California legislators want to help first-time homebuyers with a down payment, ‘shared equity’

BY: Jason Whigham
May 15, 2023


Aralyn Tucker, outside her Natomas condo on June 11, 2022. This year’s state budget would create a billion-dollar fund that would give California’s first-time buyers all of the money they need to make a down payment or very close to it in exchange for partial ownership in those residences. Photo by Julie Hotz, CalMatters.
By CALmatters | PUBLISHED: June 16, 2022 at 5:53 p.m. | UPDATED: June 16, 2022 at 9:19 p.m.By Alejandro Lazo | CalMatters
Many first-time buyers rely on family gifts to help them pay down their mortgage. California legislators now want the government to step in as a generous relative.
Legislators are proposing to create a billion-dollar fund in the state budget for this year. This would give California’s first-time buyers all of the money they need to make a down payment or very close to it in exchange for partial ownership in those residences.
Toni Atkins, the state Senate President Pro Tem, proposed the proposal as skyrocketing property values widen the gap between those who own and those who rent in California. According to CoreLogic, Golden State homeowners have accumulated $141,000 in home equity over the past year. This is more than any other state.
According to census data, the American Community Survey data shows that California’s rate for home ownership is 56%.
Atkins stated that the California Dream for All program was created to create opportunities for buyers of lower- and mid-income in a rapidly growing market. This includes those who have faced economic and racial barriers to homeownership.
Atkins stated last month that the California Dream for All program will allow more people to break the cycle of renting. “This can change lives.”
Negotiations between the Governor and the Legislature’s Democratic supermajority are currently underway on the proposal. Gavin Newsom, a Democrat, is negotiating how to spend a projected surplus budget of $97.5 billion. The legislature approved Monday’s budget, but negotiations with Newsom continue to determine a final overall spending plan.
A spokesperson for the governor declined comment due to ongoing negotiations. It was not included in either the governor’s May revised budget or his original budget.
According to census data, California’s rate of home ownership is 56%. This is second only to New York. A multi-billion-dollar fund
The largest proposal in this year’s slew of proposals to encourage homeownership is the housing proposal. It would require the issuing of revenue bonds of $1 billion per year for 10 years. The budget also includes $50 million this year and $150 million each year thereafter to cover the administrative costs and interest costs of revenue bonds.
According to estimates by program designers based upon home price projections, the program is expected to help around 7,700 borrowers per year. The program’s start date has not yet been announced.
The program will begin issuing interest-free second mortgage loan to cover up to 30% of a home’s purchase price if approved. However, lawmakers expect that many loans would cover 17%. They ask borrowers to add 3% of their own funds or pair the loan with another first-time buyer program.
If the home is sold or a larger mortgage is obtained in cash-out refinancing, the interest-free loans will be repaid into a state fund. If the fund contributed 20% towards the purchase price of the house, the fund would receive its initial investment back, along with a 20% share of any increases in the home’s worth.
The program would reinvest the proceeds, giving the fund the ability make new loans to eligible participants even if prices have increased significantly.
The plan will create equity for renters who otherwise would have been tenants, as long as home prices continue to rise. The state would also benefit from the program’s sufficient returns to help future homebuyers.
Program planners stated that even if prices fall, homeowners may still be able to gain equity. The fund would absorb any losses.
Building generational wealth
This program is designed to give buyers as much flexibility as possible. Buyers who have lived historically in low-income areas can be given priority for some funds. They can also use shared appreciation loans to purchase homes in their current neighborhood or elsewhere.
“We must ensure that the state’s homeownership program serves all parts of the state, even in high-cost areas,” Micah Weinberg, chief executive at California Forward, who oversaw the drafting of the proposal.
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During a recent legislative hearing, he stated that “We cannot wait for more housing to be built for these communities in order to begin to build the generationsal wealth that they were deeply denied”
The program is open to buyers earning less than 150% of their area’s median income. It would also target first-generation homebuyers and those with high student loan loads.
Proponents claim that the program would dramatically improve homeownership in California if approved. It would have reduced the annual income required to purchase a median-priced home at $786,000 if it existed in 2021, according to Kate Owens, principal at HR&A Advisors, Inc., an economic consulting firm that developed the program.
This program is different from other down payment assistance programs in that it offers smaller payments, usually around 3% to 5 percent of the purchase price in the form grants or loans.
The state fund would allow homeowners to avoid putting down a down payment. This eliminates the need to save money for the initial investment.
These equity-sharing arrangements are often referred to as shared appreciation loans. According to the program’s designers, the California plan would be the largest experiment with home loans of this type ever made in the United States.
Fewer can afford homes
Gene Slater, chair of CSG Advisors, a consultancy that designed the program, stated that the program could provide interest-free loans to 157,000 families over a 40-year span.
Lawmakers stated that they are working harder to support homeownership now that the pandemic is driving demand for single-family homes as remote workers seek more space and communities are failing to meet their homebuilding goals.
“Until California prioritizes affordable homeownership,” stated Assemblymember Tim Grayson (a Concord Democrat) in April.

California’s rising home prices have meant that affordability has dropped, especially for Black and Latino families. California’s overall households earned only 26% of the minimum annual income required to purchase a median-priced single-family home. According to the California Association of Realtors report, only 17% of Black and Latino households can afford such a property.

“Homeownership gives working families the unmatched ability to accumulate generational wealth and experience financial stability through fixed mortgages versus rising rents,” stated the California Homeownership Coalition, which includes the Realtors and Habitat for Humanity.
“These funding solutions are especially important to communities of color that still face disproportionately low homeownership rates due to decades-long discriminatory housing practices.”
Potential problems
Richard Green, director at the USC’s Lusk Center for Real Estate presented a competing proposal for research that was rejected by the state. He supports the goals of this proposal, but is concerned by its complexity.
“There are many things in life where the policy concept is great, but it is difficult to execute it,” he stated. He also said that although the program would not cover the entire state’s vast housing market, it could still contribute to rising prices if it grows. “If this program grows, it would almost certainly have at most some impact.”
Andrew Caplin, a New York University professor who wrote a book about shared equity programs, stated that he is excited to see the concept succeed, but that he has largely promoted it for private investors and not governments.
Caplin didn’t study the California plan. However, he stated that he was concerned that politicians might feel pressured not to repay and that “in the end it will all be agreed, that we can’t really collect the funds — like student loans.”
Mortgage for someone else
It would have been possible to help Aralyn Tucker (29), who moved to Sacramento in 2017 after she was priced out by the San Jose housing market.
Tucker holds a master’s in public policy administration from Sacramento State University and works in human resources at an independent school. After her parents gave most of the down payment, Tucker was able to afford a Sacramento condominium with two bedrooms.
She said that buying a home was important because her family had moved at most four times before she turned 18. Sometimes, they were in unstable housing situations.
She said, “Creating that generational wealth has been really important for my parents,”
She needed down payment assistance because her rent was $200 less than her mortgage payment. However, she couldn’t save enough to pay for the downpayment on her own.
She said, “Folks of my generation have so many additional expenses that we are not able to put that cash aside as down payment.”
She said, “Here, I’m making enough money to pay $2,200 each month in rent that I paid on-time every month. But, I wouldn’t be eligible for a mortgage because of my lack of down payment.” “We are always behind and we’re contributing to a system that doesn’t give us equity back. I am paying someone else’s mortgage.”
This article is part the California Divide project, which involves newsrooms working together to examine income inequality and economic survival for California.


Looking for first time homebuyer programs for your next home purchase? If so call or text Sacramento mortgage broker Jason Whigham at: (916) 413-3967

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