In the Golden State, the primary sources of home funding include downpayment loans and grants, mortgage credit certificates, sleeping seconds and bond-rate financing, In addition, many local, state and national housing assistance agencies offer programs to help first-time and low-income homebuyers obtain affordable housing. In fact, your REALTOR® can use Fannie Mae's Homebuyer Funds Finder to help you learn more about financing options that are available in your community.
Most federal programs carry similar stipulations for eligibility: You must not have held primary ownership in any property within the last three years and your household income must not exceed 80 percent of the U.S. Department of Housing and Urban Development's (HUD) median income level per region. Once you?ve selected a house, call the local housing authorities or ask your REALTOR® to contact the local Housing Department or Community Development Department to find out about homebuying assistance programs that are available in your area.
You also can research assistance options that may be offered through your employer. For example, some companies allow employees to borrow against their 401(k) or pension funds. Other employers, especially state and federal government municipalities, offer direct assistance as a company benefit. Or, if you're a veteran, you're eligible to take advantage of the assistance programs offered by the California Department of Veterans Affairs (Cal-Vet).
In addition to the federal programs available, many state agencies and individual cities offer financial-assistance programs for homebuyers. Here are a few options:
The California Housing Finance Agency
With a mission to "assist first-time homebuyers in achieving the dream of homeownership," theCalifornia Housing Finance Agency (CHFA) has been helping state residents obtain affordable housing since 1975. The Agency offers myriad programs targeting consumers' different needs. For example, if you're seeking a new construction loan or a resale loan in under-served counties, you may participate in the 100% Loan Program (CHAP). These loans include a standard 97-percent CHFA fixed-rate, 30-year mortgage and a 3-percent CHFA downpayment assistance second mortgage, also known as a sleeping second.
Through the California Homebuyer's Downpayment Assistance Program (CHDAP), buyers receive a deferred-payment junior loan for up to 3 percent of the purchase price. Intended to be used with a CHFA or other first mortgage, this junior loan allows the primary loan to be recognized as the senior lien.
CHFA's School Facility Fee Downpayment Assistance Program provides $108 million in downpayment assistance to homebuyers of newly constructed single-family homes. The program is split into three sub-programs: Economically Distressed Areas targets certain regions of the state in need of new construction; Maximum Sales Price $130,000 is available to all California homebuyers regardless of income, prior homeownership, or location; and the First-Time Homebuyers Program is for buyers whose income doesn't exceed the moderate level according to county and family size.
All of CHFA's grants can be combined with other conventional forms of assistance to help with various housing-related fees like closing costs and pre-paids.
For most downpayment assistance programs, available loans generally carry a low interest rate. As long as you reside in the home for 20 years without selling, transferring or refinancing the property, the loan will be forgiven. Many programs require that you apply for preliminary loan approval from a loan lender.
Mortgage Credit Certificates
You also have the option of increasing your income with a mortgage credit certificate (MCC). Low- and moderate-income homebuyers can obtain a tax credit for a specified percentage of their mortgage interest, which allows their take-home pay to be increased by reducing their federal income tax liability. The credit may be applied each year the recipient keeps the house as his or her principal residence with the original mortgage.
MCCs can be used with fixed-rate, 15- or 30-year Federal Housing Administration, VA and privately insured loans for single-family and condominium homes. However, bond-backed loans offered through agencies such as CHFA, the Southern California Home Financing Authority or Cal-Vet aren't eligible for use in conjunction with an MCC.
If you don't want to be tied to a house for 20 years, you may appreciate that an MCC requires only a three-year residence commitment. However, MCC recipients may be required to pay recapture tax if they sell their property within nine years of purchase at a gain and the household income has increased beyond MCC criteria.
First-time, low- or moderate-income homebuyers who haven't owned a home in three years may obtain a mortgage revenue bond (MRB). MRB loans are offered at 30-year low interest rates that vary depending upon the area. Bond qualifications stipulate that borrowers can't earn more than $72,680 for a family of three or more. Recipients must select a home in the county of the issuing agency.
Federal and state governments, local communities, and non-profit organizations offer homeownership assistance in the form of grants or gifts. These gifts don't have to be repaid as long as borrowers meet the individual program's requirements.
For example, the Housing Action Resource Trust(HART) is a non-profit housing and community development organization providing downpayment and other housing assistance. Through charitable contributions by builders, sellers and businesses, HART provides up to $15,000 of financial assistance' which is considered a gift with no obligation of repayment' to recipients. The gift may be used toward most transaction-associated fees, including debt and collections mandated by an underwriter to qualify for a mortgage.
To qualify for a HART grant, you must be eligible for a Federal Housing Authority loan and provide a downpayment of at least 1 percent of the purchase price. Although there are no income-level restrictions, participants must demonstrate need and complete a homeownership-education class. The program also requires a fee of $650 per home under $100,000 or $950 per home over $100,001, payable by the builder, lender or participant. If you pay the fee, that sum can be applied to your 1-percent downpayment. While HART's eligibility requirements are somewhat lenient by industry standards, there is a catch: The seller or builder must make a matching tax-deductible contribution to the organization.
This article was revised from "Finding Funds," which originally appeared in the May 2001 issue of California Real Estate magazine online.