Contrary to down payment assistance programs, the 10% down payment assistance grant program, or “Forgivable Loan,” is designed for low income borrowers and is completely forgivable if borrowers meet certain requirements. Eligibility for this program is determined based on the following criteria:
- Homebuyer’s income must be less than 80% of the area median income (AMI) per the Fannie Mae lookup tool: https://ami-lookup-tool.fanniemae.com/amilookuptool/
- The second loan amount is 10% of the sales price or appraised value, whichever is less
- Can be used for down payment and closing costs, with a max combined loan-to-value (CLTV) ratio of 105%
- Based on a 30-year fixed loan term
- Considered a “Silent Lien” at the time of closing – this means that no payments are required to be made after closing or included in qualifying ratios
If the borrower(s) occupy the home for five years, the full amount of the loan is forgiven. If the loan is paid off at any point prior to this, the five-year term will be forgiven on an annual pro-rated basis.
Repayment of the principal and interest on the Forgivable Loan occurs at the earliest of the following events:
- Transfer of title
- Sale of the property
- Payoff of the first loan
- Refinance of the first loan or the formal filing and recording of a Notice of Default (unless rescinded)
The California Housing Finance Agency (CalHFA) will issue an IRS tax form 1099 to borrowers for 20% of the grant received on an annual basis for five tax years. Since there are tax implications, homebuyers should seek the advice of their tax/financial advisor first.
It is important to note that only the income strictly used for qualifying must be under the set income limits (of less than 80% AMI). After that, borrowers can contribute their own funds and/or gift funds towards down payment and closing costs/fees.
If you have any further questions regarding the down payment assistance grant or programs thereof, please contact us at (760) 930-0569 and one of our loan officers will assist you.