other debts. a whopping $20,000 in savings, a few small $401,000 plans and no gift money from family.
This stock program will allow them to buy a home for $800,000. The state will loan them $160,000 for the 20% down payment, with a 20% appreciation agreement that obliges the buyer to pay back the $160,000 plus 20% appreciation if they sell the home. The first mortgage loan as of this week would be a 30-year fixed rate loan with no PMI at 6.375% with a lending fee of up to 2%, giving an estimated APR of 6.55%.
CALHFA informed me that after 12 months they will subordinate their second position once for the homeowner to refinance at a lower interest rate with no payout and as this is so new further restrictions may follow.
As early as the mid to late 1980s, private equity investors became an option for buyers in the high-end coastal markets, where wealthy investors would partner with young, high-income couples for homes in San Francisco, Marin, and San Mateo. The investor would make the 20% down payment and the children would pay the mortgage and receive the home with an agreement to sell the home in five to seven years and split the equity growth 50-50.
This California program allows a buyer to live in the home for 30 years before repayment is required. After the 30-year first mortgage is paid off, a balloon payment of $160,000 plus 20% of gross equity becomes due and payable.
Let’s assume the value of the house in 30 years is $1.4 million. The children, who are now 60, must pay the original $160,000 plus 20% of the $600,000 equity through a loan or by selling the home and pay $280,000 to the state of California. The equity share partner is not responsible for 20% of the installation bill or any other repairs and DIY done over the 30 years.
Another thing to consider is that if the buyer sells the house in a few years, the state will receive 20% of the gross equity and will not have to contribute to the cost of the sale for commissions, repairs and closing costs. The best way to look at this program and $800,000 scenario is to think of it as a $160,000 loan with an equity participation agreement instead of traditional guaranteed interest payments.
I expect the $300 million will sell out in less than six months so get your kids checked out ASAP or better yet give me a call and I’ll show you how to get your kids the $160,000 for the down payment because I’m sure they would prefer to be an equity partner with you.
This is a no-brainer program that is making homes more affordable for thousands of first-time home buyers willing to partner with California. The total payment for the above nurse and teacher would be $4,940 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 area.
Jim Porter, NMLS no. 276412, is Branch Manager and Senior Loan Advisor for 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 the CRMLA / Equal Housing Opportunity. Jim can be reached at 707-449-4777.