The goal of the CalHFA Dream For All Shared Appreciation Loan Program is to help low and moderate-income Californian families fulfill their dream of becoming homeowners. This program makes this possible by providing a loan equal to 20% of the price of the house, designated to pay for the down payment as well as closing costs.
The second phase of the California Dream For All Shared Appreciation Loan program will begin in April 2024, according to the California Housing Finance Agency. With the help of this innovative program, Californians who might not have otherwise had the opportunity to own a home will be able to fulfill their aspirations of becoming homeowners.
WHAT YOU NEED TO KNOW ABOUT THE PROGRAM:
1. 20% Assistance, Up To 150K
- Eligible program participants can get financial help up to 20% of the home’s purchase price, up to a maximum of $150,000.
2. 20% Can Be Split Between Down Payment and Closing Costs
- This flexibility allows eligible individuals to allocate the financial support provided by the program between covering the initial down payment and meeting the various closing costs associated with the home purchase transaction.
3. 0% Interest Rate
- When a homeowner decides to sell or transfer their property, they must repay the original loan amount acquired under the program. In addition to the initial loan amount, the homeowner must repay an additional 20% of any increase in the value of the home.
- Loan Repayment Requirement: Homeowners participating in the California Dream for All program are obligated to repay the original loan amount acquired through the program when they decide to sell or transfer their property.
- Additional 20% Repayment: In addition to repaying the initial loan amount, homeowners are also required to repay an extra 20% of any increase in the value of their home. This additional percentage is calculated based on the appreciation in the property’s value since the time of the original loan.
- Capturing Property Value Appreciation: The 20% repayment component is designed to capture a portion of the financial gain resulting from the appreciation of the property’s value. This ensures that the benefits of the program are shared in a way that reflects the increase in the property’s overall worth over time.
- Fair Contribution to the Program: The additional repayment requirement aims to create a fair and sustainable system where homeowners contribute back into the program in proportion to the financial gains they have experienced through the appreciation of their real estate investment.
QUALIFICATIONS YOU MUST MEET:
1. 680 FICO Score and 80% Area Median Income (660)
- Applicants with a FICO credit score of 680 or higher are eligible to apply for the program. FICO scores are a common credit scoring model used by lenders to assess an individual’s creditworthiness. A score of 680 generally reflects a good to very good credit profile.
- The credit score requirement varies based on income level: a FICO score of 680 is generally applicable, but for individuals with an income at 80% of the Area Median Income (AMI), a FICO score of 660 or higher is acceptable for eligibility in the CalHFA Dream For All program.
2. Income Limits
- The program imposes a household limit on the total annual income that borrowers can have to qualify for assistance. These limits are determined in accordance with the economic conditions of the specific county where the home purchase is intended.
- The program is responsive to the varying economic conditions in different counties, aligning the income eligibility criteria with the specific affordability challenges in each geographic area.
- Borrowers must fulfill the income criteria established for the county in which they plan to purchase a home through the CalHFA Dream For All program.
3. Home Buyer Education
- It’s essential for individuals participating in the CalHFA Dream for All program to complete a homebuyer education course as part of the program requirements.
- Home Buyer Education equips participants with the information needed to make informed decisions, navigate the home buying process, and sustain successful homeownership.
4. First Generation Buyer
- A first-generation homebuyer is an individual who meets the following conditions:
- Has not possessed a home in the past 7 years.
- Has parents who do not own a home, or if deceased, did not own a home at the time of their passing.
- At least one applicant in the loan must be a first-generation homebuyer.
- Those who were placed in foster care or out-of-home institutional care at any point are exempt from this condition.
5. First Time Home Buyer
- CalHFA first-time homebuyers include those who have not owned a primary residence in the last 3 years or individuals who have never owned a home before.
- All applicants must be first time home buyers.
6. The Property Being Purchased
- The home must be located in California.
- The home must be your primary residence.
HOW THE PROCESS WORKS
On this occasion, the California Housing Finance Agency, responsible for managing the Dream for All program, intends to replace its prior first-come, first-served method with a lottery system. This adjustment aims to prevent a chaotic rush for the loans.
Prospective homebuyers must identify a state-approved lender and initiate the application process by April. The lottery will open early in April, allowing applicants one month to submit their applications. A total of 1,700–2,000 fortunate lottery winners will receive vouchers, valid for 90 days, to facilitate their home purchase.
PROS & CONS OF CALHFA DREAM FOR ALL LOANS
PROS
- Interest-Free Dream Loan
The Dream loan offers a 20% interest-free loan on the home purchase price for down payment or closing costs. Repayment includes only the principal amount and 15% to 20% of the home’s appreciation. For instance, a $100,000 loan for a $500,000 home purchase requires repayment of $100,000 plus a percentage of appreciation. The remaining 80% is covered by a second loan with a CalHFA-determined interest rate, including both principal and interest in monthly payments.
- Building Equity
Monthly mortgage payments contribute to building home equity, akin to investing. Unlike renting with no return on investment, these payments increase your property’s equity. This accumulated equity can be utilized in the future for a down payment on another home, home improvements, or significant life expenses.
- Better Loan Condition
The ability for homebuyers to obtain better loan conditions is another advantage of the 20% down payment loans. Larger down payments are usually viewed as less risky by lenders, which can lead to lower interest rates and monthly payments for homebuyers.
CONS
- Decreased Equity
The down payment—which can be as little as 3.5% or as much as 20%—instantly turns into equity in a conventional house purchase. On the other hand, there could be 0% initial equity with the CalHFA Dream For All loan, where the down payment is a loan
- Monthly Cost
The total monthly costs, including mortgage, utilities, and repairs, might exceed renting, depending on the home price. Pre-approval is crucial to assess affordability and determine an appropriate monthly payment within the Dream For All loan program.
As someone who has never owned a home before, the CalHFA Dream For All plays an important role in the home buying journey. It offers substantial financial assistance, rendering homeownership more attainable. With up to 20% support for down payments and closing costs, the program alleviates the financial burden. The interest-free loan component ensures a more affordable path to homeownership.
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