California First-Time Home Buying Assistance Programs & Grants for 2023

California First-Time Home Buying Guide

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    By Walecia Konrad

    (Last Updated – 07/2023)

    If you’re house hunting in California, you don’t need anyone to tell you it’s pricey.

    The median home price in California in April 2022 was $846,500, according to Redfin. That’s a 13.3% increase from the same time last year. But before you get too discouraged, keep in mind those figures are fueled by the overheated top 10 markets in the state, which saw price increases of 33% to 44%. Many other areas of the state have more down-to-earth home prices.

    Fortunately, California has an active first-time homebuyer assistance program that mirrors many federal mortgage programs. This can help make owning a piece of the Golden State a reality instead of just a dream.

    Who Is Considered a First-Time Homebuyer in California?

    The definition of first-time homebuyer is broader than it seems at first glance.

    In California and elsewhere, a first-time buyer is anyone who has not owned a primary home in the past three years.

    8 California Programs for First-Time Homebuyers

    The California Housing Finance Agency (CalHFA) offers both conventional and government-backed first mortgages. Down payment and/or closing cost assistance is available in many of the programs.

    For all of the loans listed below, buyers must have a minimum credit score of 640, 660, or 680, depending on certain factors, and meet income limits Homebuyer education counseling is required by one occupying household member.

    California Housing mortgages can be used for single-family homes, condominiums, planned unit developments, manufactured housing, and in some cases guesthouses and accessory dwelling units.

    Here’s a closer look at the agency’s programs for a first-time homebuyer.

    1. CalHFA FHA Loan

    This program offers a 30-year fixed-rate mortgage to first-time buyers. The FHA loan can be combined with the CalHFA down payment assistance programs. In addition to the requirements listed above, debt-to-income limits may apply.

    2. CalPLUS FHA Loan

    This 30-year fixed-rate FHA loan has a slightly higher interest rate than the FHA loan listed above but can be paired with CalHFA Zero Interest Program closing cost assistance.

    3. CalHFA VA Loan

    A 30-year fixed-rate VA mortgage is available to veterans who can show a valid certificate of eligibility. Borrower requirements may differ slightly from the CalFHA programs; qualifying veterans may need to make no down payment.

    4. CalHFA USDA Loan

    This 30-year fixed-rate mortgage loan is guaranteed by the USDA and can be combined with the MyHome down payment assistance program for first-time homebuyers. The USDA has its own income limits, which may be more restrictive than CalHFA limits. (See below for more information on USDA loans.)

    5. CalHFA Conventional Loan

    This is a 30-year fixed-rate loan that is insured through private mortgage insurance instead of the government. Buyers must meet the same requirements as CalHFA government-backed loans listed above.

    6. CalPLUS Conventional Loan

    This 30-year fixed-rate loan has a slightly higher interest rate than a CalHFA conventional loan but is paired with a 0% interest, deferred-payment junior loan of up to 3% of the first mortgage to be used for closing costs.

    7. MyHome Down Payment Assistance

    The MyHome program works with CalHFA government and conventional first mortgages.

    Borrowers of government-backed mortgages can apply for a junior loan of up to 3.5% of the home purchase price (or the appraised value, whichever is less) to help with down payment and closing costs. Payments are deferred until you sell the home, refinance your mortgage, or pay your mortgage in full.

    Conventional loan borrowers may be eligible for a MyHome loan as well. But in this case the junior loan is up to 3% of the home purchase price (or appraised value, whichever is less).

    8. Forgivable Equity Builder Loan

    Designed to give first-time homebuyers a jump on building home equity, this program offers qualified CalHFA first mortgage borrowers up to 10% of the home purchase price for down payment assistance. The loan is forgivable in five years as long as the buyer occupies the home as a primary residence for that time period.

    Income limits apply. Buyers are typically required to make less than 80% of their county’s annual median income.

    Recommended: First-Time Home Buyer Guide

    How to Apply to California Programs for First-Time Homebuyers

    The California Housing Finance Agency website provides details on each of its mortgage, down payment, and closing costs programs. Also on the website is an interactive tool that buyers can use to determine if they are eligible for CalHFA programs and if so, which program might best suit their situation. The agency does not lend directly but does list participating lenders . It’s especially important for first-time buyers, who may be unfamiliar with the mortgage lending process, to compare interest rates, fees, and other costs among lenders to find the most affordable loan.

