All You Need to Know About California’s ‘Forgivable Equity Builder Loan’ Program

    CalHFA is committed to improving equitable access to homeownership for all Californians, since home equity is one of the strongest ways for families to pass on wealth. The Forgivable Equity Builder Loan provides people who are purchasing their first home with immediate financial assistance in the form of home equity through a loan of up to 10% of the home’s purchase price. During the first five years of occupancy, the loan is forgivable.

    Low-income families can get assistance from the Forgivable Equity Builder Loan when they cannot afford a traditional mortgage. The MyHome Assistance Program is for families that can afford a mortgage but need additional help. Subordinate loans are forgivable only when paired with first mortgages from CalHFA. 

    This Forgivable Loan can be used for down payments and closing costs for first-time homebuyers with an income of 80% A.M.I. or less. Applicants who need extra funds for their home purchase can benefit from this new California forgivable loan. Families and individuals with low incomes are the targets of this program. 

    Various down payment assistance loans and grants may be stacked with CalHFA loans or grants to increase their affordability. A CalHFA first mortgage and a MyHome Assistance Program cannot be combined. The Forgivable Loan must be the second lien if combined with other loan programs. If you are a stay-at-home mom, check out our blog post on the top 4 scholarships for stay-at-home moms

    California Forgivable Loan Program Eligibility

    California Forgivable Loan Program Eligibility

    To check whether you are eligible for the Forgivable Equity Builder Loan program, you should carefully review the requirements listed below for both the borrower and the property in question. For more details about the program or the eligibility requirements, contact the program’s Preferred Loan Officers.

    Participating Lenders And Eligible Buyers

    CalHFA-approved lenders are the only ones who can offer this program. Getting a CalHFA loan requires brokers to work with a wholesale lender approved by CalHFA.

    Borrower Requirements

    The following are the requirements a borrower must fulfill to get approved for the Forgivable Equity Builder Loan program.

    • The borrower should purchase a first-time homebuyer. To comply with the definition of a first-time homebuyer, the borrower should not have owned or resided in a home in the past three years. This restriction also extends to the borrowers’ spouses. However, the following types of borrowers are exempt from these first-time homebuyer restrictions.
      • Borrowers who are participating in the H.U.D.’s Section 184 Indian Home Loan Guarantee Program
      • Borrowers who are participating in the F.H.A.’s Section 203(h) Program
    • The borrower must reside in the property as their primary residence. Co-borrowers who do not reside on the property are not allowed.
    • All CalHFA borrowers must undergo a homebuyer education counseling course, and they should get a certificate of completion from an authorized homebuyer counseling organization.
    • The borrowers must meet the income limits set by Fannie Mae for their respective counties. To see what income limits apply to your case, you can refer to CalHFA’s Income Limits for Forgivable Equity Builder Loan page. Fannie Mae has the right to alter these income limits at any time without giving any prior notice. 
    • It is required that all borrowers are either U.S. citizens or are qualified aliens as defined by 8 U.S.C. § 1641.
    • The borrowers must obtain a first mortgage loan from a lender approved by CalHFA, Lakeview Loan Servicing, CalHFA’s Master Servicing company, or the mortgage insurer/guarantor and meet all credit, income, and mortgage loan requirements.

    For low-income families struggling with harsh weather conditions this winter, read our article on free water heaters for low-income families.

    Property Requirements

    The following are the requirements the property must fulfill, for which the Forgivable Equity Builder Loan program is being sought.

    • The property must be a one-family or one-unit residence, including a condominium or a Planned Unit Development approved by the city. Getting a grant for guest houses, granny units, and in-law quarters may be possible.
    • There are no restrictions on manufactured housing.
    • For a condominium to qualify for a first mortgage, it must meet certain guidelines.

    Owner Occupancy

    The owners will need to fulfill the following occupancy requirements.

    • The borrowers must occupy the property for which the loan is taken as their primary residence within two months (60 days) of the closing.
    • Co-borrowers or co-signors who are not occupants of the property are not permitted.

    Income Requirements

    A lender must use investor guidelines to calculate income to approve a loan for the borrowers. For purposes of determining if a loan exceeds the maximum income limit under the program, CalHFA will use the lender’s credit-qualifying income. CalHFA will not consider the income that was not used for credit qualification by the lender.

    Maximum Income Limits

    In terms of income limits, the borrowers’ income should be under 80% of the respective area median income per the Fannie Mae lookup tool.

    • The first submission date should be used for conventional loans.
    • CalHFA’s reservation date should be used for government loans.

    Homebuyer Education Requirement

    A CalHFA program requires first-time homebuyers to receive homebuyer education and counseling as part of the program’s commitment to homebuyer success. A Homebuyer Education and Counseling course must be taken by only one occupying first-time borrower per loan transaction. 

    Detailed information about the CalHFA first mortgage program can be found in the program handbook.

    You can take the education and counseling course in two ways.

    • Online course: eHome’s eight-hour Homebuyer Education and Counseling course for a fee of $99 is the only online course that the CalHFA accepts. Other online courses like Frameworks and HomeView are unacceptable because they do not provide a one-hour, 1-on-1 counseling follow-up session.
    • In-person or virtual course: NeighborWorks America and other HUD-approved housing counseling agencies offer in-person or virtual homebuyer education and counseling. The fee for this option varies with the agency that offers the course.

    Loan Repayment 

    Five years after occupying the home, the borrowers will be forgiven the loan amount. When the loans are paid off before the five-year term, they will be forgiven and prorated annually. 

    Fees

    The lender can charge a maximum total processing fee of $50. There are no restrictions on any other third-party fees.

    Applying For The CalHFA Loan Program

    Due to CalHFA’s non-direct lending nature, they offer their mortgage products through private loan officers approved and trained by them. If you wish to learn more about CalHFA’s programs and get help with home-buying, these loan officers can assist you.

    Get in touch with a loan officer by clicking on the Find a Loan Officer tab. This list of documents and information may be helpful to you when contacting a loan officer for help answering questions:

    • Pay stubs
    • Bank statements
    • Employment history
    • Previous tax returns

    To obtain information or assistance regarding CalHFA’s Forgivable Loan Program, please contact one of CalHFA’s approved lenders or CalHFA’s Single Family Lending division at the following address:

    CalHFA Single Family Lending
    500 Capitol Mall, Suite 1400
    Sacramento, CA 95814
    Phone: 916.326.8033
    Email: lendertraining@calhfa.ca.gov

    The Forgivable Equity Builder Loan program assists first-time home buyers with their down payment and closing costs. This program has zero interest and is forgivable after five years of occupancy in the residence that qualifies for this program. 

    For more programs and grants that can assist you with your financial troubles, check out the rest of Gov-Relations. If your house is in bad shape, read our blog post on free grants for homeowners for repairs.