The Question I Am Asking
In Part Two, I examined who could qualify for Proposition 37 and whether qualifying income translates into the ability to purchase a home. Now I want to examine the debt itself. California is considering authorizing up to $25 billion in revenue bonds to finance second mortgages for eligible buyers of qualifying new homes. The program is intended to make financing more affordable and encourage construction.¹ Those are worthwhile objectives, but I want to know what they mean at the kitchen table after the buyer receives the keys.
Here is my working hypothesis: Making more money available to purchase an expensive home does not necessarily make that home more affordable. A loan can help a family get through the front door while adding debt that must be paid during the years that follow. If California’s objective is to expand homeownership, I want to know whether this financing creates additional homeowners who would otherwise remain outside the market—and whether they can afford to stay.
My concern comes from years in mortgage banking and real estate. I have seen people qualify for loans that left very little room in their monthly budgets. I have also seen assistance make the difference for a family with dependable income and insufficient savings. Both experiences matter. This installment puts those competing possibilities into numbers.
A Home Price Is Not a Down Payment
Consider a newly constructed home priced at $700,000. For this illustration, the buyer contributes 3%, or $21,000. The first mortgage covers 80%, or $560,000. A second mortgage covers 17%, or $119,000. Together, those amounts pay the entire $700,000 purchase price. The buyer has reduced the immediate down-payment obstacle, but also begins ownership owing $679,000 across two mortgages.
Proposition 37 would authorize the California Housing Finance Agency to issue up to $25 billion in revenue bonds. Borrowers’ mortgage payments, rather than direct state appropriations, would support repayment. CalHFA would determine the actual rates, amortization schedules and other loan terms. The authorized amount is a ceiling, not a guarantee that $25 billion in bonds will be sold or that a fixed number of homes will be financed.¹
There is nothing imaginary about the second mortgage. The Golden State Finance Authority’s Platinum Standard program already uses a 15-year, fully amortizing assistance second mortgage with an interest rate matching its first mortgage and monthly payments. Its assistance is generally much smaller—up to 5% of the first mortgage—not 17% of the purchase price.³ The example is useful for understanding payments, but it is not a prediction of Proposition 37’s eventual terms.
What Happens to the Closing Costs?
Now comes an obstacle the down-payment illustration does not solve. A buyer needs money not only for the purchase price but also for lender charges, title and escrow, prepaid taxes, insurance and other settlement expenses. California’s Department of Real Estate describes closing costs of roughly 3%–7% of the purchase price.² On a $700,000 home, that is a planning range of $21,000–$49,000, although actual charges and credits will differ.
At a 4% illustration, closing costs total $28,000. Add the buyer’s $21,000 contribution and the potential cash requirement reaches $49,000 before permitted credits or financing adjustments. The family’s down payment may be only 3%, yet its total cash need is much greater. That is the distinction I want readers to see.
I went back to the actual text of Proposition 37. Section 51515.05(b) requires CalHFA to adopt closing-cost rules and permits it to authorize use of the second mortgage toward closing costs when the agency determines that the interests of borrowers and bond investors are balanced.¹ That is significant flexibility, but every dollar still has to be accounted for. If $28,000 of the $119,000 second mortgage goes toward closing costs, only $91,000 remains available for the home price. The transaction must replace the missing $28,000 of purchase funding through an allowable source.
Perhaps the builder gives a credit. Perhaps the lender offers a credit in exchange for a higher interest rate. Perhaps another assistance organization provides a third mortgage, whether payable monthly or deferred until sale or refinancing. Each choice changes the family’s finances. Borrowing enough to close may solve the cash shortage while increasing the obligations the household carries into ownership.
How Assistance Can Change the First Mortgage
California already provides an illustration of that trade-off. CalHFA’s Zero Interest Program, or ZIP, offers a deferred closing-cost loan at 0% stated interest. Its own borrower acknowledgment also says choosing ZIP results in a higher interest rate on the first mortgage.⁴ An apparently free subordinate loan can therefore be accompanied by greater financing expense elsewhere in the transaction.
On CalHFA’s October 22, 2026, posted rate sheet, a standard CalHFA Conventional loan without its down-payment assistance was listed at 7.125%, while CalPLUS Conventional with 2% ZIP was listed at 7.875%, and with 3% ZIP at 8.250%, before considering the distinct terms and fees of those programs.¹² The exact packages are not interchangeable. My point is that the consumer needs to see the complete payment structure, not only the advertised rate on one piece of it.
