State program to help first-time home buyers with forgivable loans
Forgivable loan program allows middle-class families to borrow 10 percent of a home’s purchase price and have the debt forgiven
California is now offering forgivable loans to middle-class home buyers who struggle to make down payments amid spiraling house prices.
The new Forgivable Equity Builder Loan program allows qualified, first-time buyers to borrow up to 10 percent of a home’s purchase price and have the debt forgiven if the buyer lives in the home for five years, the San Jose Mercury News reported.
The loans are available to middle-income families making less than 80 percent of their county’s annual median income — or below $60,000 a year in Los Angeles County, or below $77,000 in Orange County.
For middle-class families, especially those in Black, Hispanic and immigrant communities, building generational wealth through long-term home ownership has been tough, so the state wants to give them a helping hand.
“The down payment and closing costs are a real hump,” Eric Johnson, spokesman for the California Housing Finance Agency, told the newspaper.
Southern California housing costs hit a record median price of $735,000 in March. Add rising interest rates and a standard down payment of 20 percent — almost $150,000 for a typical starter home — and home ownership is impossible for middle-class would-be buyers.
About one in four residents in Greater Los Angeles could afford a median-priced single-family home at the end of 2021, according to the California Association of Realtors. For a typical home priced at $722,000, the minimum qualifying income was $134,000.
Despite rising mortgage rates, the median home price in Orange County from March 2021 to last month rose 22 percent to $1.02 million for all homes, with single-family houses jumping 28 percent to $1.2 million, according to analysis by DQNews, with data from CoreLogic.
During the same period, the median home price in Los Angeles County rose 12 percent to $840,000; Riverside County’s median rose 21.6 percent to $580,000; San Bernardino County’s median rose 15.1 percent to $495,000; San Diego County’s median rose 18.7 percent to $805,000; and Ventura County’s median rose 17.5 percent to $775,000.
A state program that can boost a buyer’s down payment by 10 percent “makes a meaningful difference,” Zillow senior economist Jeff Tucker said. A forgivable loan also allows a homeowner to develop equity much faster, he added, and could help a first-time buyer refinance to a lower interest rate after the five year period is up.
At the same time, first-time buyers in Southern California face a challenging market. Between new 5 percent interest rates and escalating home prices, buyers in March paid 37 percent more each month than a year ago.
“That is not affordable to most people,” Tucker said.
[San Jose Mercury News] – Dana Bartholomew