California Unveils Shared Loan Program for First-Time Buyers

My friend Ginny Richards, a senior loan officer at Kind Lending in Ukiah, was just telling me about a new loan program from the California Finance Housing Agency (CalFHA). It’s called the California Dream for All Shared Appreciation Loan, and if you’re a first-time home buyer, it could be worth looking into.

What is the California Dream For All Program?

The CDFA program is a shared appreciation loan similar to equity share loans of the past that allow two people to team up to buy property. One person puts up money for the down payment, and the other is responsible for paying the monthly mortgage. When it comes time to sell the house, the two people sharing ownership split the property’s increase in value (appreciation) based on how much each party put in.

The CDFA program works much the same way. But instead of getting help from your generous Uncle Dave to buy your new home, the state of California puts up the cash for your down payment—20 percent of the purchase price or appraised value of the home, whichever is lower. You’re responsible for the other 80 percent by making monthly mortgage payments. This allows you to close escrow, move into the property, and start building equity without having to invest any of your own money.

If the property increases in value, you pay some of that appreciation to CalFHA when you sell your home or refinance your mortgage—15 or 20 percent, depending on your income. The rest goes in your pocket.

Let’s say you buy a home for $400,000. CalFHA will pay $80,000 for the down payment and you will need to come up with approximately $15,000 in closing costs. Then, you’ll get a loan for $320,000, which you’ll pay back through monthly mortgage payments.

Now let’s fast forward five years. You’re ready to sell the house, which has appreciated in value by $65,000 and is now worth $465,000. When you sell, CalFHA gets the $80,000 it paid for the down payment, plus 15 percent of the appreciation, which in this case would be $9,750, for a grand total of $89,750.

After paying off the balance on your mortgage, you’re left with $55,250 in appreciated value, minus closing costs of about $25,000. This leaves you with about $30,000 in profit, less the $15,000 in closing costs you paid when you bought the house. At the end of it all, you’re left with $15,000 to put in the bank. In short, this makes a lot of financial sense.

Who Qualifies for the CalFHA Dream for All Program?

To qualify for the CalFHA, you must be a first-time homeowner according to CalFHA criteria. In this case, that means you cannot have owned the house you lived in during the last three years. Even if you owned a home and sold it four years ago, you still qualify.

Beyond that requirement, there are two income thresholds, splitting the loan into two products.

The first is for people making $64,240 or less. First-time home buyers who qualify for this loan only have to repay 15 percent of the appreciation of the property when they sell the home, as in the example above. This loan also comes with an interest rate that’s a quarter percent lower than the second option.

The second product is a loan for people making up to $159,000 in Mendocino, Humboldt, and Lake Counties. It works the same as the first product, but has a slightly higher interest rate and requires you to pay back 20 percent of the appreciation when you sell the home.

For both loans, you’re looking at a maximum payment-to-income ratio of around 50 percent. So, if you make $64,000 a year, you can qualify for a loan with a monthly payment of up to $2,666—but only if you have no other debt and a credit score of 700 or higher, which is roughly in the top 40 percent of credit ratings.

A Few Things to Keep in Mind

If you purchase a property through this program, the loan documents only require that you live there for the first 12 months. So if you buy a house, live in it for a year, then move out, there is no obligation to sell the property or pay the loan off. You’re even free to rent the property.

Additionally, the 20 percent assistance from CalFHA can be used to cover closing costs when you buy the home, which the seller may or may not pay, with the remainder then going toward the down payment. And if the buyer wants to add their own funds, they can contribute up to 10 percent of the price of the home to reduce the overall loan.

Lastly, a word of caution. If the property goes into foreclosure, resulting in a loss to CalFHA, it’s not yet clear whether you’d be on the hook for that amount. In California, we have purchase money protection that shields buyers during foreclosures, which may apply in this instance.

If you’re a first-time home buyer interested in the CalFHA Dream for All Program, now’s the time to apply. The state has set aside $300 million, which could help 2,300 people buy their first home. More than 30 million people live in California, so expect that money to get sucked up fast.

If you have questions about property management or real estate, please contact me at or call (707) 462-4000. If you have an idea for a future column, share it with me and if I use it, I’ll send you a $25 gift certificate to Schat’s Bakery.

Dick Selzer is a real estate broker who has been in the business for more than 45 years.

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