California Proposition 37 Passed: What It Means for Homebuyers

Buying a home in California might just have become a bit easier under a proposition passed by the state's voters. 

Proposition 37 creates a program that offers potential homebuyers the opportunity to put down 20% of the purchase price to buy a new home. Homebuyers will still need a home loan to purchase a home beyond the amount not covered by the down payment. 

Are you ready to explore homebuying options with help from the newly created Proposition 37? Apply now to connect with a Loan Officer who can answer questions and help you through the process.  

What is California Proposition 37?

Proposition 37 will authorize as much as $25 billion in bonds to offer potential homebuyers as much as 17% of a home purchase price to help more buyers afford homes in the Golden State. Income and purchase price limits will apply, and the amount borrowed will have to be paid back. 

How does the California Proposition 37 homebuyer loan program work?

Proposition 37 is essentially a down payment assistant program run by the state's housing authority, which isn't all that uncommon. Many states, including California, sponsor programs to help buyers afford homes in their states. 

With Proposition 37, buyers can get loans of as much as 17% of the home's purchase price to buy a newly constructed home. Buyers are required to come in with at least 3% of their own, taking their total to 20% that they can use as a down payment when they apply for a primary home loan to cover the rest of the purchase price. 

Borrowers will pay back funds from this program through regular payments over the course of their home loan. 

How much could buyers save on their down payment?

Getting into a new home in California with a down payment of only 3% can be tough. Here's how funds borrowed through Proposition 37 could help a potential homebuyer increase their down payment.  

Illustrative maximum amounts are based on the measure's percentages and are not guaranteed assistance or an approved loan scenario. Closing costs and other funds needed to complete the home purchase are additional. 

Who qualifies for California Proposition 37?

Qualifications for Proposition 37 are relatively straightforward. Here are some of the key factors. 

• California residency: Borrowers must be California residents for at least a year.
• Income limits: Household income is limited to no more than twice the median income in the area.
• Primary residence: Buyers must occupy the property as their primary residence.
• Minimum down payment: Buyers are required to commit at least 3% of their own money.
• Property type: The program is designed for purchases of newly constructed homes or of structures that have recently been converted into living spaces. In effect, the program is not open to resale of homes.
• Purchase price limits: Homes must fall below certain geographic price caps. The caps are generally around $1 million for homes in inland areas and up to $1.5 million in higher-cost housing markets.

Does Proposition 37 apply to first-time homebuyers only?

While funds available to potential homebuyers through Proposition 37 could make homes more attainable for first-time buyers, the measure does not exclude borrowers who have owned homes in the past. Borrowers interested in purchasing newly constructed homes and who meet other eligibility requirements can take part in this program regardless of first-time buyer status. 

Can you use Proposition 37 to buy an existing home?

No. Proposition 37 was designed with the sale of newly constructed homes in mind. It also applies to housing units recently converted from other uses, such as office spaces or retail buildings retrofitted for residential living. Existing homes that previously have been sold as residential units are not eligible. 

What are the potential benefits of Proposition 37 for California homebuyers?

Here are some of the ways Proposition 37 could help prospective homebuyers afford newly constructed homes in California. 

• Lower upfront cash requirements: Borrowers planning to make a 20% down payment on a home would only need to commit 3% of their own money upfront. Funds borrowed through Proposition 37 will make up the rest.
• Market access: Funds borrowed through Proposition 37 could make homeownership accessible to more middle-income households.
• Less time to wait: Assistance means spending less time saving up for a down payment, which could get buyers into their homes sooner.
• More options: Proposition 37 offers another financing option in California's high-cost housing markets.

What are the potential drawbacks of the Proposition 37 loan program?

Down payment assistance through Proposition 37 won't necessarily be an instant solution to home affordability. Here are some of the concerns to consider. 

• Additional monthly payments: Funds from Proposition 37 need to be repaid, so a buyer would have a second mortgage to repay along with a primary home loan.
• Interest rates: The second mortgage from Proposition 37 will come with its own financing, and it’s possible the interest rates might not be lower than a traditional mortgage.
• Overall affordability: Buyers will need to qualify for a primary mortgage and second mortgage, and still be able to afford their combined monthly obligations.
• Limited property eligibility: Buyers not interested in newly constructed homes won’t benefit from this program.

When will the California Proposition 37 program become available?

Proposition 37 is different from other state assistance programs in that it relies on foundations and other investors to buy the $25 billion in bonds that will fund the program. Once that happens, the California Housing Finance Agency could begin rolling out the program. 

The program also will rely on banks and other lending companies to issue the loans to potential borrowers. Setting up these relationships as well as gathering the funding could take some time, so buyers should not assume the program will be available immediately. 

How does Proposition 37 compare to other California down payment assistance programs?

CalHFA offers several down payment assistance programs. These programs offer deferred-payment options, so you won't have to pay back the assistance amount until you sell, refinance or pay off the loan.  

Programs in some other states offer grants as down payments, which don't have to be paid back. That's not an option with any California program. 

Here's how California programs that offer down payment assistance break down. 

What should California homebuyers do now?

If you are looking to purchase a home in California and are interested inhelp with the down payment, here are some steps to follow. 

• Check your income: Determine your household income compared to the county you live in. Proposition 37 limits income to less than 200% of the median in your area, so you’ll need to confirm you’re within that limit in order to qualify.
• View homes: Explore newly constructed homes within the applicable price limits.
• Determine affordability: Evaluate how much you can afford each month with both primary and second loan payments.
• Review qualifications: Check your credit score and savings for at least 3% of the purchase price.
• Stay informed: Follow CalHFA announcements about a timeline for the program's rollout.
• Connect with a lender: Speak with a mortgage professional about financing options available now.

Ready to take the next step toward homeownership?

Are you ready to explore homebuying options with help from the newly created Proposition 37? Apply now to connect with a Rate Loan Officer who help you through the process.