Episode 11 | CA's Newest Downpayment Assistance Program!
10 Aug 2023 · 25 min
In this episode of the New and Experienced Investor Podcast, hosts Alex Barnett and guest Joe Homs discuss California’s newly announced $300 million down‑payment assistance program for first‑time homebuyers. They explain that the program was intended to cover the 20 % down payment, effectively enabling 100 % financing, but the funds were depleted within three weeks, leaving many buyers disappointed. The conversation then moves to the program’s repayment structure—where the government would claim a share of any future appreciation—and compares it to other low‑down‑payment options such as FHA (3.5 % down), VA (0 % down), conventional loans (5 % down) and seller financing, highlighting the added cost of mortgage insurance and qualification hurdles. Joe recounts historical “warm‑body” loans from the 2008 era that offered 100 %+ financing with teaser rates that later spiked, triggering a market crash. They discuss current California market conditions: low inventory, rising prices despite high interest rates, and the seasonal surge in activity as families seek larger homes. Ethical concerns about loan disclosures and borrower awareness are raised, emphasizing the need for borrowers to read fine print and seek trustworthy advisors. The hosts also touch on personal topics—Joe’s experience with high‑interest mortgages, the impact of interest‑rate changes on affordability, and future expectations for rates. A light‑hearted side conversation covers Tesla’s unlimited charging perk, the upcoming Cybertruck, and the financial commitment of pre‑ordering. Finally, they promote their Orange County real‑estate investor meetup at GameCraft in Laguna Hills, encouraging listeners to attend and follow the podcast on social media.
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Welcome back to the New and Experienced Investor Podcast. I am one of your hosts, Alex Barnett.
And I am Joe Homs, the experienced one.
That's right. Today I'm pretty excited because, uh, we're talking about something really cool. California announced a recent program to where there are dedicating $300 million to first-time homeowners, and they're going to be paying for people's down payments. So that means, you know, first-time home buyers, they can go out there, they can get their down payment covered. It sounds like a really good program.
Hold on, okay?
What?
It lasted 3 weeks. That was it. The money was gone in 3 weeks. Weeks?
No, they just announced it. It must have been—
It's gone. It's gone.
Okay.
I talked to a lender the other day. I actually received an offer with this program, and I was doing my due diligence, and I checked with the lender, and he said it was there ready to go. I had an additional offer come in, which was a cash offer. Obviously, we accepted the cash. Uh, 2 weeks later, we closed. I Followed back up with that lender, just curious. He said, yeah, it was gone in 3 weeks and it upset a lot of buyers. There's a lot of buyers that were counting on that program and it just did not come through. Wow.
I feel like I just heard about it, but that makes sense for California. You know, we're quick to spend.
Absolutely. Yeah.
So, I mean, maybe, maybe you can unpack a little bit sort of the program, what it was, You know, supposed to accomplish and how it worked?
Well, it was to help buyers with their 20% down payment. And the $300 million was to pay your 20% down. And basically what, at the end of the day, what you're looking at is 100% financing, 'cause you would get an 80% loan. This program would help you with the 20%. So you're buying a property with no money down. But the kicker with this program was that when you went to sell it, the government would participate in the increase in the value of the home. So if the value increased, whatever, 100%, the government wanted 20% of that on top of the 20% that they bought you. But if you're, again, if you're putting nothing down, then, you know, those type of deals are very attractive to people who don't have money down. So yeah, that, that's what it was. But it was like you blinked and you lost it. It was that quick. It was that quick.
Yeah, it must have been the type of thing, as soon as you found out about it, you start doing the, the, I don't know, pick out a house and do all the documentation and everything.
Yeah.
Wowzers. I mean, can you still get foreclosed on in those sort of situations?
Sure, absolutely. Yeah, if you don't make the payment, absolutely. Oh, but you know, you're guaranteed equity when you buy it because the 20% down is provided by the government. That's not something that they want you to pay back right away. So you've got 20% built in, and, uh, and then the government's just hoping that, you know, when you go to sell it, that there's enough there to pay them back plus make a little bit of profit for themselves, uh, through this program. So that if, if it was an actual program, you know, that was backed by a lot more money than that, and $300,000 $300 million sounds like a lot of money, but not here in California. I mean, that goes quick. Yeah. Yeah.
