California Voters to Decide on 3% Down Payment Housing Program

California voters will decide in November on Proposition 37, a statewide initiative that could enable middle-income residents to purchase newly built homes with a minimum down payment of just 3%. This program, if approved, would allow the California Housing Finance Agency (CalHFA) to establish a down payment assistance initiative funded by the sale of up to $25 billion in revenue bonds. The assistance would be structured as a secondary mortgage, meaning borrowers would secure a primary mortgage and then a second loan to cover the majority of their down payment, effectively reducing their upfront cash requirement to 3% of the purchase price. This contrasts with the current housing market where 30-year fixed mortgage rates are averaging approximately 6.65%, a significant increase from the pandemic era lows. During the COVID-19 pandemic, mortgage rates reached as low as 2.65% after the Federal Reserve reduced the federal funds rate to stimulate the economy. However, the Federal Reserve began raising interest rates in March 2022, leading to a subsequent rise in mortgage rates. Jake Krimmel, a senior economist at Realtor.com®, has expressed skepticism about mortgage rates returning to the 3% range anytime soon, stating the probability is "essentially zero." Proposition 37 aims to provide an alternative pathway to homeownership for Californians facing high mortgage rates and substantial down payment requirements. The proposed program would be exclusively available to California residents and would apply only to newly constructed homes priced below a specific threshold, estimated to be between $1 million and $1.5 million depending on the county. The secondary loan would cover up to 17% of the home's purchase price, with the buyer contributing the remaining 3% as their down payment. This approach allows buyers to enter the housing market sooner by mitigating the immediate financial burden of a larger down payment, although it introduces the complexity of managing two mortgage payments. The success of Proposition 37 hinges on voter approval, which will determine whether this innovative down payment assistance model becomes a reality for prospective homebuyers in California.