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California First Time Home Buyer Guide | Mortgage Tips & Free Quote

First Time Home Buyer - CA

FIRST TIME HOME BUYER CALIFORNIA

The California Housing Finance Agency (CalHFA) was established in 1975 to help low and moderate income Californians get safe and affordable housing. With those goals in mind, CalHFA covers two core offerings: low interest rate mortgage programs and down payment assistance programs.

Just so you know, CalHFA is a self-supporting California state agency; and just like the much larger Federal Housing Administration (FHA), it does not use taxpayer money. Nor does it lend directly to consumers. Private lenders underwrite the actual loans.

At the very highest level, there are really only two things we need to keep straight. Down payment assistance programs (DAPs) help offset or completely cover the upfront costs associated with getting a loan. Second, CalHFA defines and manages home loan programs.

Think of these two core offerings a Lego blocks that can sometimes be stacked on top of one another. You see, some loan programs can be stacked (combined) with down payment assistance programs. Conversely, some loan programs cannot be stacked with down payment assistance programs. We’ll get into the nitty gritty of this down below.

The goal of this article is to explain first time home buyer programs in California in plain English. CalHFA’s website is cumbersome, in fact it’s not very helpful to the average reader. Hopefully you’ll find our spin on it useful.

So here’s what we’re going to do.

  • Review some down payment assistance programs
  • Review some loan programs
  • Then glue them together with a few examples (stack some Legos if you will)

We’ll also cover some of the borrower and property requirements to qualify.

Let’s get started.

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CalHFA DOWN PAYMENT ASSISTANCE PROGRAMS

There are three main programs that help borrowers cover closing costs. Each can be combined with loan programs so if you see the name of a loan program at this point, don’t worry, we’ll get to them later.

MyHome Assistance Program

MyHome is a small loan, up to 5% of the home sales price or appraised value (whichever is less). It helps cover the down payment and/or closing costs. It has some very generous features:

  • Covers 5% of the sales price or appraised value
  • Offered at a very low 3% interest rate
  • Deferred payment (explained below)

So let’s say MyHome above is combined with a CalHFA loan. Here’s what that means:

  • Borrower takes out a CalHFA loan which is a “first position lien”
  • Borrower takes out the smaller MyHome loan to cover closing costs, which becomes a “second position lien” that sits on top of the first lien

Remember a few paragraphs ago we brought up the term deferred payment? That means that the borrower does not make payments while living in the home. The loan is paid off when the borrower sells or transfers the property to a new owner or moves out (no longer his or her primary residence).

Zero Interest Program (ZIP)

ZIPs are an additional loan (like MyHome above) that sits on top of the first loan. What’s interesting is that ZIPs can be stacked on top of MyHome (yep, you can combine all three).

  • Combined with CalPlus loans (just so you know, the word “Plus” in the name of a loan program means ZIP is added to it)
  • 3% of the first mortgage amount
  • 0% interest rate (yep, zero percent)
  • Deferred payment

Extra Credit Teach Home Purchase Program (ECTP)

ECTP is a down payment assistance program for people who work in high priority schools in California. If you are a teacher, administrator, classified employee or staff member working in such schools, you may be eligible. Here’s how they work:

  • Junior loan (second lien position)
  • Deferred payment
  • Not to exceed the greater of $7,500 or 3% of the sales price
  • Or in CalHFA-defined high cost areas an amount not to exceed the greater of $15,000 or 3% of the sales price.

So that covers the California downpayment assistance options. Now lets jump into the loan programs.

CalHFA CONVENTIONAL LOANS

CalPLUS Conventional Loan Program

  • Up to 97% loan to value
  • Private mortgage insurance required
  • 30 year term
  • More forgiving with borrower’s credit scores
  • Combined with CalHFA Zero Interest Program (ZIP) which covers down payment and/or closing costs
  • Bottom line: zero down from borrower offset by slightly higher interest rate, slightly higher mortgage payment

CalHFA Conventional Loan Program

  • Up to 97% loan to value
  • Private mortgage insurance required
  • 30year term
  • Borrowers have good to excellent credit
  • Bottom line: small down from borrower, slightly lower interest rate, slightly lower mortgage payment

CalFHA GOVERNMENT INSURED LOANS

CalPLUS FHA

  • Up to 96.5% loan to value
  • Mortgage insurance is required
  • 30 year term
  • More forgiving credit scores
  • Combined with CalHFA Zero Interest Program (ZIP) that covers down payment and/or closing costs
  • Bottom line: zero down from borrower offset by slightly higher interest rate, slightly higher mortgage payment

CalHFA FHA

  • Mortgage insurance is required
  • 30 year term
  • More forgiving credit scores
  • Combined with CalHFA Zero Interest Program (ZIP) that covers down payment and/or closing costs
  • Bottom line: small down from borrower, lower interest rate, lower mortgage payment

Cal-EEM + Grant Program

This loan combines a FHA-insured mortgage with an additional grant. Grants are free money (you don’t have to pay grants back). However, the proceeds need to be used to improve the energy efficiency of the property you buy. Meaning, you spend the money on things like insulation, a new HVAC system, weatherization, solar panels, etc.

COMBINING PROGRAMS

Here’s a little thing I call “stacking” or combing CalHFA programs. Let’s say you wanted to buy a home with a sales price of $250,000. The final price, after adding in closing costs, would approximately be $260,000.

  • $250,000 sales price +
  • $10,000 closing costs
  • = 260,000 needed to close

However, the transaction could happen with no out-of-pocket expenses for the borrower (also known as a “zero down” loan). Here’s how stacking CalHFA programs could achieve that.

  • $240,292 (CalPLUS Conventional loan covers 97%)
  • $12,000 (MyHome covers 5%)
  • $7,280 (ZIP covers 3% of the first mortgage)
  • = $260,000

ELIGIBILITY AND REQUIREMENTS

CalHFA Borrower Eligibility

Most of the programs (mortgages and DAPs) share some high-level, common borrower eligibility requirements. Programs may vary slightly in terms of income limits, credit scores, etc. Your loan officer can help get further into the details, but here are some common requirements:

  • Must be a U.S. citizen, qualified alien or permanent resident
  • Must meet CalHFA requirements and lender requirements for each program (lenders can add their own, additional requirements which are called “lender overlays”)
  • Borrowers must live in the home for the entire term or until it is sold or refinanced
  • Borrowers must complete homebuyer education course (details below)
  • Some down payment assistance programs require that the borrower is a first time home buyer (defined as not owning a home within the last three years)

You can even use CalHFA’s eligibility calculator to find out which program will work for you.

CalHFA Property Eligibility

Each California first time home buyer program has its own property eligibility requirement. However, here are the most common requirements:

  • Located in California (obviously)
  • Owner-occupied and primary residence
  • Sales price cannot exceed county loan limits
  • Property cannot exceed 5 acres
  • Dwelling must be single-family residence (SFR) but some guest houses, granny units and in-low quarters may be eligible
  • Condos and some Planned Unit Developments (PUDs) may be eligible

Homebuyer Education Requirement

If the borrower (or one of the borrowers if there are more than one) is a first time home buyer, he or she must take a home buyer education course. The course can conveniently be taken online and costs about $50. It’s an eight-hour course, and when finished, you’ll receive a certificate of completion. There are also local, in-person course options through NeighborWorks America and HUD-approved counseling agencies.

SUMMARY

CalHFA manages mortgage and downpayment assistance programs for first time home buyers in California. They help reduce friction for people with low and medium incomes to own a home.