CalHFA offers qualifying house hunters affordable home loans through a network of preferred loan officers in the state of California. The agency has a state charter and serves as California’s affordable housing lender.
One of the many programs it offers is the CalHFA Forgivable Equity Builder Loan; this is a loan option designed to give borrowers a head start on building equity through a forgivable second loan that provides “immediate equity” in the home purchased with a CalHFA first mortgage.
Available for CalHFA first mortgages only, the Forgivable Equity Builder Loan program offers a “subordinate loan” which is forgivable if the borrower lives in the property as their primary residence for five years or more.
It’s a zero interest loan, but be advised “you may have to pay back a portion of the loan if you occupy the home for less than five years” according to CalHFA. The zero-interest portion applies ONLY to the Forgivable Equity Builder Loan, the interest rate on your first mortgage will depend on a variety of factors including your FICO scores and credit history.
The Forgivable Equity Builder Loan option is offered to first time home buyers. For CalHFA applicants, a first-time home buyer is defined as “someone who has not owned and occupied their own home in the last three years”, so you do not have to count yourself out of the program if you have owned a home in the past but meet the “three year rule”.
Other borrower requirements include, but may not be limited to, the following:
- The applicant must occupy the property as their home address or primary residence.
- Non-occupant co-borrowers are not allowed.
- CalHFA borrowers must complete homebuyer education counseling and provide a certificate of completion as proof the requirement has been met.
- The applicant must not exceed county income limits set by Fannie Mae.
- The borrower must work with a CalHFA preferred loan officer.
This program has restrictions on the property types that can be purchased. Typically these homes will be single-family, single-unit properties. Investment properties and multi-unit homes are not approved for this program.
Approved property types for this loan include:
- Planned Unit Developments
- Manufactured homes
- Granny flats
- Guest houses
- In-law apartments
Like most CalHFA programs, a homebuyer education requirement applies as a condition of loan approval. These classes may require payment of a fee and you can only attend approved classes to meet the requirement.
- Attending online: You can choose an eHome America eight-hour Homebuyer Education and Counseling course–it’s the sole online course accepted for CalHFA programs.
- Attending in-person or live events held virtually: There are live homebuyer education/counseling options offered though NeighborWorks America or any HUD-Approved Housing Counseling Agency. These are also acceptable to meet the requirement.
CalHFA is not a direct lender, and does not offer loans to the public. Instead, you will apply for your first mortgage and your Equity Builder Loan through a network of participating private loan officers who have been trained in this option and know how to originate CalHFA loans.
You’ll need to have some important documents ready when it’s time to apply for your loans.
- Your most recent pay stubs
- Bank statements
- Fully updated employment history to include your current and former jobs
- Two years of tax returns
Having a loan forgiven may create tax consequences depending on current tax law and other variables. It’s important to contact a tax professional to learn what liabilities you may have tax-wise when a loan is forgiven.
It’s never safe to assume that the rules that applied last tax season are still in effect for the coming tax filing season; always consult a tax pro or the Internal Revenue Service to learn what today’s tax law requires you to do if you get a loan like this forgiven.
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Joe Wallace has been covering real estate, mortgage and financial topics since 1995. His work has appeared on ABC, The Pentagon Channel, Veteran.com plus a variety of print and online publications. He is a 13-year veteran of the United States Air Force and a former reporter for Air Force Television News.