California First Time Home Buyers
First time home buyer programs
Today many first time homebuyers rely on home buyer assistance programs. Per the FHA (Federal Housing Administration) definition you are a "first-time home buyer" if:
you've never owned a home or if you have not been an owner in a primary residence for at least three years before your purchase (if you have owned a home but your spouse has not, then you can buy a home together as first-time homebuyers).
you divorce your current spouse or become displaced from your spouse in any way (however, the only primary residence you have ever owned must be with your ex-spouse. In addition, you must be a parent.)
you've owned a primary residence within three years of your purchase but your primary residence has not been permanently attached to anything, like a foundation (e.g living in a mobile home or RV).
you have owned just one piece of property and it has sustained damage that doesn’t measure up to local and state building codes, and the cost to fix the property is more than it would cost to build a new property.
There are more than 2,500 home buyer programs nationally, including loans, grants, tax credits and other programs for eligible homebuyers. The 3 most common types of these programs are:
1. Down Payment Assistance Programs - 72% of the home buyer programs are down payment assistance and closing cost programs. DPA programs come in 2 primary forms - grants which do not have to be paid back, and second mortgage loans with varying payback or loan forgiveness provisions.
2. Affordable First Mortgages - these mortgages are offered by many larger housing finance agencies, particularly at the state level, to accompany their down payment assistance programs. Funds can be used to acquire, build (including purchase and prepare sites and provide water and sewage facilities), repair, renovate or relocate a home.
3. Mortgage Credit Certificates (MCC) - This is an annual federal income tax credit designed to help first-time homebuyers offset a portion of their mortgage interest on a new mortgage as a way to help qualify for a loan. As a tax credit, not a tax deduction, the MCC helps reduce your annual taxes dollar for dollar.
Other assistance programs include Government-Backed Loans, Tax Credits, Closing Assistance, Home Buyer Education.
To find first-time home buyer assistance programs both nationally and in California, check out the following list.
National First-Time Home Buyer Programs
FHA, Federal Housing Administration is the largest insurer of residential mortgages in the world that provides mortgage insurance on loans made by FHA-approved lenders. FHA insures these loans on single family and multi-family homes in the United States and its territories. FHA loans are a good option for first-time homebuyers who may not have saved enough for a large down payment. Even borrowers who have suffered from bankruptcy or foreclosures may qualify for an FHA-backed mortgage.
FHA Loan requirements are:
FICO® score at least 580 = 3.5% down payment.
FICO® score between 500 and 579 = 10% down payment.
MIP (Mortgage Insurance Premium ) is required.
Debt-to-Income Ratio < 43%.
The home must be the borrower's primary residence.
Borrower must have steady income and proof of employment.
USDA Rural Development operates over fifty financial assistance programs for a variety of rural applications, including assistance programs for homebuyers.
The program assists approved lenders in providing low- and moderate-income households the opportunity to own homes in eligible rural areas. Eligible applicants may buy, build, rehabilitate, improve or relocate a dwelling in an eligible rural area. Closing cost and reasonable/customary expenses associated with the purchase may be included in the transaction too. The program provides a 90% loan note guarantee to approved lenders in order to reduce the risk of extending 100% loans to eligible rural homebuyers.
Also known as the Section 502 Direct Loan Program, this program assists low- and very-low-income applicants obtain housing in eligible rural areas by providing payment assistance to increase an applicant’s repayment ability. Payment assistance is a type of subsidy that reduces the mortgage payment for a short time. The amount of assistance is determined by the adjusted family income.
There is a fixed interest rate based on current market rates at loan approval or loan closing, whichever is lower. The interest rate when modified by payment assistance, can be as low as 1%. The payback period is up to 33 year and with a 38 year payback period for very low income applicants who can’t afford the 33 year loan term. No down payment is typically required. Applicants with assets higher than the asset limits may be required to use a portion of those assets. At a minimum, applicants interested in obtaining a direct loan must have an adjusted income that is at or below the applicable low-income limit for the area where they wish to buy a house and they must demonstrate a willingness and ability to repay debt.
VA Home Loans
The U.S. Department of Veterans Affairs helps Service members, Veterans, and eligible surviving spouses become homeowners by providing a home loan guaranty benefit and other housing-related programs to help them buy, build, repair, retain, or adapt a home for their own personal occupancy.
VA Home Loans are provided by private lenders, such as banks and mortgage companies. VA guarantees a portion of the loan, enabling the lender to provide you with more favorable terms.
Often called a “streamline” refinance, an IRRRL may help those who have an existing VA-backed home loan to lower their monthly mortgage payment by getting them a lower interest rate, or make their monthly payments more stable by moving from a loan with an adjustable or variable interest rate to one that’s fixed.
Eligible applicants must already have a VA-backed home loan, and must be using the IRRRL to refinance their existing VA-backed home loan. They also must be able to certify that they currently live in or used to live in the home covered by the loan. Please note that if you have a second mortgage on the home, the holder must agree to make your new VA-backed loan the first mortgage.
The Native American Veteran Direct Loan (NADL) program helps eligible Native American Veterans and their spouses finance the purchase, construction, or improvement of homes on Federal Trust Land, or refinance a prior NADL to reduce the interest rate.
Some of the benefits of the program are:
The lender is the Department of Veterans Affairs
No downpayment and easy to qualify
No Private Mortgage Insurance cost
3.75% interest rate and low closing costs
Fixed-rate 30-year mortgage
SHA grants help Veterans with certain service-connected disabilities adapt or purchase a home to accommodate the disability. The SHA grants can be used to either adapt an existing home the Veteran or a family member already owns in which the Veteran lives or adapt a home the Veteran or family member intends to purchase in which the Veteran will live, or help a Veteran purchase a home already adapted in which the Veteran will live.
HFA Preferred is a conventional loan available to eligible first-time or seasoned homebuyers with low to moderate incomes. You must work directly with your local housing finance agency (HFA) or an approved lender within their network to be considered for this loan. If you qualify for financing, the HFA or lender will guide you throughout the loan underwriting process until you complete the purchase of your home.
An HFA Preferred mortgage offers a down payment as low as 3%, low monthly mortgage insurance, cancellable mortgage insurance (unlike government-insured loans, you may have the option to cancel your mortgage insurance once your home equity reaches 20%, which means lower monthly payments down the road).
MH Advantage™ is a mortgage loan for manufactured homes that have features typical of traditional single-family homes. It offers traditional 30-year fixed rate financing with benefits that exceed standard manufactured home loans. MH Advantage offers down payments as low as 3%, interest rates lower than most traditional manufactured home loans, and cancellable mortgage insurance. Plus, it may be combined with a HomeReady mortgage for additional benefits.
Law enforcement officers, pre-Kindergarten through 12th grade teachers, firefighters and emergency medical technicians are eligible to become homeowners through HUD's Good Neighbor Next Door Sales Program. HUD offers a substantial incentive in the form of a discount of 50% from the list price of the home. In return you must commit to live in the property for 36 months as your sole residence.
You should check the listings for your state and then follow the instructions to submit your interest in purchasing a specific home. If more than one person submits an offer on a single home a selection will be made by random lottery. HUD requires that you sign a second mortgage and note for the discount amount. No interest or payments are required on this "silent second" provided that you fulfill the three-year occupancy requirement.