FAQ for CalHFA Homeowners

Loans that you already have with CalHFA cannot be converted to the Forgivable Equity Builder Loan program.

No. The Forgivable Equity Builder Loan is separate from other CalHFA loan programs.

Our subordinate, "silent second" loans are not forgiven, unless they are issued through the Forgivable Equity Builder Loan Program. Although we do not require monthly payments, the loans are always due when the first mortgage is paid off. If you’d like a copy of the note that you signed at the loan closing to your property address, please email us at servicing@calhfa.ca.gov so that you can review the terms of the loan.

The outstanding principal balance of the subordinate "silent second" loan will be fully forgiven after five years (if you stay in the home for less than five years, the principal balance will be reduced by 20% each year) unless you default on your first mortgage. Once the loan is forgiven, CalHFA will send a reconveyance to the county recorder to remove the lien on your property.

No. Payments are required unless you default on your mortgage. However, you have the right to make payments on the principal balance at any time before the loan is due by notifying CalHFA in writing. You can make a full prepayment or partial prepayments without paying a prepayment penalty.

The terms of the loan state that once the property is sold or otherwise transferred, the loan accelerates, and payment is due unless it has been at least five years since your loan originated. If you stay in the home for less than five years, the principal balance on the forgivable portion is reduced each year on the anniversary date by 20%.

The principal balance is reduced each year by 20% on the anniversary date until it is fully forgiven after five years. The amount of debt that is cancelled/forgiven reduces the original principal balance and is reportable to the IRS. You should seek the advice of your tax advisor. CalHFA suggests that prospective borrowers wishing to participate in the Forgivable Equity Builder Loan Program seek the advice of their tax advisor before applying for this loan.

Yes, first-time homebuyers with income less than 80% AMI can use this Forgivable Loan for down payment and closing cost assistance.

Yes, although all borrowers must occupy the property as their primary residence within sixty days of loan closing. Non-occupant co-borrowers are not allowed. Non-occupant co-signors are not allowed. You would also need to let CalHFA’s Loan Administration division know of the change.

No.

Yes. CalHFA will sent you annual reminder letters that will describe the status of your loan and show you the amount, if any, that has been forgiven to date, and the current balance of your loan. The letter will also show you the upcoming proration/forgivable dates with the amount to be forgiven and the loan balance that remains.

If the borrower(s) occupy the home for five years, the full amount of the Forgivable Loan is forgiven. Any Forgivable Loans paid off prior to the five-year term will be forgiven on an annual prorated basis of 20% per year. The event anniversary date must occur prior to any prorated forgiveness. For example, if the anniversary date falls on Saturday, 10/15/2022, the 20% forgivable loan proration will not occur until Monday, 10/17/2022, (the next business day). Any payoff made prior to the event date of 10/15/2022, must be made for the full balance of the loan plus any fees (e.g, payoff demand fee, loan reconveyance fee, recording fee, expedited service fee).

Yes, you may register and access your loan by clicking here.

CalHFA subordinate loans are calculated on a simple interest basis. This is accomplished by multiplying the current principal balance times the interest rate of the loan, divided by 365, and times the number of days since the last payment was applied (or the CalHFA purchase date if no payments have been made). Example: If your $3,500 second at 5% was disbursed on March 15, 2002, you have made no payments, and a $100.00 payment is received on June 30, 2002; the interest would be $51.30 [$3,500 times 5% divided by 365 times 107]. The payment would be applied first to interest and then to principal, i.e., $51.30 to interest, $48.70 to principal, with the next interest due from date June 30, 2002, and based on a principal balance of $3,451.30.

CalHFA routinely sends out two items to all our borrowers. When CalHFA purchases your loan from the originating lender, we send out a "Welcome" letter at the beginning of the week following the purchase. This letter is required by federal regulations and informs the borrowers that CalHFA purchased the loan and gives them information on how to contact us and where to send payments if they choose to make payments. CalHFA also sends out an "Annual Status Notice", in the month after your anniversary month, informing each borrower of the current unpaid principal balance and accrued interest on their loan(s) and serves as a reminder that this loan is still active. On occasion, other correspondence may be sent as needed.

Depending upon various factors regarding your loan CalHFA could issue a number of IRS Forms as described below. All forms are issued during January of each year for the prior year's activity. Questions regarding the use of any IRS Forms must be directed to a tax professional. CalHFA cannot answer tax related questions.

No, however, it does not eliminate the Recapture Tax either. If you refinance your loan and then sell your home within the first 9 years of ownership, the potential for a Recapture Tax still exists. If you refinance during the first four years of ownership and then hold the property for more than 18 months, any potential Recapture Tax will be reduced. See the IRS Form 8828.

Not usually. A gain is required for a Recapture Tax to be assessed; however, the amount of the gain can only cause the Recapture Tax to be reduced, never increased. The formula looks at 50% of the gain to see if it is less than the calculated Recapture Tax, and, if it is, you pay that lower amount.

The Federal Tax provision did not want a borrower to pay more in taxes than they gained on the sale of the property. The Recapture Tax is limited to the lesser of the amount of the calculated tax, or 50% of your gain on sale. So, if half (50%) of the gain is less than the calculated Recapture Tax, you will pay that lower amount. For example, you could have a $100,000 gain and the Recapture Tax would still never be more than 6.25% of your original loan amount, and that is only in the fifth year of ownership.

You will need the closing statement from when you purchased the home, the closing statement from when you sold the home, the closing statement from the first of any refinances, and the Recapture Notice you would have received when the loan originally closed.

To help you find the Recapture Notice, you may wish to review the example at Recapture Notice. If you cannot locate your original Recapture Notice, e-mail us "Contact Us" , and request a reconstructed letter. Recreated letters will usually be mailed within three business days.

Three conditions must exist for you to be assessed a Recapture Tax. If any of the following three factors are not true, there is no Tax.

• You must have sold or transferred the home during the first nine (9) years of ownership.
• You must have had a gain on the sale of the home.
• Your total "Adjusted Gross Income" from your Federal 1040 Form, less any taxable gain included and plus any non-taxable interest excluded, must exceed the "Adjusted Qualifying Income" for your current family size in the year of ownership you sell the home as shown on page 3 of your "Recapture Notice" letter.

The most critical question is the income. If your family's income is less than the Adjusted Qualifying Income shown in table on page 3 of your Recapture Notice, there will be no Tax. When you submit your federal tax return (1040) for the year in which you sold the home, you will still need to submit the IRS Form 8828, which will calculate your Tax to be zero.

If your income exceeds the Adjusted Qualifying Income, you will need to complete the IRS Form 8828, to calculate your Tax.

The IRS Form 8828 is available at http://www.irs.gov/. Type "8828" in the "Keyword/Search Terms" field in the upper right hand corner and click on the "Search" button. Then download or print the current year’s "Instructions for 8828" and "Form 8828".

If the sale or transfer occurs within the first nine years of ownership, the original borrower pays the recapture tax due by them and a new nine-year period begins for the purpose of applying a new Recapture Tax to the assuming purchaser.