5 ms·

California program will let you borrow down payment at 0% interest

27 points by lxm 5y ago

nopassrecover 5y ago
The title doesn’t do this justice: the offer is 10% of a home for free if you live there at least 5 years, and the only caveat listed is that you need to be making 80% or less of the median local salary. Surely this has to be inflationary on prices. If I compare to the Australian market this would be massive, but I’m led to believe US housing is a lot more affordable, and imagine the loans that would be offered to moderate to lower income earners would also be lower, so it might be akin to first home buyer grants we’ve had for $20k ish.
- hedora 5y ago
  California housing prices are astronomical. I wonder what parts of the state (if any) have avaliable housing stock that's cheap enough for the loan recipients that meet the income requirents to make monthly payments. Maybe somone that's independently wealthy and not working could use this program?
  - DarylZero 5y ago
    Maybe they can make income for the payments by living in the garage and renting out the living areas.
  - wil421 5y ago
    What about people with multiple families in one house? I know Hispanic communities tend to have multigenerational households with even adult siblings living together. It’s also more common with lower income households regardless of background.
yumraj 5y ago
So, according to https://www.deptofnumbers.com/income/california/san-jose/ https://www.deptofnumbers.com/income/california/san-jose/ median household income in San Jose is $130,865.00 80% of that is $104,692 According to https://www.redfin.com/city/17420/CA/San-Jose/housing-market https://www.redfin.com/city/17420/CA/San-Jose/housing-market median home price in San Jose is $1.4M 10% of that is $140,000 So, CA will give $140K free money, to each household in San Jose area making less than $104,692. That is more than a year's salary for free, paid by other tax payers. I'm not sure how I feel about that, but I can say that I'm not very enthusiastic about it. Will there be Fed and CA income tax on it?
- theonlybutlet 5y ago
  It's not free money it's a loan, and the bank would still be doing means testing to ensure you can afford the larger loan (well I'd hope). It's all being paid back. This is a good measure to stop that widening inequality and I'd wager one of the reasons inequality was lower back in the day when 100% loans were normal.
  - junofan 5y ago
    It is automatically discharged after five years and demands no interest of the borrower. I think that strains most conceptions of “loan.”
    - chii 5y ago
      i see people balk at this but not at student loans, which have similar properties ('cept with the zero interest and the discharges).
      - mrep 5y ago
        > 'cept with the zero interest and the discharges Lol, that's the main reason we are balking at it. It's basically a free cash handout. The article doesn't even say it has to be a first home so you could probably take advantage of it and move every 5 years and get what is effectively a free years wage paid for by uncle sam.
        genocidicbunny 5y ago
        The program does require you to be a first-time homebuyer, so presumably you can only get this once: https://www.calhfa.ca.gov/homebuyer/programs/forgivable.htm https://www.calhfa.ca.gov/homebuyer/programs/forgivable.htm
        mrep 5y ago
        Good find. Still crazy to me.
refurb 5y ago
This seems like a terrible idea. Canada did this with 40-year mortgages (effectively lowering the monthly payment) and what happened? House prices shot up. This is just feeding more and more money into the housing machine.
- nly 5y ago
  40 year mortgages are insane. One of the appeals of owning property for me, beside not being beholden to a landlords whims, is to enable retirement.
  - refurb 5y ago
    They backtracked pretty quickly after the prices continued their meteoric rise. Now they've replaced it with a tax-free savings account for first-time buyers. Nothing like subsidizing high prices so they go even higher.
nly 5y ago
Wow, this sounds even more batshit insane than the UK's Help to Buy Equity loan scheme: https://www.gov.uk/help-to-buy-equity-loan https://www.gov.uk/help-to-buy-equity-loan
chii 5y ago
California will make houses more affordable by any means, except by building more houses...
- prepend 5y ago
  It seems like all these programs are geared toward driving up home equity. So anything that would decrease home prices isn’t making it through. Similar to student loans where the problem is super high costs. But instead of addressing that, there’s short term things like zero interest student loans and forgiveness. And I think those will drive prices up more. Medical analogy is a patient is bleeding out from a wound and healthcare is scrambling to keep up with blood transfusions.
genocidicbunny 5y ago
This might be a slightly more useful link: https://www.calhfa.ca.gov/homebuyer/programs/forgivable.htm https://www.calhfa.ca.gov/homebuyer/programs/forgivable.htm This page describes the requirements for the program, which does have some limitations -- importantly this only applies for 'first-time homebuyers'. One thing that this doesn't note is if the income level has to be sustained through the period of the loan, or if it's only on approval. Only needing to have a low income on application to the loan could open a lot of avenues for gaming this.
parkingrift 5y ago
Firstly, this is just a punt. A temporary bandaid to avoid having to make any actual change. A bandaid on top of multiple decades of bandaids. California will eventually run out of bandaids and the longer they wait the worse it will be. Secondly, it will be abused as all programs are. We’ll be here 12-18 months after this goes live to lament how rich people abused this program. If you think it won’t happen you’re grossly underestimating the tax planning and scheming skills of wealthy advisors. Finally, this really doesn’t even seem to come close to helping the median earner afford a median house. We’re talking about income limits of around $100k and 7-digit house prices. Free down payment is nice, but what about the monthly payment burden?? My prediction is that a large percentage of people using this program will be rich people with clever accountants.
- throwaway0a5e 5y ago
  >California will eventually run out of bandaids and the longer they wait the worse it will be. The problem is that by the time that happens the people responsible for this bandaid driven policy will have long since cashed out to Idaho or wherever and not bear the consequences.
- prepend 5y ago
  It will be worth it for people who have their own corps and can defer income across years. But will be really hard for a “normie” making $100k to afford a $1M home even with this. Or I suppose impossible given that underwriting requirements won’t let their debt/income ration pass on a $900k mortgage. So it may be impossible for an honest person to meet this. Maybe if someone does this right before getting married and then they have a wealthy spouse who can help pay the note. The monthly p&i on a $900k loan is about $5k at 5%/30 years. So a $100k income can’t make that without some additional income sources.
  - parkingrift 5y ago
    Ha. Good point. Makes me actually wonder whether this was designed to be abused.
b20000 5y ago
it would be better if the cost of housing is brought down for working households regardless of income, for example by prohibiting foreign investment and ownership, making the realtor organisation state owned and reducing realtor commissions to a flat fee per home of e.g. $1,000. or remove realtors altogether by making the practice illegal and providing a simple online system for sales and ownership transfer.
Communitivity 5y ago
I am for housing assistance. Heck, I am actually for free housing. I think Maslow's bottom row should be provided for, providing it is done in a healthy and sustainable way. That last caveat is why I am against this. They are giving/loaning (PO-tat-O vs PO-ta-TO) $140k to people who have not been able to save up that amount, and may not be able to pay it back in 5 years. There are roughly 669k non-senior adults in San Jose. We know half of them are under $130k a year (~330k). Let's say 2/3 of those are under $104k (~220k). Most of them probably do not own a home (this is an assumption and could be faulty). Let's say half use this program (110k) and half of that use it again each year as new homebuyers reach adulthood. That's $11.44b the first year and ~6b every subsequent year. San Jose's entire operating budget for 2020-2021 was $4.6b. Forget that this is essentially an extreme example of sub-prime lending if you look at it as a loan. This does not seem to be sustainable in any way, or expandable across CA.