    Recommended: Understanding the Different Types of Mortgage Loans

    Federal Programs for First-Time Homebuyers

    Several federal government programs are designed for people who have low credit scores or limited cash for a down payment. Although most of these programs are available to repeat homeowners, like state programs, they can be especially helpful to people who are buying a first home or who haven’t owned a home in several years.

    The mortgages are generally for single-family homes, two- to four-unit properties that will be owner occupied, approved condos, townhomes, planned unit developments, and some manufactured homes.

    Federal Housing Administration (FHA) Loans

    The FHA, which is part of the U.S. Department of Housing and Urban Development (HUD), insures mortgages for borrowers with lower credit scores. Homebuyers choose from a list of approved lenders that participate in the program. Loans have competitive interest rates and require a down payment of 3.5% of the purchase price for borrowers with FICO credit scores of 580 or higher. Those with scores as low as 500 must put at least 10% down.

    Gift money for the down payment is allowed from certain donors and will be documented in a gift letter for the mortgage.

    FHA loans always require mortgage insurance: a 1.75% upfront fee and annual premiums for the life of the loan, unless you make a down payment of at least 10%, which allows the removal of mortgage insurance after 11 years. You can learn more about FHA loans in general and FHA lending limits by area.

    Freddie Mac Home Possible Mortgages

    Very low- and low-income borrowers may make a 3% down payment on a Home Possible® mortgage. These loans allow various sources for down payments, including co-borrowers, family gifts, employer assistance, secondary financing, and sweat equity.

    The Home Possible mortgage is for buyers who have a credit score of at least 660.

    Once you pay 20% of your loan, the Home Possible mortgage insurance will be canceled, which will lower your mortgage payments.

    Fannie Mae HomeReady Mortgages

    Fannie Mae HomeReady® Mortgages allow down payments as low as 3% for low-income borrowers. Applicants generally need a credit score of at least 620; pricing may be better for credit scores of 680 and above. Like the Freddie Mac program, HomeReady loans allow flexibility for down payment financing, such as gifts and grants.

    For income limits, a comparison to an FHA loan, and other information, go to this Fannie Mae site .

    Fannie Mae Standard 97 LTV Loan

    The conventional 97 LTV loan is for first-time homebuyers of any income level who have a credit score of at least 620 and meet debt-to-income criteria. The 97% loan-to-value mortgage requires 3% down. Borrowers can get down payment and closing cost assistance from third-party sources.

    Department of Veterans Affairs (VA) Loans

    Active-duty members of the military, veterans, and eligible family members may apply for loans backed by the Department of Veterans Affairs. VA loans , to buy, build, or improve homes, have lower interest rates than most other mortgages and don’t require a down payment. Most borrowers pay a one-time funding fee that can be rolled into the mortgage.

    Native American Veteran Direct Loans (NADLs)

    Eligible Native American veterans and their spouses may use these no-down-payment loans to buy, improve, or build a home on federal trust land. Unlike VA loans listed above, the Department of Veterans Affairs is the mortgage lender on NADLs. The VA requires no mortgage insurance, but it does charge a funding fee.

    U.S. Department of Agriculture (USDA) Loans

    No down payment is required on these loans to moderate-income borrowers that are guaranteed by the USDA in specified rural areas. Borrowers pay an upfront guarantee fee and an annual fee that serves as mortgage insurance.

    The USDA also directly issues loans to low- and very low-income people. For loan basics and income and property eligibility, head to this USDA site .

    HUD Good Neighbor Next Door Program

    This program helps police officers, firefighters, emergency medical technicians, and teachers qualify for mortgages in the areas they serve. Borrowers can receive 50% off a home in what HUD calls a “revitalization area.” They must live in the home for at least three years.

    California First-Time Homebuyer Stats for 2022

    This is a snapshot of the recent home buying experience in California.

