How can something so good for some, be so bad for others? Is the new CalHFA “California Dream for all Shared Appreciation Loan” BAD for Homebuyers?
First off, here are a few facts of the program:
- Official program guidelines will be published on Monday March 27th (2 days from now)…that said, I’ll give you a sneak preview of what we believe those guidelines are
- The California Housing Finance Agency aka CalHFA will provide down payment assistance of up to 20% of the lesser of the purchase price or appraised value for First Time Homebuyers
- There is no monthly payment associated with the CalHFA portion of the total financing, and it will help many Homebuyers avoid Private Mortgage Insurance (aka PMI)
- The end result? Less money the Buyer has to bring in, lower monthly payments, and higher purchase price power!
- Wait, this sounds too good to be true…what’s the catch?
- When the property is ultimately sold (or refinanced more than once), the Borrower will not only have to pay back the original amount provided by CalHFA, but also a percentage of the “increase in value” aka appreciation
Quick example:
- Purchase Price is $500,000
- CalHFA provides 20% (which is $100,000)
- Buyer finances the rest of the purchase price
- Buyer sells the home in the future for $700,000
- The gain in value between the $500,000 purchase price and the $700,000 sales price in the future is $200,000
- CalHFA gets 20% of the $200,000 increase in value, which is $40,000
- When the Homebuyer sells the home, CalHFA is paid the sum total of the original $100,000 provided and the $40,000 of shared appreciation, which is $140,000
- While some would say that $40,000 is a high price to pay, it allowed the Homebuyer to purchase a home that they might not have otherwise been able to purchase, and still profit from the other $160,000 that was gained in value
On the surface, this program is amazing for everyone…especially First Time Homebuyers who are discouraged by rising home values. Make no mistake about my messaging…this program is great for First Time Homebuyers who need this program in order to buy!
So how can this program be bad for anyone?
The backbone of economics is SUPPLY & DEMAND. You want to buy when everyone’s selling, and sell when everyone’s buying. In the case of real estate, we currently have a high demand of buyers chasing a low supply of homes for sale. We have a recession that is imminent, which will drive mortgage rates down. The media will ultimately blast the airwaves with news of lower mortgage rates, which will drive more homebuyers out of the shadows and into the homebuying hunt. More buyers will equate to bidding wars driving up prices, which is great for sellers. Remember, you want to SELL when everyone’s BUYING!
Now we have this Down Payment Assistance & Equity Share program rolling out. Now we have Mortgage & Real Estate Professionals blasting the news all over social media already, and there will be a ton more once this program rolls out next week. This combination of circumstances will significantly increase the DEMAND of Homebuyers into the market, which will only clog the pipes further due to SUPPLY not keeping up with DEMAND.
So who is this new program bad for? It’s bad for all the OTHER HOMEBUYERS out there who not using this CalHFA program. It’s already a challenge for them to buy with low inventory, and we’re about to unleash this whole new population of homebuyers into the market!
The bottom line, I would recommend Homebuyers BUY NOW and not wait for the new flurry of BUYERS to flood the market and drive up prices further. I promise I am not “panic selling” you to buy a home faster than you intend. Homebuying is a significant part of your life and I absolutely don’t want to rush you. That said, the statistics & trends are telling a very clear story here, and I want you to know what is happening.
If this message saves even 1 homebuyer thousands of dollars by not waiting, then this message was absolutely justified.
Please contact me for details, logistics, and/or loan pre-approval. I’m happy to help!
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