With home prices always rising, first-time homebuyers in California are struggling to save for the initial costs of purchasing a home. Thankfully, there are several first-time home buyer programs available in California to help bridge this gap. Let’s take a look at how to find the best programs offered for first-time home buyers in California.
Who offers programs for first time home buyers in California?
One of the primary sources for first-time homebuyers in California to access housing-assistance programs is CalHFA, California’s housing finance agency. This state-chartered organization has striven to provide low- and moderate-income home buyers access to affordable mortgage loans and valuable closing cost and down payment assistance since 1975.
“Our overall proposition is that there are some people who have good credit scores, stable jobs, so a good source of income, but they are not able to save the necessary down payment,” said CalHFA spokesman Eric Johnson. “So we’re filling a hole in the market.”
Local government agencies at the city level and county level may also have first-time home buyer programs that you can take advantage of.
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Types of First Time Home Buyer Programs in California
First mortgage loan
CalHFA offers several first mortgage loan programs for both conventional and government-backed loans. If first-time home buyers qualify, they can obtain a 30-year fixed-rate mortgage with interest rates set by CalHFA at competitive market prices.
However, according to Johnson, the real benefit of these first mortgage loan programs is access to CalHFA’s closing cost and down payment assistance programs.
Closing Costs and Down Payment Assistance
Depending on the CalHFA first mortgage loan you select, you may have several programs to choose from to get assistance with the upfront costs of purchasing a home. These down payment and closing cost assistance programs, which are special for first-time home buyers, provide assistance up to 20% of the sales price of your home. Given how expensive real estate is in California, CalHFA programs can provide thousands of dollars in assistance to first-time homebuyers.
Below, we’ll cover details of down payment and closing cost assistance programs that can overcome the financial barriers keeping you from home ownership.
California Down Payment and Closing Costs Assistance Program
Down payment and closing cost assistance programs offer the most direct benefits to first-time homebuyers, so we’ll cover them first.
However, it is important to remember that these programs can only be used in conjunction with the CalHFA first mortgage loan programs described below. All first-time home buyers also must attend an 8-hour home buyer education course to qualify.
My home help program
The My Home Assistance Program offers up to 3.5% of the home’s appraised value or sales price for CalHFA FHA loans and 3% for CalHFA VA, USDA and conventional loans. Help comes in the form of a deferred-payment second mortgage that you don’t have to pay off until the first mortgage is paid off or transferred. You can use the money toward your down payment or closing costs.
Zero interest program
The Zero Interest Program (ZIP) offers first-time home buyers an interest-free, deferred payment second mortgage up to 3% of the first mortgage amount. Unlike the My Home program, which can be used for both down payment and closing costs, Zip Funds can be used only on closing costs. Buyers can only use Zip with the CalPLUS First Mortgage Program described below.
Dream of shared appreciation loan for all
The Dream for All program is a special type of loan that comes with a unique structure, additional eligibility requirements and additional savings. This program, reserved for those with a Dream For All conventional loan, offers up to $150,000 of the sales price or 20% of the home’s appraised value. These staggering figures make it the largest loan ever offered by CalHFA. When you sell, refinance or otherwise transfer the loan, you must pay back the full amount of the loan plus a portion of the increase in value in your home. Homeowners making less than 80% of the area median income must pay back a smaller portion of the appreciation. For in-depth information on how this system works, visit CalHFA’s website or the Dream for All Program Handbook.
Another unique feature of the Dream for All Loan is that it is reserved for “first generation” home buyers and not just first-time home buyers. CalHFA defines first-generation home buyers as:
- Who have not owned a home in the last 7 years, and;
- Whose parents do not currently own a home or did not own a home at the time of their death, or;
- Have been in foster care or institutional care at any time.
Other eligibility requirements include that you must attend the standard CalHFA home buyer education course and an additional CalHFA course specifically covering shared appreciation.
Although you may be ready to spend on these savings today, you will have to wait until April, 2024 when the program launches.
California First Mortgage Program
While down payment and closing cost assistance programs provide you with immediate upfront savings, you cannot access these benefits without the first mortgage programs listed below.
CalHFA FHA Loan Program
The CalHFA FHA Loan Program offers 30-year fixed rate FHA loans. You can save even more with an FHA loan through CalHFA because you have access to the My Home Assistance Program that can cover the entire 3.5% down payment or closing costs.
CalHFA VA Loan Program
The CalHFA VA Loan Program offers 30-year fixed-rate VA loans to eligible service members, veterans, and surviving spouses. Standard VA loans do not require a down payment, but don’t let that stop you from moving forward on building your equity. With CalHFA’s MyHome Assistance Program, you can get up to 3% of your home’s appraised value or sales price (whichever is lower) toward down payment or closing costs.
CalHFA USDA Loan Program
The CalHFA USDA loan program offers a reserved 30-year fixed rate to low- and moderate-income home buyers in eligible rural areas. Similar to VA loans, CalHFA USDA loans do not require a down payment, but you can use the My Home Assistance Program to contribute up to 3% of your home’s appraised value or sales price (whichever is lower) toward the down payment. You can use. Or closing costs.
CalHFA Traditional and Dream for All Loan Programs
The CalHFA Conventional Loan Program offers 30-year fixed-rate mortgage loans. When combined with the My Home Assistance program, you may have no down payment at all. The Dream for All program also has its own traditional loan program that must be used to participate in the Dream for All shared appreciation loan program.
CalPlus FHA and CalPlus Conventional Loan Programs
With the CalPlus program, first-time home buyers who want to use a conventional or FHA loan can use the ZIP program to save on their closing costs. However, with this savings, they will have to pay a slightly higher interest rate on their mortgage.
Do I qualify for first time home buyer programs in California?
Eligibility requirements vary for each CalHFA program depending on several factors. First and foremost, your income must be below the limits for the county where you want to purchase a home. Other key measurements include:
- credit score: The minimum credit score required for the CalHFA program is 640. However, some programs require a higher score (up to 700) depending on your debt-to-income ratio.
- Debt-to-Income Ratio: This measurement, which reflects how much of your monthly income you spend on monthly loan payments, is an important factor in determining your eligibility. The minimum limit is 43%, but some programs allow up to 50% DTI.
- Loan-to-Value (LTV) Ratio: Some CalHFA loans allow up to a 100% LTV ratio, meaning they don’t require you to put any money down. However, other programs require at least 95% LTV. Programs also consider combined-LTV (CLTV), which takes into account all loans on a home. The Dream for All program has a 95% CLTV requirement, but all other programs require 100% or 105%.
- Selling price: CalHFA does not have any sales price limits for any of its loan programs.
- Occupancy: All CalHFA programs require home buyers to use the home as their primary residence within 60 days of closing.
How to Apply for CalHFA First Time Home Buyer Programs
CalHFA does not manage their loans directly, they provide them through private loan officers whom they train and approve. So the first step to applying for a CalHFA loan is to find a loan officer who will walk you through the loan process. The exact information you need to provide may vary depending on the loan officer you choose, but CalHFA recommends that you have your pay stubs, bank statements, employment history and previous tax returns available when you contact them.