The Monthly Cost of Owning the Home
Consider the monthly cost of the $700,000 purchase. Assume a $560,000 first mortgage at 7.40% for 30 years. Principal and interest are approximately $3,877 monthly. Assume a $119,000 second mortgage at the same 7.40% rate for 15 years. That adds approximately $1,096. Combined mortgage principal and interest are about $4,974. These are illustrative rates, not terms announced for Proposition 37.
Then come the other obligations. Assume 1.20% of the price for annual property taxes, or $700 a month. That is an illustrative assumption, close to Riverside County’s historical average, but rates and special assessments vary by parcel and county.⁵ Assume 0.35% of the price for annual homeowners insurance, approximately $204 monthly, and $400 for HOA dues. The resulting estimated monthly housing obligation is about $6,278, before maintenance, utilities, Mello-Roos or other special assessments, solar financing and existing consumer debt.
The insurance estimate deserves special attention. California’s Department of Insurance confirmed a 17% interim homeowners rate increase for State Farm policies.⁶ At 0.50% rather than 0.35% of the home price for annual insurance, together with a $500 HOA, the illustrative monthly obligation becomes roughly $6,465. At 1.00% annual insurance and a $600 HOA, the illustration reaches approximately $6,857. These are stated modeling assumptions, not insurance quotes for a specific subdivision.
I expect HOA dues to face upward pressure as association insurance, maintenance and reserve costs rise. A 2025 Foundation for Community Association Research survey found that 93% of respondents reported higher property-and-casualty insurance premiums at renewal; many reported passing costs into assessments.⁷ A $400 monthly assessment becoming $500 or $600 is a useful way to illustrate what that pressure means for a household. The original loan balance has not changed, but the cost of keeping the home has.
New homes add another consideration. California’s 2025 Energy Code generally requires solar photovoltaic equipment for newly constructed single-family homes, with exceptions.⁸ A home offered through qualifying new construction may include the solar system in its price, require a separate purchase, or involve a lease or other arrangement. If the equipment is financed separately, there can be an additional payment; a lease likewise adds a contractual payment, even as solar generation may reduce utility bills. A hypothetical $35,000 solar purchase financed over 15 years at 7.40% would add approximately $322 a month. It must not be counted again if already included in the advertised home price. The financing and savings belong in the buyer’s complete budget.
The 17% loan does not reduce the tax bill, the insurance premium, the HOA assessment or the price the builder asks. Its effect on the monthly mortgage payment depends on the agency’s eventual terms. If the second mortgage instead carried a hypothetical 9.40% rate for 15 years, its payment would rise from about $1,096 to $1,235. Deferring payments can provide near-term relief, but principal and any contractual charges remain obligations under the loan’s terms.
Qualifying on Gross Income; Living on Net Income
Underwriting is another part of the story. Lenders assess the mortgage payment, taxes, insurance, association dues and other obligations against qualifying gross income. Fannie Mae generally permits a 36% total debt-to-income ratio for manual underwriting, with qualifying cases up to 45%, and eligible Desktop Underwriter cases up to 50%.⁹ Those are qualification thresholds, not statements about how comfortably a family can live.
Assume a household earns $10,000 gross per month and takes home $7,500 after withholding and deductions. If total required debt payments are $5,000, the gross debt-to-income ratio is 50%, while those payments consume two-thirds of take-home pay. That leaves $2,500 for groceries, transportation, medical care, utilities, children’s needs, maintenance and savings. The actual take-home amount is individual; the example shows why approval and household resilience are different questions.
In the $700,000 example, even the approximate $6,278 initial housing obligation would exceed that hypothetical household’s entire $5,000 debt-payment budget before other debts. Changing how the down payment is financed does not make the underlying monthly obligation disappear.
A Loan Is Not the Same as a Lower Price
VA-backed and USDA rural loans already offer eligible homebuyers the possibility of buying without a traditional down payment.¹⁰ The VA guaranteed 323,832 purchase loans in fiscal year 2025, including 240,749 with no down payment. Compared with approximately 17.6 million veterans nationally, annual VA purchase-loan volume equals 1.84% of the veteran population—not the percentage who have ever used the benefit. I cannot determine from that ratio how many veterans face high prices, insufficient income, limited inventory or lack of information. But the example sharpens my hypothesis: removing the down-payment obstacle does not remove the purchase price or the monthly mortgage obligation. A $700,000 home financed entirely at an illustrative 7.40% over 30 years still requires approximately $4,847 monthly in principal and interest before taxes, insurance and association assessments.
