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," the California 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
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
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
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
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