LOS ANGELES — Buying a home in California requires a colossal amount of money — and coming up with a 20% cash down payment of $180,000 for a median price home is a staggering hurdle for many would-be buyers.

That down payment amount is based on the statewide median $900,000 price tag for a house, according to recent data from the California Association of Realtors. In Los Angeles County, the median price for a single-family home is $935,000. In Orange County, it's $1.5 million.

Proposition 37 on the Nov. 3 ballot would allow the state to amass a $25 billion down payment assistance program for middle-class households. For perspective on the enormity of the measure before voters, one of the state's existing down payment programs, California Dream For All, launched several years ago with $500 million, just 2% of the funding involved in Proposition 37.

The ballot measure would allow qualified prospective homebuyers to borrow up to 17% of the sales price of a new home, contributing 3% of the down payment from their own funds.

The program would not be funded by taxpayers, but instead by the interest charged to borrowers on their down payment loans, also referred to as second mortgages. The measure has garnered widespread support, including from Gov. Gavin Newsom, statewide unions and mayors from Santa Monica to San José.

"Prop. 37 is a historic opportunity to expand homeownership opportunities for generations of working families — at zero cost or risk to taxpayers," Newsom said in a statement.

But Proposition 37 carries a significant caveat: Any home purchased through the program must be new construction, which could limit its potential reach because of the high cost of building, some critics said.

Also, the proposition does not spell out the terms or interest rates on the loans, which would be worked out if the measure is approved. And some have questioned whether there will be sufficiently robust interest from investors to buy the state-issued bonds that will be used to fund the down payment loans.

The concept of down payment assistance is not new. Cities and states, including California, have long offered such programs to low- and middle-income homeowners, either in the form of loans or grants, and there are reportedly more than 2,700 such programs across the country.

Nevada, Connecticut, Massachusetts and New York all have programs to help homebuyers afford a down payment. Since 2021, New York has dispersed $70 million in down payment assistance. In Massachusetts, more than $146 million has been doled out in down payment help to homebuyers since 2020.

—How the program would work

Under Proposition 37, down payment loans would work like any other, and would carry an interest rate and payback period — all of which would be determined by the California Housing Finance Agency.

To qualify, borrowers would need to have lived in the state for at least a year and earn no more than 200% of the local median income; in Los Angeles County, for example, that equates to a family of four earning no more than $216,200 a year.

Borrowers don't have to be first-time homebuyers, which is often a requirement of down payment aid programs. But they would need to live in the home.

The program would restrict the price of qualifying homes, depending on the county where someone is trying to buy. A general estimate, though, is that would-be homebuyers would be limited to houses costing between $1 million and $1.5 million and the homes, more importantly, would need to be new construction.

While Proposition 37 has little opposition, and is supported by unions, chambers of commerce and organizations representing builders, the League of Women Voters opposes the ballot measure, concerned it would saddle residents with too much debt and that the terms of these loans are opaque, the details worked out only after the vote.

—New homes only

Only buyers of newly built homes would be eligible for these loans. That could include existing commercial buildings that had been converted into homes, such as condos or townhomes.

This provision is uncommon as many existing down payment assistance programs don't strictly limit the type of home someone can buy — only the sale price. Bob Hertzberg, former Senate Majority Leader and the architect of the proposal, said he wanted Proposition 37 to spur new construction.

"The problem is we have to increase supply," Hertzberg said. The shortage of homes in the state is estimated to range anywhere from 840,000 to upward of 3 million.

By creating more demand for new homes, he said, the hope is that builders will respond en masse.

But some groups are wary of this logic. One analysis, funded by the Proposition 37 campaign, estimated that this program could result in the building of 190,000 homes in the state, although the report's author said it was "impossible to know" the true number given the various factors that affect housing.

Matthew Lewis, director of communications for California YIMBY, an organization that advocates making it easier and cheaper to build homes, said high prices make it clear that the demand for homes already exists and that Proposition 37 does little to address a bigger issue: the cost of building.

"In concept, (Proposition 37 is) a great idea," Lewis said. "The thing we're concerned about is, California is still way behind on its housing production goals, so there's the risk of an unintended consequence of instead of having 10 people bidding on a house, now you've given a couple folks down payment assistance, and so there's now 12 people bidding on the same house."

To drive builders to construct eligible homes, the measure would allow them to opt into a "qualified builder" option. As long as they adhere to price caps, agree to certain labor requirements and fix repairs that arise, they're protected from lawsuits from buyers concerning defects 10 years after construction of the home.

Homebuilders say even given some relief from litigation, they aren't sure Proposition 37 would push construction into overdrive.

"There are so many more things the state, city and county could do to help add more supply (of homes)," said Paul Schon, a developer who builds apartments in L.A. County. He said tackling permitting times and red tape involved in building would have a greater impact. "This is minor," he said.

—Interest rates could be a tough sell

Many down payment assistance programs offer interest-free loans to homebuyers, including an existing program run by CalHFA.

But in order to be self-funding, the fixed-rate loans offered through Proposition 37 would carry interest. If passed, the state would issue revenue bonds, selling them to investors and using that money to issue loans to homebuyers. The investors are repaid with the interest paid on the loans.

According to the Legislative Analyst's Office, CalHFA would decide the total amount of bonds to issue and over what period of time.

Revenue bonds are generally viewed as riskier than other types of government bonds, in part because they're backed by the promise of revenue from a specific project — in this case, payment by individual borrowers. That means interest rates on these loans could be higher than borrowers might like or be able to afford.

Hertzberg said he's talked to investors who may be willing to buy these bonds at cheaper rates, given the crushing issue the funding is trying to solve. This would keep interest rates down for borrowers. He said he's appealing to foundations and socially-minded tech leaders.

One of the biggest financial backers of the measure is the political nonprofit Building a Better California, which has been fighting the billionaire's tax with help from wealthy donors, including Google co-founder Sergey Brin.

Hertzberg, for his part, refused to name any organization or person who may be interested in buying the bonds that would fund this program.

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(This article is part of The Times' equity reporting initiative, funded by the James Irvine Foundation, exploring the challenges facing low-income workers and the efforts being made to address California's economic divide.)

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