California Forgivable Equity Builder Loan

What is the California Forgivable Equity Builder Loan?

The California Forgivable Equity Builder Loan is a program introduced by the California Housing Finance Agency (CalHFA) that provides first-time homebuyers with a loan of up to 10% of the home's purchase price. This loan is forgivable after five years if the borrower occupies the home as their primary residence for the entire period.

Who is eligible for the Forgivable Equity Builder Loan?

To qualify, applicants must be first-time homebuyers, defined as individuals who have not owned and occupied a home in the past three years. Additionally, borrowers' income must be less than 80% of the area median income (AMI) for the county where the property is located.

How does the loan forgiveness work?

If the borrower maintains the home as their primary residence for five consecutive years, the loan is fully forgiven. If the property is sold or the borrower moves out before the five-year period ends, a prorated repayment of the loan is required.

What types of properties are eligible?

Eligible properties include single-family, one-unit residences, such as condominiums, planned unit developments (PUDs), and manufactured homes on a permanent foundation. The property must be the borrower's primary residence.

Can the Forgivable Equity Builder Loan be used for down payment and closing costs?

Yes, the loan can be applied toward both down payment and closing costs, including interest rate buydowns, making homeownership more affordable for eligible buyers.

Is there a maximum loan amount?

The maximum loan amount is up to 10% of the home's purchase price or appraised value, whichever is less.

Are there income limits for applicants?

Yes, applicants' income must be less than 80% of the area median income (AMI) for the county where the property is located. These limits vary by county and household size.

Is homebuyer education required?

Yes, all borrowers must complete a homebuyer education course through an eligible counseling organization and obtain a certificate of completion. This ensures buyers are well-prepared for homeownership responsibilities.

What is the interest rate on the Forgivable Equity Builder Loan?

The loan carries a 0% interest rate, and no monthly payments are required. The loan is forgiven after five years of continuous occupancy as the primary residence.

Can this program be combined with other CalHFA programs?

No, the Forgivable Equity Builder Loan cannot be combined with the CalHFA MyHome Assistance Program. However, it must be used in conjunction with a CalHFA first mortgage.

Are there any fees associated with the loan?

Lenders may charge a maximum processing fee of $50 for the Forgivable Equity Builder Loan. Other customary third-party fees, such as appraisal and title fees, may also apply.

What happens if I sell or refinance my home within five years?

If you sell or refinance the home before the five-year period ends, you will be required to repay a prorated portion of the loan based on the number of years you occupied the property as your primary residence.

Is there a minimum credit score requirement?

Borrowers must meet the credit, income, and loan requirements of CalHFA's first mortgage loan program, the CalHFA-approved lender, and the mortgage insurer or guarantor.

Are non-occupant co-borrowers allowed?

No, non-occupant co-borrowers and co-signors are not permitted. All borrowers must occupy the property as their primary residence.

How do I apply for the Forgivable Equity Builder Loan?

To apply, contact a CalHFA-approved lender who will guide you through the application process, including verifying eligibility, assisting with necessary documentation, and explaining program requirements.

Is there a deadline to apply for the program?

There is no specific deadline to apply for the Forgivable Equity Builder Loan. However, program availability is subject to funding, so it's advisable to begin the application process as soon as you are ready to purchase a home.

Can I use the loan for a second home or investment property?

No, the program is intended for primary residences only. All borrowers must occupy the property as their primary residence within 60 days of closing.

Are there purchase price limits for homes under this program?

Yes, the home's purchase price must not exceed CalHFA's sales price limits for the county in which the property is located. These limits are subject to change and should be verified with a CalHFA-approved lender.

What are the occupancy requirements?

Borrowers must occupy the property as their primary residence within 60 days of closing and maintain it as such for at least five years to qualify for loan forgiveness.

Is there a recapture tax if I sell my home?

The program details do not specify a recapture tax. However, it's advisable to consult with a tax professional to understand any potential tax implications.