Katie Ziraldo 5 minute read
UPDATED: November 08, 2022
Known for its beautiful beaches, bustling cities and year-round good weather, California is one of the most desirable places to live in the U.S. But this desirability comes at a cost – the state is regularly ranked as one of the most expensive places to live and purchase property. And yet, people continue to migrate to the Golden State.
So how do they do it? In this article, we’re breaking down everything you need to know. If you’re considering buying a house in California, keep reading to learn more about the different loans, grants and assistance programs that can help you along your way.
Home prices in California can be surprising and downright shocking to first-time buyers, especially if they’re looking to buy in one of the state’s big cities, like Los Angeles or San Francisco.
But there are ways to minimize the cost of California home buying, whether that means browsing homes in a less expensive area, or taking advantage of the numerous loan options and assistance programs to help first-time home buyers. You’ll also want to check with your lender to see which of these assistance programs they can work with.
In the state of California, a first-time home buyer is defined as someone who hasn’t owned or lived in their own home in the last 3 years.
So, it’s not only those who have never owned property that can benefit from first-time home buyer programs. If you owned and sold a home more than 3 years ago, you are also eligible.
The state of California offers several government-backed loan programs for first-time and low-income borrowers. Here’s what you need to know.
CalHFA, also known as the California Housing Finance Agency, offers several first-time home buyer loan programs. The CalHFA FHA loan program features a government-backed loan insured by the Federal Housing Administration (FHA) with a 30-year fixed interest rate.
Due to their backing, FHA loans typically have lower credit score and down payment requirements than conventional loans. To qualify, you’ll need a down payment of at least 3.5% of the purchase price and a credit score of 580, on average. One occupying first-time borrower will also be required to complete a home buying education and counseling course.
The CalPLUS FHA loan program is similar to the option we just discussed with a few small differences. This FHA-insured mortgage also comes with a 30-year fixed interest rate, though the rate will be slightly higher than what you might find with the previous option.
This is because the CalPLUS FHA loan has the added advantage of the CalHFA Zero Interest Program (ZIP) – a deferred second mortgage with zero interest that helps cover closing costs. Once again, at least one borrower will be required to complete a home buying education course to qualify.
The CALHFA VA loan program offers a 30-year first mortgage with a fixed interest rate, backed by the Department of Veterans Affairs. These loans are specifically available to active service members, veterans and surviving spouses.
VA loans come with a few unique advantages, including no minimum down payment requirement and less stringent loan qualification requirements. Typically, borrowers need a credit score of 580 to qualify.
Guaranteed by the U.S. Department of Agriculture, the CalHFA USDA loan program is similar to the other programs offered by CalHFA, targeted at prospective home buyers in rural areas. USDA loans were designed to help low-income borrowers purchase rural property, which means there are location restrictions to keep in mind.
The CalHFA USDA loan program is a first mortgage loan program that can be combined with other offers, such as the MyHome Assistance Program, for down payment and closing cost assistance. To qualify, borrowers must have a credit score of at least 640 and meet income limit and location requirements.
Alongside government-backed loans, you can also consider conventional loans, which aren’t insured by a government agency and therefore often have stricter qualification requirements. Still, these loans can be a great option when combined with other down payment and closing costs assistance programs.
The CalHFA conventional loan is a 30-year, fixed-rate first mortgage offered by the California Housing Finance Agency. To qualify, conventional loans typically require a credit score of at least 620 and a debt-to-income (DTI) ratio of 50% or less. The minimum down payment requirement is 3%, and once again, you’ll be required to complete a home buying education course to be eligible.
CalPLUS conventional loans take the same 30-year, fixed-rate first mortgage offered by CalHFA and combine it with the CalHFA Zero Interest Program to assist with closing costs. In exchange for the closing cost assistance, this loan will come with a slightly higher interest rate than the CalHFA conventional loan option.
Qualification requirements for this program are the same as other conventional loans, though borrowers should be aware that income limits also apply.
Now that we’ve covered first-time home buyer loans, it’s time to get to the fun part: down payment and closing cost assistance. Your down payment and closing costs make up the bulk of the upfront costs associated with home buying, so if you can lessen these costs, you’re that much closer to reaching your dream of homeownership.
Let’s dive into some of the first-time home buyer programs that you should consider before buying a house in California.
This down payment assistance program is a junior loan with deferred payments in amounts up to 3.5% of the home’s purchase price or appraised value, which can be used toward down payment and closing costs.
The MyHome Assistance Program can be combined with either CalHFA conventional loans or government-backed loans, though with a conventional loan, you’ll only be able to receive up to 3% of the purchase price in down payment assistance, opposed to 3.5% with an FHA loan.
The Forgivable Equity Builder Loan is another great option, helping California families build intergenerational wealth.
This down payment assistance program is only available if paired with one of CalHFA’s first mortgage options. It provides a subordinate loan valued at up to 10% of the home’s purchase price to be used for down payment and closing costs. This loan is forgivable as long as the borrower occupies the home as their primary residence for at least 5 years.
The CalHFA Zero Interest Program is a deferred second mortgage with zero interest that helps cover closing costs. It is only available when combined with CALHFA first mortgage programs, like the CalPLUS conventional and CalPLUS FHA loan options. ZIP assistance is available for up to 4% of the loan amount.
Unlike down payment assistance, which is often offered in the form of a deferred or interest-free loan, grants are offered with no obligation to repay. So depending on your specific housing situation, these grants may be one of the most impactful tools you can utilize as a first-time home buyer.
The Accessory Dwelling Unit (ADU) Grant Program, provided by CalHFA, offers borrowers up to $40,000 to reimburse the pre-development and closing costs involved with constructing an ADU on their property. These costs include site preparation, permits, impact fees, energy reports and more.
An ADU is a secondary unit on your property, sometimes referred to as a granny flat or guest house. They can be a great solution for aging parents you need to have nearby or adult children who are struggling to find a place of their own.
Becoming a homeowner in California can be expensive, though not unattainable. But don’t go it alone – with several first-time home buyer loans and down payment assistance programs available, your journey to homeownership might be simpler than you think.
If you’re ready to begin the mortgage application process, take the first step and get approved with Rocket Mortgage®.
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