Crazy. I will— and I wonder if they're gonna be coming out with a lot more of these sort of programs, or I mean, what, what makes them do this in the first place?
They want to level the playing field. And yes, I, I think this is one of the first and there'll be more coming out. This one's California-based, so I think you'll start seeing We're seeing some come out from the federal government as well. And maybe the banks are gonna, you know, jump back in and be bad like they were in 2008 and before. And again, doing 100% financing, warm body loans. You have to remember the banks are in the business of making money through mortgages. And if they don't— you know, write mortgages because they're at 6% and 7% right now, they're not making any money on that. So they have to come up with creative ideas. I heard one floated the other day that they were gonna punish people with good FICO scores and charge them more so that they could give that money to people with bad FICO scores.
Mm-hmm.
Again, to level the playing field so that they could buy property. Who knows? It's just, you know, it's the government. They come up with these crazy ideas.
And then just back to the program, is it, are you tied in for a certain number of years? I mean, are they all the, there has to be a bunch of stipulation and red tape and things like that, do you think?
Yeah, I'm sure there was. I mean, I just, you know, learned the highlights and, you know, the 20% down, did they want 20% profit at the end of the day? I'm sure there were some other conditions there. I don't think there was any conditions on you have to sell your house within a certain period of time so that they could recoup that money. Um, but I mean, it came in so quick and went out so fast that you hardly had time to look at the ink dry.
Insane.
Yeah.
What about some other programs? Because I know you don't always have to put 20% down. I know there's the FHA. VA, maybe you could touch on those. What, what's the pros and cons?
FHA, 3.5%. It has to be owner-occupied. VA is actually 0% down. So you can do 100% financing with VA, and those are also owner-occupied. So there is some low down payment loans out there. In fact, you can find a conventional, you know, 5% down. All of these have mortgage insurance that's attached to them.
Hmm.
And mortgage insurance is just an insurance in case you or somebody else defaults, that this mortgage insurance will kick in and pay back the difference to the bank if it's short of money. So, and then those, that mortgage insurance can be a hefty amount, could be $500 or $600 a month additional on top of, you know, what your mortgage payment is. So yes, you can get into a property 3.5% down on FHA loan, but at the end of the day, you're gonna be paying for it.
Yeah, maybe it doesn't make as much sense out here because then your monthly payment's just through the roof.
Yeah. Yeah, and then you have to qualify for the whole thing as well. So it's not like, you know, you just qualify for what the loan payment is. They're gonna tack on the insurance to that as well, make sure that you qualify for everything, 'cause they don't want you to default. That's the purpose of this.
Right. What about USDA? I've seen that. What is that?
I don't know. I mean, I've never done— I don't do a lot of loans. In fact, I don't do any loans. Um, you hear about these strange things, USDA and, um, you know, other type of government loans, but I've never dealt with any of that stuff. It's just the traditional Fannie Mae, Freddie Mac, FHA, VA, uh, seller financing, right? Uh, things like that.
Okay. Yeah. And it is possible to get 100% financed through seller financing as well.
Absolutely. Yeah.
That might be the way to go. I don't know.
Yeah.
Um, interesting. It's gonna be, it's gonna be kind of crazy to see what they start coming out with now that the market's slowed down. They're gonna have to maybe do something. Um, yeah, I don't know what's gonna give first either. You know, the banks are gonna have to come up with something, or it's just gonna go completely government subsidized.
Yeah. I think honestly, I think things are gonna change in the next couple of months because this is the busy season for real estate in California. Towards the end of June, the kids are out of school. People are looking to put their properties on the market, sell them, and then they're out looking for that uplake property, the bigger property, because their families are growing or they wanna go into a different school district or whatever it is. So I think hopefully we'll see a lot more activity in the next few months. I'm hoping that people who are sitting on the sidelines waiting to find out if they should sell their house at this point are going to jump into the market and test the waters and start selling their house. And we have really, really low to no inventory right now. And so that's keeping the prices up. In fact, I've seen prices starting to tick back up again, you know, even with these interest rates, because there's no inventory out there. You know, there's not a lot of choice. So what does come on the market, people are fighting over.
