California homebuyers may be excited to take advantage of the state’s relaunched down-payment-assistance program, but they should pay attention to the fine print.
Under the California Dream for All Shared Appreciation loan program—which offers homebuyers 20% for a down payment, or up to $150,000—if homeowners sell their homes, the state receives a portion of the profits, the program’s website said. That amount would be 15 or 20 percent based on their income and would go back into the program to help future homebuyers.
The program began in 2023, as housing markets across the country experience high mortgage rates and increasing prices. In 11 days, first-time homebuyers exhausted the $300 million available for their assistance.
The support program, provided by the California Housing Finance Agency, has returned, but homebuyers may be unaware of the requirement to give away a portion of their future profits in applying for the extra help.
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The rule that requires homebuyers to share profits with the state means that even if their home did not increase in value, they would still be required to repay the initial 20 percent.
The relaunched program will operate on a first-come, first-serve lottery system since last year’s program ran out of funding so quickly.
Homebuyers can start applying for the program on April 3 before the application period ends on April 29. During that time, between 1,700 and 2,000 applicants will be selected for the 20 percent coverage, which must be implemented in 90 days.
Californians are eligible if they have not owned a home, or if they owned a home three or more years ago and sold it. They must also plan to reside in the house they are purchasing.
One of the buyers on each application must also be a first-generation homebuyer, meaning no one in their family has ever purchased a home for themselves.
There is a group of pre-approved lenders, and buyers must meet the income requirements for their county. That means making 120 percent or less of the area median income, down from 150 percent last year, CalMatters reported.
Last year, the California Dream for All program saw 2,182 homebuyers gain support for their first home purchase. Of that group, 55 percent of the homebuyers were from communities of color, the program said.
While the relaunched program could save would-be homebuyers $150,000 on their first home purchase, Alan Chang, the founder and president of Vested Title & Escrow, said the specific rules around the voucher could make its use a bit more complicated.
“Historically, the average time to close on a home with a loan was in the 30- to 45-day range,” Chang told Newsweek. “This is with a signed contract in place. Remember that it can take weeks or months to identify a home and have an offer accepted.”
Plus, first-time homebuyers under this program would be competing with cash buyers looking to make a quick sale.
Chang also said the home-appreciation rule could potentially work against California homeowners.
“I would say that most homes in California are overvalued due to demand exceeding available inventory,” he said. “Increasing property values have slowed in the last year to more sustainable levels. However, the inflated values from the prior few years have kept home values higher than what they should be.”
Because of this, it is unlikely a homebuyer under this program would gain more than 20 percent equity over the next five to seven years, Chang said.
He added, “If you are selling your starter home with a shared appreciation agreement in place based on 15-20 percent equity, those homeowners looking to upgrade are not going to have much sale proceeds left available for their next home purchase.”
Uncommon Knowledge
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Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.