27 points by lxm 5y ago

The title doesn’t do this justice: the offer is 10% of a home for free if you live there at least 5 years, and the only caveat listed is that you need to be making 80% or less of the median local salary. Surely this has to be inflationary on prices. If I compare to the Australian market this would be massive, but I’m led to believe US housing is a lot more affordable, and imagine the loans that would be offered to moderate to lower income earners would also be lower, so it might be akin to first home buyer grants we’ve had for $20k ish.

hedora 5y ago
California housing prices are astronomical. I wonder what parts of the state (if any) have avaliable housing stock that's cheap enough for the loan recipients that meet the income requirents to make monthly payments. Maybe somone that's independently wealthy and not working could use this program?
- DarylZero 5y ago
  Maybe they can make income for the payments by living in the garage and renting out the living areas.
- wil421 5y ago
  What about people with multiple families in one house? I know Hispanic communities tend to have multigenerational households with even adult siblings living together. It’s also more common with lower income households regardless of background.

yumraj 5y ago

So, according to https://www.deptofnumbers.com/income/california/san-jose/ https://www.deptofnumbers.com/income/california/san-jose/ median household income in San Jose is $130,865.00 80% of that is $104,692 According to https://www.redfin.com/city/17420/CA/San-Jose/housing-market https://www.redfin.com/city/17420/CA/San-Jose/housing-market median home price in San Jose is $1.4M 10% of that is $140,000 So, CA will give $140K free money, to each household in San Jose area making less than $104,692. That is more than a year's salary for free, paid by other tax payers. I'm not sure how I feel about that, but I can say that I'm not very enthusiastic about it. Will there be Fed and CA income tax on it?

theonlybutlet 5y ago
It's not free money it's a loan, and the bank would still be doing means testing to ensure you can afford the larger loan (well I'd hope). It's all being paid back. This is a good measure to stop that widening inequality and I'd wager one of the reasons inequality was lower back in the day when 100% loans were normal.
- junofan 5y ago
  It is automatically discharged after five years and demands no interest of the borrower. I think that strains most conceptions of “loan.”
  - chii 5y ago
    i see people balk at this but not at student loans, which have similar properties ('cept with the zero interest and the discharges).
    - mrep 5y ago
      > 'cept with the zero interest and the discharges Lol, that's the main reason we are balking at it. It's basically a free cash handout. The article doesn't even say it has to be a first home so you could probably take advantage of it and move every 5 years and get what is effectively a free years wage paid for by uncle sam.
      - genocidicbunny 5y ago
        The program does require you to be a first-time homebuyer, so presumably you can only get this once: https://www.calhfa.ca.gov/homebuyer/programs/forgivable.htm https://www.calhfa.ca.gov/homebuyer/programs/forgivable.htm
        mrep 5y ago
        Good find. Still crazy to me.