Wow. And I guess just the play there is that they're— they'll have the high interest rate until it comes back down, right?
Exactly. Yeah.
Yeah, I guess if you have it and, you know, you're itching to move or whatever you're planning to do.
Yeah, maybe. I mean, you know, You've gone from 2 kids to 3 kids and you have a 2-bedroom house. It's time to, you know—
Bunk beds. Bunk beds. What happened to the days you put everyone in the one bedroom?
Yeah, that doesn't work anymore. No, that doesn't work. No, it's time to, you know, upgrade to a 3 or 4-bedroom house.
Geez.
Sell the one that you have or the condo that you have or whatever and start that process of moving up.
Right, right. Okay. And so, um, I mean, you mentioned back in 2008 they had warm body loans and 100% financing, and then I think you've even said over 100% financing. What is that? How's that possible?
It's very possible. They gave you like 105% loan. The other 5% covered the closing costs, commissions, everything else. You were literally walking into that transaction With no money down or getting money back at the end of the day. I mean, you know, you couldn't blame people. You know, when somebody comes in, you sit down and you go, hey, you know what? I can get you no money down on this property. In fact, if we do this other program, I'll get you some money back. You know, it's like, what are they gonna say? No? You know, they said yes. And then back then they did what we call teaser rates. So they started at 2% And that was good for the first year. And then it jumped to 7 or 8%—
Got it.
Second year. And then it jumped up to 9 or 10% the third year. Well, that first bump from 2% to 3 to 7% really is what led us to the largest downturn in real estate that I have experienced. And I've experienced 3 of them. And that was absolutely the largest one. Yeah.
Wow.
Without a doubt.
And so I'm wondering, like, like you're saying, you're going into the office, you're— they're presenting you with these sort of loans, and are they letting you know that it's gonna go up to 7 or 8%, or do you think they're just saying, hey, you know, you're just gonna be paying, you know, $800 for the first, you know, part, or what's that like?
I mean, How come, how come so many people fell for it? Everything is, is down in writing. And if you've ever gotten a loan, uh, you'll know that it's very small print and there's about 50 pages to that. And most people, you hand them the pen and they sign, they don't really read anything. Okay. Um, so, you know, I guess that's where a little bit of ethics comes in. So if you're ethical, What's that? That means you're gonna tell somebody the truth about what's going on before you give them the pen.
Gotcha.
You know, uh, Alex, we're gonna start you out at 2%, but—
Sounds good.
You know, we're gonna go up to 7 or 8%. Okay. What was that? Yeah, no, yeah, 2%.
2%, 2%.
But we're really gonna go to 7 or 8%. 2%.
Okay.
Because, you know, if, you know, my job is, if I'm a lender, to do loans, right? And that's the way I make a commission. So I'm pushing these loans out as quick as, you know, somebody will sign on the dotted line, you know? So—
Right.
Read everything, okay? Either that or have somebody sit down with you that you trust, that is ethical, to explain to you everything that's going on.
Those people are hard to find.
Oh yeah.
So you gotta do it yourself.
Yeah.
Yeah.
Gotta do it yourself. Trust yourself. Trust yourself. And if you don't, you know, reach out to somebody. Um, there's trustworthy people out there. There is. You'll find them.
Yeah.
Yeah.
They're just gonna tell you that you, you're, you wanna buy your dream house, but they're gonna come in and they're gonna tell you, well, this doesn't really make sense because, you know, after 12 months, you're gonna have to pay this much.
Yeah.
And you're not gonna wanna hear it. So you're just gonna wanna get your dream house and you'll figure it out. You'll figure it out later on down the line.
Yeah, absolutely. Yeah. Like, you know what? They're giving me this house for free. What can happen? You know, it's like, okay, they wanna foreclose. You know, I can't sell it 'cause it's underwater now. But, uh, you know, what's the worst that can happen? I can live rent-free for a year or year and a half. Yeah, you know, it's like, oh my God. Yeah, that is— which is what happened.
