The California Housing Finance Agency (CalHFA) recently introduced a new program to help first-time homebuyers in California. The new program is called the CalHFA 20% Equity Loan, and it aims to make homeownership more accessible and affordable for low- to moderate-income Californians.
What is the CalHFA 20% Equity Loan?
The CalHFA 20% Equity Loan is a second mortgage that can be used to help finance the down payment and closing costs of a home. The loan is available to first-time homebuyers who meet certain income and eligibility requirements.
The loan is designed to help borrowers avoid the high costs of private mortgage insurance (PMI) that can be required when a homebuyer has a down payment of less than 20%. With the CalHFA 20% Equity Loan, borrowers can avoid PMI by combining a first mortgage with a second mortgage that provides 20% of the home’s value as equity.
The CalHFA 20% Equity Loan is only available for certain types of properties, including single-family homes, condos, and townhomes that are located in California. Borrowers must also meet income and credit requirements and complete a homebuyer education course before they can be approved for the loan.
How does the CalHFA 20% Equity Loan work?
The CalHFA 20% Equity Loan works by providing borrowers with a second mortgage that is equal to 20% of the home’s value. This second mortgage is then used to increase the down payment and reduce the amount of the first mortgage.
For example, if a homebuyer is purchasing a $1,000,000 home and has a down payment of $100,000 (or 10%), they would need to obtain a first mortgage for $900,000. This would require the borrower to pay PMI, which can add hundreds of dollars to their monthly mortgage payment.
With the CalHFA 20% Equity Loan, the borrower could obtain a second mortgage for $200,000 (or 20% of the home’s value) to increase their down payment to $300,000 (or 30%). This would reduce the amount of the first mortgage to $700,000 and eliminate the need for PMI.
The CalHFA 20% Equity Loan is a deferred payment loan, which means that the borrower does not have to make any payments on the loan until they sell, refinance, or pay off the first mortgage. The loan also has a low interest rate and no fees or prepayment penalties.
Who is eligible for the CalHFA 20% Equity Loan?
To be eligible for the CalHFA 20% Equity Loan, borrowers must meet certain income and eligibility requirements. The program is designed for low- to moderate-income Californians, and the income limits vary depending on the county where the property is located.
In general, borrowers must have a credit score of at least 640, a debt-to-income ratio of no more than 45%, and they must complete a homebuyer education course. The property must also be their primary residence and they must not have owned a home in the past three years.
How to apply for the CalHFA 20% Equity Loan?
To apply for the CalHFA 20% Equity Loan, borrowers must work with a CalHFA-approved lender. The lender will help the borrower determine if they are eligible for the program and assist with the application process.
Borrowers will need to provide documentation of their income, employment, and credit history, as well as information about the property they are purchasing. They will also need to complete a homebuyer education course before they can be approved for the loan.
The CalHFA 20% Equity Loan is a new tool that first-time homebuyers in California have as an option to help get their foot in the door sooner on homeownership rather than paying rent or hefty mortgage fees. If you’d like to be connected with a lender who offers this program and want more information, then please reach out to the Bree Hughes Team today at 949-556-2094!