California Dream for All program boosts home ownership
SAN FRANCISCO (KPIX) -- As the ability to afford a home slips farther out of reach for many working people, California is using some of its budget surplus to help struggling home buyers with a new program that's putting a down payment on the state's future.
The median price of a house in California reached $786,000 last year. That's a pretty modest home in the Bay Area but, even at that amount, a 20 percent down payment would be more than $157,000. There are loans that require a smaller down payment -- some as low as 3.5 percent -- but you'll pay a lot more for the money.
Mortgage banker Roger Smith with LaSalle Mortgage Services in Montclair, says there's one more drawback.
"Recently, without a 20 percent down payment, really, your offer is hardly even considered, just because there's so much cash in the marketplace," he said. "So, having 20 percent kind of puts you in the ballgame," he explained.
That's why the state just created a fund called the "California Dream for All" program. With it, the state becomes a partner in the transaction, lending first-time homebuyers enough to put at least 20 percent down. That lowers the amount of the loan and eliminates the requirement for private mortgage insurance or PMI.
The savings can be dramatic. On a conventional loan for a median-price home, a 20 percent down payment compared to 3.5 percent would save more than $1,000 per month. The best part is, you don't have to pay the state back -- as least not right away.
"What sets the California Dream program apart is that you don't pay any interest on the loan until you sell or refinance out of your home. And then, rather than an actual interest payment, what you would do is pay a share of the appreciation," said Adam Briones, CEO of an Oakland-based non-profit called California Community Builders.
It's called a "shared appreciation loan," which means if the program contributes, say, 20 percent, it will collect 20 percent of the increased value if and when the owner sells the home. Briones says it's meant to help people priced out of the current market, especially communities of color.
"The goal is to serve all Californians," he said. "Based on the demographics, we really need to make sure that we are serving diverse communities."
Officials are still working out the details but they believe, as real estate appreciates in value, the share the state collects will make the program self-sustaining so it can continue into the future, helping people who have no real chance of buying now.
"With the rents where they are, you think about trying to save $200,000 over a few years in order to have a down payment -- it's not doable," Smith said. "And that's why a program like this will really benefit people who have the wherewithal to make the monthly payment but they don't have the cash accumulated to make the down payment."
Funding for the California Dream for All program is already included in the state budget to the tune of about $500 million. Eventually, they hope to grow it to $1 billion. The program is expected to go into operation sometime in the next 12 to 18 months.
