Who is a "First Time Home Buyer"?
If you have not purchased in 3 yrs, You are a "First-Time" Buyer
While it may seem like an intimidating process, purchasing and owning your first home is an attainable goal. It’s made even more attainable through mortgage programs specifically geared toward first-time homebuyers. There are programs offered by both the federal government and the California state government.
Federal First-Time Home Buyer Programs
Before we break down the programs specifically for California residents, we’ll discuss a handful of federal home buyer programs available to people in all states. Be sure to consider both national and state options when going through your mortgage search
FHA Loans
Pros
- Low down payment requirements
- Don’t need a high credit score for approval
Cons
- Larger down payment needed for those with a credit score beneath 580
Eligibility
- As little as a 3.5% down payment
- Credit score must be 580 or above
Best For...
- Those who don’t have a great credit history and money for a down payment
A Federal Housing Administration (FHA) mortgage is one of the best loan options for a first-time homebuyer. It has few eligibility requirements and they’re all easy to meet, meaning it offers many Americans the chance to take advantage of its benefits. First and foremost your down payment can be as low as 3.5% of your new home’s value. (If your FICO® credit score is below 580, that minimum could rise as high as 10%.)
Compare this to a conventional mortgage, which typically requires a 20% down payment, and you can understand why so many homebuyers take advantage of the program.
VA Loans
Pros
- Can have up to 100% loan coverage of your home’s value
- Usually come with lower closing costs than conventional loans
Eligibility
- Must be a current or former military member, their spouse or other eligible beneficiary
- Must have a credit score of 580 or higher
Best For...
- Veterans
As you might expect, a VA loan is tailor-made for current military members, veterans and their spouses, as well as other beneficiaries the Department of Veterans Affairs deems eligible. However, the VA doesn’t physically lend you the money. Instead, it insures your loan in conjunction with an outside lender. You are required to pay a VA funding fee for these loans ranging from 1.25% to 2.4% depending on how much you’re putting toward your down payment, but this waived altogether if the veteran has a service-related disability rating of 10 percent or more.
The main draw of a VA loan is its lack of a down payment requirement, meaning it can be used to pay for the entire value of your home. The VA also lowers the closing costs typically associated with these mortgages, helping to keep your initial costs as low as possible.
USDA Loans
Pros
- No down payment required
- Can be used to cover up to 100% of your new home’s price
- Doesn’t call for a great credit score
Cons
- You must purchase in areas delegated as "rural"
Eligibility
- Household income cannot be more than 115% of the median income for that area
- Must be purchasing a home within an eligible rural area: see here for map https://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do
Best For...
- Low-to-mid income Americans looking to live in a rural or semi-rural area
A United States Department of Agriculture (USDA) mortgage doesn’t require a down payment. Even applicants with a scarred credit history will usually get a USDA loan, as the credit stipulations attached to this type of loan are fairly easy to fulfill.
To be eligible for a USDA loan, the home must be in a recognized and approved rural or semi-rural area. Income limits apply.
Fannie Mae/Freddie Mac
Pros
- Very low down payment stipulations
- Little to no credit needed for approval
- Many loan styles available
Cons
- Could come with higher interest rates
Eligibility
- In some cases, no income requirements in underserved areas
Best For...
- Anyone who is looking for a low down payment loan option, but doesn’t qualify for any of the above options
The Home Possible® mortgage from Freddie Mac requires just a 3% down payment, which is why you may see it called a 97% LTV loan. LTV means “loan-to-value,” or what percentage of your new home’s value will be covered by the loan. It comes with cancellable mortgage insurance as well.
Fannie Mae’s answer to Home Possible loans is the HomeReady Mortgage which calls for a 3% down payment. All you need to do to qualify is have a FICO® credit score of 620 or above and have an income less than or around the U.S. median. Private mortgage insurance is necessary for this loan, though it can be cancelled after you’ve grown to own at least 20% equity in your home.
