New CalHFA program helps buyer secure condo in the city

Mortgage advisor:

Jim Valler, Holmgren and Associates/ Finance of America Mortgage.

Condominium in San Francisco.

Property type: Purchase price: Loan amount: Loan type: Rate: Backstory:

$515,000. $385,000. 30-year fixed. 5.375% with no points.

The California Home Finance Agency (CalHFA) introduced a new product a few months ago called the Forgivable Equity Builder (FEB) program, which provides a second mortgage for 10% of the purchase price with zero interest rate.

This mortgage does not need to be repaid if the first and second mortgages are not refinanced — or if the property is not sold — within five years of home purchase date. If one of these events happens in less than five years, then a prorated, reduced amount is repaid.

Jenna Sood with Radius Reality was familiar with this program and asked us to work with her client to see if it would work for him for the purchase of a unit in a newly constructed condo project. With the FEB program, most buyers put the minimum 3% down and the second mortgage then covers additional down payment and closing costs. In this case, because that level of down payment would produce an excessive debt-to-income ratio, the buyer couldn’t put the minimum 3% down but could qualify if the first mortgage was 30% of the purchase price.

The financing was then structured as a first mortgage for $385,000 (70% of the purchase price) combined with the

FEB second mortgage for $51,500 (10% of purchase price). With this program mortgage insurance is normally required, but in this case because the buyer came in 20% down, and no mortgage insurance was required.

Because the condo project was new construction it was subject to a full condo project review process to ensure that it met Fannie Mae guidelines, particularly with respect to reserve funds for future project maintenance. The project easily passed this test, providing additional security to the buyer.

The buyer was very pleased to have been able to purchase a condo in San Francisco at such an affordable price and to enjoy “instant equity” because of the forgivable second mortgage.

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