Yeah, that's crazy. I was alive then but not into real estate.
So you're still in high school?
Yeah, yeah. No, no, no, I wasn't. I was in college by then.
Oh yeah?
Yeah.
Okay.
So, but I should have capitalized on it for sure.
Yeah, but there is nothing— there's nothing around your world or Yeah, anything. Nobody telling you it's the right time.
Yeah, yeah. Interesting. Wow. Oh yeah, well, we'll see. Something's got to give. People got to move. People want to buy, people want to sell. I think we're going to get tired of waiting, being stagnant. You know, people are just gonna— they're not gonna hold out forever.
So I think people were very patient in 2020 during COVID Yeah. Because it was mandatory.
Yeah, yeah, exactly.
We were all at home or whatever. I was at home for 2 weeks and it was driving me crazy. And I came back to the office and it's like, forget it, I'm not staying at home. I don't think people would put up with something like that. And if they need to buy a house because whatever their financial situation is or family life mostly, then they're gonna get out there and buy it. gonna deal with the interest rates the way they are. And like you said, they're gonna hope that in 2 or 3 years, you know, the economy turns back around and the interest rates are low again. And, um, who knows? Who knows?
Every mortgage guy I talk to says that.
Well, of course they do, you know.
I mean, it's like summer, by July.
Like asking any real estate agent, how's the market? Oh, it's wonderful. Right now. It's a great time to buy. Really? Yeah, it's a great time to buy. What are you looking to buy?
You know, right, they're definitely good at that. Yeah, being optimistic when they need to be.
Absolutely.
Yeah.
Okay.
Yeah, I don't know. I'm hoping to see rates under 3% again very soon. That's probably not gonna happen, but I'll talk about it. I'll talk about it to my children one day.
Maybe. Maybe.
Yeah. Yeah, maybe.
Okay, we'll see. Yeah. But, um, I, I was actually talking to somebody the other day and they said that, you know, you shouldn't be crying right now because interest rates are at 7%. And it's true, when I bought my house, my interest rate was 14%. The problem with what he was saying was that 14% on the value of my house at the time, which was $160,000.
Yeah.
I mean, that's high, but it's doable. If I would have to pay 7% or 8% right now for my house, it's valued at $1.4 million. That's an entirely different story. You know, that's a bigger, you know, loan mortgage payment to make every month.
Yeah.
You know, so you can't just say that, you know, 14% was high, which is what, which is was, but you have to be able to attribute that to the value of the house as well.
Right. You could go to the movies for a nickel.
Yeah, I remember. Not a nickel. For a quarter. I remember 25 cents for gas.
Yeah.
25 cents a gallon. That's the least amount that I remember was 25 cents a gallon. And then we also had a gas, War issues with Iran. Gee, Iran, they keep coming up. Iran, and we would have to go fill our cars on odd days or even days depending on the license number that you had. So we'd go on odd days, and then if you're like close to running out on an even day, they would not let you in. And there was lines, you know. So, but that's, you know, that's the past. Those are things that, you know, have happened and we're moving forward and Moving higher on interest rates.
Higher on interest rates, but Tesla charging stations are popping up everywhere.
Yes.
So there you go.
They are.
That's how the world balances itself out.
In fact, I got an email today that if you buy, 'cause I have Tesla, so I get emails from them all the time. If you buy a brand new S, which is what I have, or an X, they'll give you unlimited charging again for the life of the car, which is what I have in my car. 'Cause I bought it 2017 and that's what it came with it. Now they're back to it again. It's like, whoa, that's awesome. You know, buy a Tesla and just use a Supercharging station. You don't have to pay anything. You know, not that they don't put that into the price of the car, 'cause this is, you remember there's a company that's wanting to make money. So they calculate, okay, over the life of this car, you're gonna pay $7,500 to fill up this car. Okay. So we'll jack up the price by some, but we won't tell anybody. Yeah.
Yeah.
Yeah.
It makes it nice. Yeah, to think you're getting it for free.
