On the ballot is Prop 37 is a second mortgage homebuyer program in which the State issues bonds to provide assistance to help get buyers into homes. Basically, it would allow the California Housing Finance Agency to issue up to $25 billion in revenue bonds to finance second mortgages of up to 17% of a qualifying new home’s purchase price. Buyers would put down at least 3%. Their monthly payments on the second mortgage would repay the bonds and cover administrative costs.
In addition, qualified buyers would be required to have been residents of California for at least one year, agree to occupy the home as a primary residence within 60 days of closing, and have an income at or below 200% of the area median income for a similar-sized family in the county or city where the qualified new home is located.
Because it sits behind the primary mortgage, investors take greater risk if borrowers default. The lenders may demand higher interest rates in exchange.
The initiative directs CalHFA to keep borrowers’ interest costs as low as possible, but markets ultimately determine what lenders will accept.
Per an article on AOL.com, "Proponents told us they have modeled relatively high second-mortgage rates and found buyers could still save money compared with private mortgage insurance, an added monthly cost typically imposed on buyers who put down less than 20%. Buyers who cannot put 20% down already can face the substantial cost of private mortgage insurance, or PMI. Some stretch their finances to make large down payments simply to avoid it. Others pay PMI until they accumulate sufficient equity. In other words, Prop. 37 isn’t introducing financial risk into an otherwise risk-free home-buying system."
As long as buyers understand the risks associated with borrowing additional funds I support this. My understanding is that the additional funds will come with counseling in which case I am a fan. Something has to be done to help more young buyers get started in owning real estate which is the best way to build wealth in California.
