Last spring, the California Housing Agency (CALHFA) announced it was offering $300 million in down payment assistance (DPA) under its California Dream for All program. A program created to help low-to-moderate income, first-time homebuyers purchase a home in California. When the program was launched, it was first come, first served.
It was so popular that its funding was notably devoured in 11 days. According to the CALHFA website, the total number of borrowers who were able to receive help was little more than 2,000 across the state.
Additionally, while 33% of those who were able to get their hands on funding identified as Hispanic or Latino, only 3% identified as Black or African American, while a disproportionate 35% identified as White, according to CALFHA. These numbers clearly indicate that more needs to be done to spread awareness of the program in communities of color, specifically in African American communities.
A Dream for All or a Few?
The California Dream for All program aims to make homeownership more accessible for Californians. Yet, its impact will be felt by just a few thousand would-be homebuyers lucky enough to be picked in a lottery system. The program provides a full 20% down payment, prompting consideration of whether offering 10-15% down could spread its $250 million funding to help more than just a few thousand borrowers.
A traditional 20% down payment often allows a borrower to avoid purchasing mortgage insurance, a policy typically required when a down payment is less than 20% and designed to protect the lender in the event of a loan default. Lenders generally agree that borrowers who invest their own funds in a property, often referred to as having ‘skin in the game,’ are more likely to be committed to repaying their loans. However, when a program doesn’t require any borrower investment or mortgage insurance, does it inadvertently lessen the incentive to uphold their financial responsibilities?
The California Dream for All program offers an entry point into homeownership; however it limits equity accumulation for borrowers, who could forfeit up to 20% of their home’s appreciated value. Home equity is crucial for communities historically marginalized in the housing market. Ensuring that participants in such programs can fully benefit from the equity built in their homes is essential for individual financial growth and broader economic equity.
What is California Dream for All?
The program provides borrowers with a shared appreciation loan, used concurrently with a conventional first mortgage, for up to $150,000, or 20% of the appraised value of a home or its purchase price, whichever is lower, to use toward the down payment and closing costs. Upon the sale or transfer of the home, the repayment of the down payment loan plus a share of the home’s appreciated value becomes due.
This spring, CALHFA will disperse around $250 million in funding to first-time homebuyers. To distribute the funds more evenly across the state, the recipients will be determined in a lottery, a change from the first come, first served system in the program’s pilot year, last year.
When the Down Payment Assistance Funds Run Dry
While buzz around the California Dream for All program makes its way through the industry. We want to remind lenders and borrowers alike that solid down payment assistance programs exist- programs that do not run out of cash because they do not rely on government funding, programs that do not have atypical and complex requirements like shared appreciation mortgage loans, and programs that preserve all the borrower’s equity.
Take the Chenoa Fund Down Payment Assistance program for example, our program provides:
- Straight forward guidelines applied across most states, not just in California.
- No first-time homebuyer eligibility requirement, any qualified borrower is welcome to apply.
- Down payment assistance up to 5%, we allow our DPA funds to be used toward the down payment and closing costs.
- Borrowers keep all of the equity that appreciates during the time they own the home.
- No income limits, we do not place a cap on a borrower’s income level to apply for the assistance.
- Program is always funded; we do not rely on government funding to keep our program running.
Reach out to us to learn how you can provide meaningful down payment assistance financing that is available year-round with guidelines that make it easy for first time homebuyers to realize their dream.
CBC Mortgage Agency – NMLS 1186381
For licensing information, go to www.nmlsconsumeraccess.org.
Illinois Residential Mortgage License #MB.6761292. Illinois Department of Financial and Professional Regulation, Division of Banking, 555 W. Monroe St., Suite 500, Chicago, IL 60661 – 1-888-473-4858. This information is provided by CBC Mortgage Agency and intended for real estate and mortgage professionals only. It is not intended for public use or distribution. Terms and conditions of programs and guidelines are subject to change at any time without notice. This is not a commitment to lend. Equal housing opportunity.
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