California itself already has a 100%-financing precedent. CalVet says it currently accepts mortgage applications and can provide eligible veterans with 100% financing, often using the federal VA guarantee.¹³ In 2018, voters authorized another $1 billion in CalVet financing. The State Treasurer records $97.18 million in CalVet home-purchase revenue bonds in 2020, $80 million in 2024 and $73.195 million of new-money bonds sold April 14, 2026.¹³ These are bond sales, not counts of newly originated loans; I have not established how many CalVet purchases closed in those years. The claim that CalVet stopped all financing nearly a decade ago is inconsistent with that recent financing record.
Proposition 1 would authorize $11.25 billion in bonds: $10 billion for state-supported housing programs repaid by the General Fund and $1.25 billion for CalVet home loans repaid by participating veterans. It provides $7.2 billion for affordable multifamily rentals, $1.1 billion for homeownership programs—including assistance to nonprofit groups acquiring land and building homes for eligible buyers—and $500 million for housing infrastructure. The Legislative Analyst estimates up to 40,000 homeownership households assisted, but that is not a projection of 40,000 new homeowners.¹¹ Proposition 37 would authorize up to $25 billion in buyer-repaid revenue bonds for second mortgages on eligible new homes. Its supporters expect increased access to financing to encourage builders to construct more homes; the actual construction response depends on market conditions.
So here is another question: If federal VA and USDA programs can provide 100% financing, why could California not offer its own program to a broader group of qualified buyers? CalVet already demonstrates a state lending model, although its zero-down feature often depends on a federal VA guarantee. A broader state program would need its own credit protection, reserves or other financing structure, and borrowers would still need enough income to repay the entire purchase price. Proposition 1’s proposed $1.25 billion for veterans raises a more immediate question: What is CalVet’s recent loan production, and how many additional veterans would that money actually bring into homeownership? Increasing mortgage credit is one possible intervention; increasing the supply of homes at prices families can afford is another. Their results should be measured separately.
My objective is not to deny that assistance can help a buyer. It can. A favorable second mortgage might enable a household with strong income and limited savings to purchase sooner. But that is one kind of success. Increasing the total number of sustainable homeowners—and the availability of homes within their purchasing power—is a larger objective that demands its own accounting.
Conclusion: Has the Home Become More Affordable?
I began with a question: Does making more money available to buy an expensive home make it affordable? The $700,000 illustration demonstrates why the down payment is only one part of the financial picture. The example began with $21,000 in buyer funds and a 17% second mortgage. Closing expenses then added another potential cash requirement, and the monthly analysis included the first and second mortgages, property taxes, insurance, HOA dues and possible solar obligations.
The preliminary finding is straightforward. Down-payment financing can improve access to a transaction. Whether it improves the monthly affordability of homeownership depends on the full terms, and it does not in itself reduce the home’s selling price. Rising carrying costs can make the household budget more difficult even after financing has been approved. Favorable loan terms may help some families substantially; additional debt may strain others.
That leaves the question I intend to pursue through this series. Of the families who use the proposed program, how many would have purchased anyway? How many will become homeowners only because this assistance exists? How many additional affordable homes will California gain? And what would the same financing capacity accomplish if directed toward producing homes at lower prices?
In Part Four, I will apply this financing model to builder-advertised prices in ten California counties. Those figures will help distinguish a larger supply of mortgage credit from a larger supply of homes families can sustainably afford.
I want more Californians to have the opportunity to own homes. I want the numbers to demonstrate whether the tools being proposed can achieve that goal.
Before November 3, I invite you to read Part One and Part Two and share this analysis with someone who is taking the time to study California’s housing choices. Ask what matters most in your community: obtaining the down payment, sustaining the monthly payment, or finding a home at a price your income can support.
Thank you for taking the time to read and reflect. I write to help people think clearly about money, business, real estate, and life, grounded in decades of lived experience and informed by research.
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Your Trusted Advisor in Business and Wealth
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