For first-time homebuyers, the path to homeownership could be a rocky one. Fortunately, there are options available for obtaining financial help to alleviate some of the burden. MoneyGeek’s comprehensive overview of California first-time homebuyer programs can help you find the program that best meets your needs.
What Is a First-Time Homebuyer Program & How Can It Help?
Before purchasing a home, you must determine how much of a down payment you can afford. Your down payment influences the type and amount of mortgage you qualify for. Smaller monthly payments result from a higher down payment and vice versa. Programs for first-time homebuyers can help with closing costs, the down payment for a new home and getting loans with affordable rates.
In light of the escalating cost of living, saving for a down payment can be a hassle for first-time homeowners. You can still find loan programs that are available to help you finance a house purchase. These include government-backed loans, mortgage loans, state-specific programs for first-time homebuyers and down payment assistance programs.
The residents can qualify for federal homebuyer programs. Similarly, not all individuals qualify for government-backed loans, while only service members are eligible for VA loans. California offers its residents a variety of homebuyer assistance programs, including those administered by the California Housing Finance Agency and State of California Housing and Community Development, as well as CalVet Home Loans.
You might be able to afford the home of your dreams thanks to the state-specific and federal homebuyer assistance programs accessible to you.
Zero-Down-Payment Loan Programs
Zero-down-payment loan programs allow first-time buyers to purchase a home without making any initial payment during the loan closing. No-down-payment options are limited to two types of government-backed loans, including the USDA loan and the VA loan.
Qualified borrowers from rural areas with low to moderate incomes are eligible for USDA house loans offered by the U.S. Department of Agriculture. To be eligible for their low rates, you don't need to have excellent credit or make a down payment.
The following are the three housing loan assistance programs from USDA:
Single Family Housing Direct Home Loan Program: Low- and very-low-income applicants can obtain direct loans in qualifying rural areas
- The Section 502 Guaranteed Loan Program: Loans for borrowers with low and moderate-income through licensed loan lenders to purchase
- The Section 504 Home Repair Program: Helps homeowners finance home upgrades, repairs and modernization
There are income restrictions for each county or state where these loans are available.
For Section 502 loans, your potential home must have a square footage of less than 2,000, cannot have a swimming pool and cannot be used for activities that generate income.
Banks and other private loan lenders offer VA home loans, which are backed by the U.S. Department of Veterans Affairs. However, these loans are only available to active-duty military members, veterans who were discharged with honor and their qualified spouses.
When compared to conventional loans, the advantages of a VA loan make it a competitive option for qualified borrowers. Besides having no loan cap, there are no requirements for a minimum credit score or a down payment.
Plus, VA loans offer low-interest rates and minimal closing costs while not requiring private mortgage insurance (PMI).
The VA offers the following loan types:
- Home purchase loan
- Cash-out refinance loan
- Interest Rate Reduction Refinance Loan (IRRRL)
- Native American Direct Loan (NADL)
Your service history and duration, service characterization and duty status all play a role in whether you qualify for a VA loan. Additionally, needed are a COE or Certificate of Eligibility, income proof and an acceptable credit rating.
Low-Down-Payment Loan Programs
Homebuyers whose savings will only allow for a lower than 20% down payment may want to explore low-down-payment loans. The ideal choice could be a conventional loan or an FHA loan.
Fannie and Freddie (Conventional) Loans
Conventional housing loans are the most prevalent form of home financing for first-time buyers. Funded by private lenders, they have cheaper interest rates and are readily accessible. However, they have stricter borrowing requirements than government-backed loans.
Conventional home loans are classified into two types:
- Conforming loans that adhere to the requirements of Fannie Mae or Freddie Mac
- Non-conforming loans that surpass the limitations set by conforming loan
A 3% down payment may get you approved for a conventional loan if you have private mortgage insurance (PMI) to protect the lender in the event of a loan default.