California First-Time Home Buyer Programs
CalHFA & CalPLUS Conventional Loan Programs
Pros
- These can be paired with different programs to customize your loan to what you need
Cons
- Higher interest rates for CalPLUS
Eligibility
- Must be a single-family home
- Cannot be worth more than county price guidelines
- Have to attend homebuyer education
- Min Fico is 680
Best For...
- Anyone searching for a standard loan with closing cost and down payment assistance
The CalHFA and CalPLUS loans are both part of California’s conventional loan program, and both are 30-year fixed-rate mortgages, although the CalPLUS is fully amortized. These are fairly standard loans with solid interest rates, though each must be privately insured. To get better benefits, these mortgage options can be paired with the CalHFA Zero Interest Program and Extra Credit Teacher Home Purchase Program. To be eligible for this loan, your annual income can’t exceed the limit set by your county, which range from $118,550 to $228,300.
California set up the Zero Interest Program to provide borrowers closing cost assistance, and this is only eligible for CalPLUS applicants. On the other hand, the Extra Credit Teacher Home Purchase Program is reserved for CalHFA loan borrowers who are first-time homebuyers and a teacher, school district employee, school administrator or another kind of school staff member. This closing cost/down payment assistance can be for anywhere from $7,500 to $15,000.
CalHFA FHA & CalPLUS FHA Loan Programs
Pros
- Can be paired with other programs
Cons
- CalPLUS FHA loans receive higher interest rates
Eligibility
- Single-family homes only
- Home must meet county price guidelines
- Have to attend homebuyer education
Best For...
- Because its a consumer paid loan its best for Applicants receiving seller credits
FHA-insured CalHFA FHA and CalPLUS FHA loans are 30-year fixed-rate mortgages. Aside from the backing from the FHA, these loans are identical to the conventional CalHFA and CalPLUS loans listed above. That means that the CalHFA FHA loan is eligible for the Extra Credit Teacher Home Purchase Program, and the CalPLUS FHA is matched with the Zero Interest Program.
MyHome Assistance Program
Pros
- Can be up to 3.5% of your home’s value to cover closing costs or a down payment
- Payments are deferred until the home is sold, paid off, refinanced
Cons
- Stringent application stipulations
Eligibility
- For only first-time homebuyers
- Must be a single-family home
Best For...
- Middle- to low-income individuals who need help paying a down payment and/or closing costs
In order to help qualified Californians pay their closing costs and put down an initial payment, it created the MyHome Assistance Program. For those who are eligible, you could get up to 3.5% of your home’s price back as a deferred-payment loan. That means that until you refinance, pay off your existing mortgage or you sell the home, you will not be required to start making payments. You cannot take advantage of this offer unless you already have a CalHFA first mortgage loan.
School Teacher and Employee Assistance Program
Pros
- Get a loan for up to 4% of your home’s value to use toward a down payment or closing costs
- You pay nothing on the loan until the home is sold, refinanced or fully paid off
Cons
- Can only be combined with a CalHFA first mortgage loan
Eligibility
- Solely for teachers, administrators and employees at K-12 public schools in California
- Must be a first-time homebuyer purchasing a single-family home
Best For...
- Eligible applicants with less for a down payment
Any K-12 public school teachers, administrators and other employees can take advantage of the School Teacher and Employee Assistance Program. You can combined this with some first-time homebuyer mortgages through CalHFA, and it’s meant to aid you in paying your down payment and any closing costs. You can get back with this second mortgage as much as 4% of the purchase price of your home. Like some of the other programs on this list, until you sell your new home, fully pay it off or you choose to refinance, you do not have to make payments.
Tips for Navigating the Home Buying Process
A mortgage is likely the largest loan that you’ll ever take out during your lifetime. That’s one reason it’s a good idea to work with an adviser who can help you understand how it will impact your finances. As Independent Mortgage Brokers we are knowledgeable about programs in your area and are equipped to handle your situation. Get Started