refurb 5y ago

This seems like a terrible idea. Canada did this with 40-year mortgages (effectively lowering the monthly payment) and what happened? House prices shot up. This is just feeding more and more money into the housing machine.

nly 5y ago
40 year mortgages are insane. One of the appeals of owning property for me, beside not being beholden to a landlords whims, is to enable retirement.
- refurb 5y ago
  They backtracked pretty quickly after the prices continued their meteoric rise. Now they've replaced it with a tax-free savings account for first-time buyers. Nothing like subsidizing high prices so they go even higher.

nly 5y ago

Wow, this sounds even more batshit insane than the UK's Help to Buy Equity loan scheme: https://www.gov.uk/help-to-buy-equity-loan https://www.gov.uk/help-to-buy-equity-loan

chii 5y ago

California will make houses more affordable by any means, except by building more houses...

prepend 5y ago
It seems like all these programs are geared toward driving up home equity. So anything that would decrease home prices isn’t making it through. Similar to student loans where the problem is super high costs. But instead of addressing that, there’s short term things like zero interest student loans and forgiveness. And I think those will drive prices up more. Medical analogy is a patient is bleeding out from a wound and healthcare is scrambling to keep up with blood transfusions.

genocidicbunny 5y ago

This might be a slightly more useful link: https://www.calhfa.ca.gov/homebuyer/programs/forgivable.htm https://www.calhfa.ca.gov/homebuyer/programs/forgivable.htm This page describes the requirements for the program, which does have some limitations -- importantly this only applies for 'first-time homebuyers'. One thing that this doesn't note is if the income level has to be sustained through the period of the loan, or if it's only on approval. Only needing to have a low income on application to the loan could open a lot of avenues for gaming this.

parkingrift 5y ago

Firstly, this is just a punt. A temporary bandaid to avoid having to make any actual change. A bandaid on top of multiple decades of bandaids. California will eventually run out of bandaids and the longer they wait the worse it will be. Secondly, it will be abused as all programs are. We’ll be here 12-18 months after this goes live to lament how rich people abused this program. If you think it won’t happen you’re grossly underestimating the tax planning and scheming skills of wealthy advisors. Finally, this really doesn’t even seem to come close to helping the median earner afford a median house. We’re talking about income limits of around $100k and 7-digit house prices. Free down payment is nice, but what about the monthly payment burden?? My prediction is that a large percentage of people using this program will be rich people with clever accountants.

throwaway0a5e 5y ago
>California will eventually run out of bandaids and the longer they wait the worse it will be. The problem is that by the time that happens the people responsible for this bandaid driven policy will have long since cashed out to Idaho or wherever and not bear the consequences.
prepend 5y ago
It will be worth it for people who have their own corps and can defer income across years. But will be really hard for a “normie” making $100k to afford a $1M home even with this. Or I suppose impossible given that underwriting requirements won’t let their debt/income ration pass on a $900k mortgage. So it may be impossible for an honest person to meet this. Maybe if someone does this right before getting married and then they have a wealthy spouse who can help pay the note. The monthly p&i on a $900k loan is about $5k at 5%/30 years. So a $100k income can’t make that without some additional income sources.
- parkingrift 5y ago
  Ha. Good point. Makes me actually wonder whether this was designed to be abused.

b20000 5y ago

it would be better if the cost of housing is brought down for working households regardless of income, for example by prohibiting foreign investment and ownership, making the realtor organisation state owned and reducing realtor commissions to a flat fee per home of e.g. $1,000. or remove realtors altogether by making the practice illegal and providing a simple online system for sales and ownership transfer.

Communitivity 5y ago

I am for housing assistance. Heck, I am actually for free housing. I think Maslow's bottom row should be provided for, providing it is done in a healthy and sustainable way. That last caveat is why I am against this. They are giving/loaning (PO-tat-O vs PO-ta-TO) $140k to people who have not been able to save up that amount, and may not be able to pay it back in 5 years. There are roughly 669k non-senior adults in San Jose. We know half of them are under $130k a year (~330k). Let's say 2/3 of those are under $104k (~220k). Most of them probably do not own a home (this is an assumption and could be faulty). Let's say half use this program (110k) and half of that use it again each year as new homebuyers reach adulthood. That's $11.44b the first year and ~6b every subsequent year. San Jose's entire operating budget for 2020-2021 was $4.6b. Forget that this is essentially an extreme example of sub-prime lending if you look at it as a loan. This does not seem to be sustainable in any way, or expandable across CA.