Proposition 37 is on the ballot this November, and if passed, it could help California home buyers purchase a property. So, what does Prop 37 actually propose?
Under Proposition 37, California Housing Finance Agency (CalHFA) would be able to sell up to $25 billion in revenue bonds, according to The Legislative Analyst’s Office of California (LAO). These funds would then be used for a down payment assistance program called the “middle-class homeownership loan,” which covers up to 17 percent of the home price. In other words, home buyers would only need to put down 3% of the purchase price in order to buy the property, alleviating the need for extra cash up front. The home owner would pay down the loan in monthly payments over time and as part of the proposal, CalHFA would do its best to keep the interest rate on this loan as low as possible.
There will be several requirements for approval of the loan, which applies only to residents of California. Income levels, home price and other factors will determine a buyer’s eligibility. (For instance, LAO says an application must “have a household income no more than double the typical income level in their area.”
In my opinion, this will help lower- and mid-range-priced homes find a larger buyer pool and allow those sellers to potentially move up the ladder to their next home. I call this the “trickle up theory.”
So, many low- and mid-ranged buyers are priced out of the Los Angeles market or don’t have the 20% down payment to avoid the usual PMI (private mortgage insurance) required by lenders when a down payment is less than 20%. This PMI is an extra monthly insurance fee to protect the lender if a buyer doesn’t pay their mortgage or defaults on the loan. PMI is added to the monthly payment but it does allow buyers to purchase property with smaller down payments. If Prop 37 passes, the buyer wouldn’t need to pay the extra PMI fee and could still put down a 3% down payment.
The low- to mid-end of the marketplace is the fastest moving segment with the largest demand. Prop 37 could be a great addition to the real estate landscape in Los Angeles County, widening the pipeline of buyers and opening up the upper-middle to higher-end marketplace with more buyers able to climb the real estate ladder and achieve their next home dream.
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Andrew Manning • REALTOR® • Berkshire Hathaway HomeServices California Properties • DRE: 00941825 • 818-380-2147 • andrew@andrewmanning.com