For a conventional conforming loan, a credit score of 620 is necessary, whereas a conventional non-conforming loan requires a score of 700. However, in each case, your debt-to-income ratio (DTI) should not exceed 45%.
Federal Housing Administration (FHA) loans are offered through private lenders as there is assurance that the loans will be backed by the government. With an FHA loan, you may get a home with as little as a 3.5% down payment, a credit score of 500 and a debt-to-income ratio of 59%.
Even if an applicant does meet the FHA's less stringent standards, it doesn't guarantee they'll get a loan.
You can only qualify for a 3.5% down payment if your credit score is 580 or higher. If your credit score is between 500 and 579, you might have to put 10% down.
FHA loan limits can be different for each state and county, but FHA-approved borrowers can choose between a 15- or a 30-year fixed-rate loan. There is an online loan eligibility tool available on the Department of Housing and Urban Development's (HUD) website that will help you determine what loan amount you might be able to get.
FHA 203(k) loans are meant to assist buyers of properties requiring repairs. Under this program, homebuyers may get a loan to pay the costs of purchasing and fixing a home.
FHA 203(k) loans empower you to fund remodels like structural overhauls, safety hazard fixes and plumbing revamps with financial savvy. Remember that properties participating in this program must meet the HUD's basic requirements for structural stability and energy efficiency.
The FHA 203(k) loan eligibility requirements are similar to those for FHA loans. The minimum down payment is 3.5% for applicants with credit scores of at least 580. A 10% down payment is applicable for those with scores between 500 and 579.
USDA loans: The house you want to buy must be in a rural area with less than 35,000 inhabitants to be eligible for a USDA loan.
VA loans: Military personnel are the only ones who can apply for VA loans.
Fannie and Freddie loans: All that is necessary to get accepted for a conventional or Fannie and Freddie loan is a 3% down payment.
FHA loans: FHA loans provide some of the most flexible conditions regarding credit score, down payment and debt-to-income ratio.
FHA 203(k) loans: You can use an FHA 203(k) loan to improve a fixer-upper that you already own.
California Homebuyer Programs
Besides government-backed federal loans, California residents are eligible for many programs designed to help make homeownership a reality.
MyHome Assistance Program
MyHome Assistance Program offers FHA loans and conventional loans of up to $10,000 as down payment assistance through approved lenders for first-time homebuyers. You must own the property as your primary residence and must successfully complete a homebuyer education counseling session to be eligible.
First Home Mortgage Program
For first-time homebuyers, the Home Ownership Program (HOP) offers a second mortgage loan with assistance of up to $85,000 or 20% of the property price, whichever is smaller. It also provides closing or down payment assistance, as well as interest-free loans with delayed payments.
HUD Resources California
The U.S. Department of Housing and Urban Development provides California homebuyers with many programs to help them own a house. These include programs from the California Housing Finance Agency (CalHFA), CalVet Home Loans, homeownership assistance from Community contacts and Habitat for Humanity and more.
FAQs for First-Time Homebuyer Programs in California
To help you get started on the path to homeownership, MoneyGeek has given answers to some commonly asked questions about first-time homebuyer programs in California.
- CalHFA. "MyHome Assistance Program." Accessed September 26, 2022.
- U.S. Department of Agriculture. "Rural Development Single Family Housing Direct Loan Program." Accessed September 26, 2022.
- U.S. Department of Agriculture. "Single Family Housing Direct Home Loans." Accessed September 26, 2022.
- U.S. Department of Agriculture. "Single Family Housing Guaranteed Loan Program." Accessed September 26, 2022.
- U.S. Department of Agriculture. "Single Family Housing Repair Loans and Grants." Accessed September 26, 2022.
- U.S. Department of Housing and Urban Development. "203(k) Rehab Mortgage Insurance." Accessed September 26, 2022.
- U.S. Department of Housing and Urban Development. "FHA Mortgage Limits." Accessed September 26, 2022.
- U.S. Department of Housing and Urban Development. "Homeownership Assistance: California." Accessed September 26, 2022.