    •  Median home sale price: $846,500

    •  3% down payment: $25,400

    •  20% down payment: $169,300

    •  Average credit score(vs. 714 nationwide): 721

    •  State and local property tax collection per capita (vs., say, Wyoming’s $2,062): $1,840

    Financing Tips for First-Time Homebuyers

    In addition to federal and state government-sponsored lending programs, there are other financial strategies that may help you become a homeowner. Some examples:

    •  Traditional IRA withdrawals. The IRS allows qualifying first-time homebuyers a one-time, penalty-free withdrawal of up to $10,000 from their IRA if the money is used to buy, build, or rebuild a home. The IRS considers anyone who has not owned a primary residence in the past three years a first-time homebuyer. You will still owe income tax on the IRA withdrawal. If you’re married and your spouse has an IRA, they may also make a penalty-free withdrawal of $10,000 to purchase a home. The downside, of course, is that large withdrawals may jeopardize your retirement savings.

    •  Roth IRA withdrawals. Because Roth IRA contributions are made with after-tax money, the IRS allows tax- and penalty-free withdrawals of contributions for any reason as long as you’ve held the account for five years. You may also withdraw up to $10,000 in earnings from your Roth IRA without paying taxes or penalties if you are a qualifying first-time homebuyer and you have had the account for five years. With accounts held for less than five years, homebuyers will pay income tax on earnings withdrawn.

    •  401(k) loans. If your employer allows borrowing from the 401(k) plan that it sponsors, you may consider taking a loan against the 401(k) account to help finance your home purchase. With most plans, you can borrow up to 50% of your 401(k) balance, up to $50,000, without incurring taxes or penalties. You pay interest on the loan, which is paid into your 401(k) account. You usually have to pay back the loan within five years, but if you’re using the money to buy a house, you may have up to 15 years to repay.

    •  State and local down payment assistance programs. Usually offered at the regional or county level, these programs provide flexible second mortgages for first-time buyers looking into how to afford a down payment.

    •  The mortgage credit certificate program. First-time homeowners and those who buy in targeted areas can claim a portion of their mortgage interest as a tax credit, up to $2,000. Any additional interest paid can still be used as an itemized deduction. To qualify for the credit, you must be a first-time homebuyer, live in the home, and meet income and purchase price requirements, which vary by state. If you refinance, the credit disappears, and if you sell the house before nine years, you may have to pay some of the tax credit back. There are fees associated with applying for and receiving the mortgage credit certificate that vary by state. Often the savings from the lifetime of the credit can outweigh these fees.

    •  Your employer. Your employer may offer access to lower-cost lenders and real estate agents in your area, as well as home buying education courses.

    •  Your lender. Always ask your lender about any first-time homebuyer grant or down payment assistance programs available from government, nonprofit, and community organizations in your area.

    The Takeaway

    California may well be one of the priciest markets for first-time homebuyers to break into, but state programs make it easier for some of them to call the Golden State home. Other first-time buyers can explore government-backed and conventional loans on their own.

    Make your dream of being a homeowner come true with SoFi’s competitive mortgage rates and down payments as low as 3% for qualifying first-time homebuyers.

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    Should I take first-time homebuyer classes?

    Yes! Good information is key to a successful home-buying experience for anyone, but especially for newcomers, who can easily be overwhelmed by the jargon, technicalities, and magnitude of applying for a mortgage and purchasing a home. First-time homebuyer classes can help. Indeed they are required for some government-sponsored loan programs.

    Do first-time homebuyers with bad credit qualify for homeownership assistance?

    Often they do. Many government and nonprofit homeowner assistance programs are available to people with low credit scores. And often, interest rates and other loan pricing are competitive with those of loans available to borrowers with higher credit scores. That said, almost any lending program has credit qualifications.

    Is there a first-time homebuyer tax credit in California?

    Yes. Some county agencies issue mortgage credit certificates, as funding allows. The California Housing Finance Agency no longer does. Your participating lender or real estate agent can provide you with information about a mortgage credit certificate.

    Is there a first-time veteran homebuyer assistance program in California?

    Yes. CalHFA offers a VA loan to first-time borrowers. California veterans may also may find options in the federal VA loan programs listed above.

    What credit score do I need for first-time homebuyer assistance in California?

    CalHFA programs require a credit score of 640, 660, or 680, depending on certain factors. There are other private, state, and federal loan programs that borrowers with lower scores may be able to access.

    What is the average age of first-time homebuyers in California?

    There seems to be little data about California first-timers, but the average age nationally is 33.

    Photo credit: iStock/trekandshoot

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