Prop 37 qualified new homes

What counts as a qualified new home

Under the measure, a home must meet three tests.

• It's new to the market. That means a new home, including a condo or other unit first sold to the borrower, or a retrofitted or repurposed nonresidential building converted to residential use.
• You're the first purchaser. The borrower must be the first buyer of that home.
• It's under the price cap. The maximum price is 125 percent of the one-unit conforming loan limit in the county. See the county limits.

The definition of "single-family home" is broad. It covers a stand-alone home, townhome, row house, condominium, manufactured home or other residential unit for one household.

What doesn't qualify

• Existing homes. A home someone else already owned or lived in as the first buyer doesn't qualify.
• Homes over the cap. A builder could still sell above the cap to other buyers, but not to a Prop 37 borrower.
• Investment or second homes. You must live there as your primary residence.
• Building your own home. The text talks about purchases of new homes. Whether custom construction fits isn't addressed, so ask once CalHFA publishes rules.

The Budget Center points out a side effect: limiting aid to new construction could push demand toward outlying areas, where new homes are more common and commutes are longer. The League of Women Voters raised a similar point, that nothing requires homes to be near jobs, transit or schools.

The qualified builder option

The Legislative Analyst says all developers can build homes eligible for the program. Separately, a developer can opt into a "qualified builder option." Those builders agree to higher labor standards, such as using workers with certain training on certain projects.

In return, they're subject to different construction defect rules. Builders opt in by certifying to CalHFA, which must issue a participation letter within 30 days. The text says a home doesn't need to come from an opted-in builder to qualify. Buyers should ask which kind of builder they're dealing with, because of what comes next.

Construction defect rules

If your home is built under the qualified builder option, modified "right to repair" procedures apply. CalMatters explains that these builders can be shielded from defect lawsuits if they repair problems to the homeowner's satisfaction.

According to the measure's text, the procedures include notice requirements, direct talks between builder and homeowner, limited releases and a stay of up to 120 days before a motion to dismiss. Attorney contingency fees in covered cases are capped at 30 percent of the recovery unless a court approves more. Builders must give written disclosure before close of escrow.

Costs that come with buying new

New homes can carry monthly costs that aren't in the sticker price. The Budget Center flags a few:

• HOA dues. Nearly 70 percent of new listings nationally have them, against about 38 percent of existing homes. California's average HOA fee is $280 a month.
• Mello-Roos taxes. Special taxes that fund infrastructure in many newer communities.
• Insurance. New communities in wildfire-prone areas can face higher insurance costs.

Ask the builder for the full tax rate, HOA budget and an insurance estimate before you sign. Those numbers belong in your monthly budget, along with both loan payments. The Consumer Financial Protection Bureau's Owning a Home guide walks through how to compare loan offers and costs.

New home questions