New California program could help first-time homebuyers

Seeking to chip away at an ambitious goal of boosting home ownership in California, the state has launched a new program of forgivable loans for firsttime home buyers.

The program, Forgivable Equity Builder Loan, allows qualified, first-time buyers to borrow up to 10% of a home’s purchase price, and have the debt forgiven if the buyer lives in the home for five years. The loans are available to middle-income families making less than 80% of their county’s annual median income, below $120,000 in all Bay Area counties.

California lawmakers earmarked $100 million in the state budget for the first-time homeowner loans. The goal is to help working families with enough income to pay a mortgage but not enough savings to ante up for a down payment.

Eric Johnson, spokesman for the California Housing Finance Agency, said the state wants to encourage families to build generational wealth through long-term home ownership. The gap in generational wealth has been particularly wide in Black, Hispanic and some immigrant communities. “The down payment and closing costs are a real hump,” he said.

The new effort comes as Bay Area housing costs hit record highs, and rising interest rates have pushed monthly payments up hundreds of dollars. The median price of a Bay Area home in March was $1.4 million, according to the California Association of Realtors (CAR). Raising a standard down payment of 20% — more than $200,000 for many starter homes — is beyond the reach of many would-be buyers.

Affordability for firsttime buyers has been particularly challenging, according to CAR surveys. About two in five Bay Area residents could afford the median-priced single-family home at the end of 2021. The minimum qualifying income was $150,000 for a typical home priced at just over $1 million.

Zillow senior economist Jeff Tucker said a program boosting a buyer’s payment by 10% “makes a meaningful difference.”

The forgivable loan allows a home owner to develop equity much faster, and could help a first-time buyer refinance to a lower interest rate after the five year period is up, he said.

But, Tucker noted, firsttime Bay Area buyers face a challenging market. After two years of record low interest rates, mortgage costs have shot above 5%. Between rising rates and accelerating home prices, Bay Area buyers in March paid 37% more in monthly costs than a year ago. “That is not affordable to most people,” he said.