But, you know, they're thinking. Yeah, you know, and that's an incentive. Yeah, you know, it's good.
What about all the people that have had to pay the last couple years? Are they pissed?
I would be. Yeah, I would be pissed. It's like, well, what, what about, uh, so this program is like literally for a month. So what about the people that like are taking delivery today? Because it doesn't start till the 1st of next month and it's just for one month. What about Yeah, like would you postpone your delivery?
Cancel and rebuy?
Yeah, or would you call them and say, you know, throw that in, or I'm gonna cancel? Or like you said, cancel and then rebuy, but then you don't know if you can get another car delivered because if you cancel, they're gonna give that car to somebody else, right? They're gonna put you back at the back of the line. But, um, wow, it's interesting. Yeah, it really is. It is interesting.
When are you getting your Cybertruck?
Oh my gosh. Well, I'm just waiting for them to, you know, say we're producing the Cybertruck because I'm in line.
There you go.
Okay. And I signed up literally the first day, the event day. That's when I signed up. So there's 1.5 million people that have signed up, put down $100. So you imagine how much that money is sitting there in Tesla's account.
You spent a lot on Twitter.
Yeah, not, not that, uh, you know, um, everybody's gonna get one, but, right, but, you know, because it's been such a long time, people have changed their mind or bought something else or whatever. But, um, hopefully, you know, once they start the production, you know, I'll get a little ding on my phone that says, yeah, we're working on your truck. Yeah, that'll be awesome.
Wow.
I'll be so excited.
That's going to be a fun day, going to lunch in the Cybertruck.
Yeah, there you go.
Then what do you do with the old red?
Well, see, like I said, that's a great question because I've got unlimited charging on that for the life of the car. I don't know if I even want to get rid of it.
Yeah.
That's going to be a tough decision. Yeah, I don't know. I don't know what I'm going to do with it at this point. You know, put it, put it in the garage because Cybertruck's not going to fit in my garage, you know. So just leave, leave the other car in there, you know, for whatever reason, um, you know, maybe use that one. I don't know. I don't know what I'm gonna do. Yeah, you know, I was just saying leave that one in there and use it, you know, to go back and forth to work. But hell no, I want to be seen in the Cybertruck, don't you think? Yeah, I want to be seen in that as much as I can. Hell yeah.
You know, yeah, it's gonna be like a new toy.
Yeah, absolutely.
Oh my gosh, fun times ahead, folks. Fun times.
I hope so.
Well, um, if you guys were here in Orange County, you saw our presentation at Joe's meetup. You kindly invited me to come talk about a deal that we had. It was, it was fun. It was, it was very fun, and I was Halfway while people were asking me questions, just like, what am I doing up here answering these questions right now?
You started a little bit nervous, so then we calmed you down. Yeah. And once you got into it, it was like, um, you were on a roll.
Yeah.
And then yes, we were both speaking, but at the end everybody came up to speak with you. It's like they didn't want to talk to me, they wanted to talk to you.
Well, they talk to you every week.
Yeah, I guess. But anyway, they want to talk to you, so you became famous. Yeah, that's cool for the day. And, uh, yes, we did have fun. That was, that was a good event.
Yep. And we'll be, um, be doing, doing some more. This next one's at Gamecraft here in El Toro, Lake Forest area.
Laguna Hills.
Laguna Hills. So, um, how can they find out about the meetup if they're in Orange County?
You can go on meetup.com and, uh, Orange County Real Estate Investors and find that, and you'll find, uh, the meetup at, um, GameStop or Game—
no, GameCraft.
GameCraft. This is a really, really big place. Normally for my meetups, I get 60 to 70 people show up. This place can hold 2 or 3 times that. So if you're interested in coming, please come down and, and then let's talk real estate.
Let's do it, folks. If you haven't already, please subscribe to the podcast, leave a review, and follow us Both on YouTube and Instagram and everywhere you can find us. So we will, uh, see you on the next one unless you have anything else to add.
No, I'm good. Thank you. See you on the next one. Bye. If you want some more advice on real estate investing, reach out to us one-on-one.
