First time home buyer programs CA
The thought of owning a first home is nothing short of exciting. However, there is much that comes with buying the first home, and it is fine to have multiple questions regarding what to do or where to get help, especially in matters of closing costs or down payment assistance.
What most people remain unaware of, is the multiple first time home buyer programs in CA and grants that make owning a first home affordable. This article will offer a guide of the top loans, programs, and national grants that will see you in your first home without meeting the required high down payment and closing fees.
Who is a First Time Home Buyers California?
•First Time Home Buyers California is a term used to refer to an individual who has never owned a home before. However, the definition encompasses a broader explanation, for example, not having owned a home within the previous three years. These and other prospective homebuyers who are unable to pay up the down payment for a house do qualify for first time loan programs CA and home buyer grants.
This shows that you do not to be a complete novice in the real estate world for you to qualify as a First Time Home Buyers California. The U.S government and other private lenders have different programs that help people achieve the American dream - homeownership
Why owning a house is a good idea
Over the years, the U.S mortgage rates have remained attractively low, making it easier to predict the monthly payment of a 15 to 30-year old fixed-rate mortgage compared to when you would have been paying rent for the same years as rental prices tend to rise regularly. Even with an adjustable-rate mortgage, you also know what you are to get in the future as the cap is fixed.
Homeownership offers a great way that people can use to build up their wealth with little money to get started. This means that buying a home is similar to leveraging investment, while the benefits include building equity. However, as we learned during the housing crisis, the real estate market does not always go up, and therefore, the need to consider your lifestyle and the budget when buying a home.
Owning a home in a great neighborhood such as a good school district offers access to great amenities, which help raise the value of the property. The homeowner also gets to settle and develop strong bonds and great friendships in the community and also practice self-autonomy and independence.
Qualifying for a home
It can be quite challenging to qualify for a home. Since the housing crisis, the prices of homes have been skyrocketing and are currently at all-time highs. On the other hand, wages have been stagnating to the worst with rising consumer debt.
These are general economic conditions that, while they might not apply to your financial situation, play a great role in determining the available housing options. Therefore, we do advise that you assess your finances with the following.
The home you can afford
When looking to get your first home or a home in general, you want to start by determining your debt-to-income ratio. This lets you know how much debt you have compared to your income. We advise that not more than 36% of your income should be spent on buying and furnishing home payments.
However, the ideal ratio for the homeowners association, homeowners insurance, real estate taxes, and mortgage payments should not exceed 28%. It should only get to 36% when all your debt has been factored in, including housing.
We advise against lenders that will allow you a DTI ratio of up to 50%. This is because you are categorized as a riskier borrower and are likely to pay a higher interest rate. The worst-case scenario with a higher interest rate is you becoming house poor with a stretched monthly budget.
A down payment is a part of a home's sale price that the buyer is required to pay to qualify for financing the remainder with different forms of credit such as mortgages. Down payments are calculated as percentages of the total sale price. In certain jurisdictions, a down payment of 20% and above excludes you from paying high monthly costs associated with Private Mortgage Insurance.
Why a down payment is required
A down payment is required by banks and other lenders to help offset the risk associated with facilitating the mortgage to a borrower. It is often assumed that by paying a down-payment, the borrower has an investment to protect.
The more down payment you deposit the bank, the less likely you are to encounter issues of foreclosure as the bank has less to lose in the case of default on payments. It is for this reason that any prospective borrower looking to put up a down payment of less than 20% have to get PMI to protect the lender in case of the borrower defaulting on payments.
The down payment you put up for your house will also determine the interest rate you will get, and the higher the down payment, the lower the interest rate you will pay.
How much to put down on a house
The amount of money you put down for a house will be determined by your finances, and the credit program you decide to use.
If you already have saved the down payment, this should be easier. However, it will take you months and years to raise the down payments if you are starting out. You also need to consider the closing costs.
In terms of the amount to put down for your house, some programs will allow 0% to 3% down payment, but these will come with higher interest rates, meaning that you get to pay more for the loan. If you pay a higher down payment, you are likely to benefit from a lower loan-to-value ratio, which will get you fast mortgage approval.
Do I need to put up the 20% as a down payment for my home?
No, you do not. 20% ensures that you do not incur the additional PMI insurance payments. Here are some of the programs that a First Time Home Buyers California can explore.
a. Conventional mortgage
In a bid to ease access to mortgage credit across the U.S., Companies such as Freddie Mac and Fannie Mae have come up with special programs that will only require aspiring homeowners a 3% down payment. However, these programs will come with stringent credit requirements and income restrictions.
Lenders, on the other hand, will require a down payment of between 5% to 15% for traditional loans. However, any mortgage with a down payment of less than 20% comes with extra payments for private mortgage insurance, which will be determined by your credit score and the loan amount. These, too, will also come with a higher interest rate to cover their risk.
b. USDA and V.A.
The U.S. Department of Agriculture and the U.S. Department will also guarantee qualified homebuyers zero-down payment.
The USDA loans are accessible in certain designated rural areas, while the V.A. loans are only available to veterans and members of the armed forces. You can visit the USDA maps to check whether the region you are in is eligible.
Both of these loans are offered by a regular lender but are guaranteed by the USDA and V.A., and the applicants don't get to pay mortgage insurance as a guarantee.
c. FHA loan
The Federal Housing Administration also offers mortgage options for as low as 3.5%, and you also get their maximum financing on the remaining 96.5%. However, for you to qualify, you have to have a FICO score of above 580.
FHA loans will also come with an upfront and annual MIP (mortgage insurance premium). The Upfront MIP is fixed at 1.75% of the total loan, while the annual MIP will be determined by the down payment and the payment period.
The FHA also encourages people to place large down payments in return for reduced costs of borrowing. One way that the FHA differs from conventional lenders is that it charges similar charges to everyone regardless of lower credit scores.
Down Payment Assistance
a. DPA loans
If you are unsure of whether you are in a position to cover the down payment to your house, you can access down payment assistance loans that will reduce the down payment you will put down. Some of these programs include forgiven loans, deferred payment loans, and second mortgages. However, it is important to note that:
- Both the first and the second mortgages have to be paid off at the same time
- If you opt for deferred payment, you will have to pay it in full when you pay or refinance your main mortgage, sell the house or move from the house.
- While a loan can be forgiven for years, you will have to repay it when you sell, move, or pay/refinance your main mortgage or you risk violating the terms of the loan.
b. DPA Grants
You can also get down payment assistance CA through grants, and the good thing is that you do not have to repay them. The requirements that will come with these grants and loans will vary, and it is important that you check details for any first time buyer down payment assistance programs CA from your local state or government.
c. Tax credits
While first time home buyers CA can no longer enjoy the Housing and Economic Recovery Act's $7,500 credit, which ended in 2010, they can rely on various federal and state tax deductions that will lower their taxable incomes.
For example, the federal government allows people to deduct mortgage insurance costs from their taxes if the mortgage does not cost more than $750,000. It is important to visit state and local government offices and websites for information on any credits and additional deductions that you can benefit from.
d. Closing assistance
Closing costs encompass all the fees you are required to pay when completing the mortgage costs and range between 3% to 6% of the home's total cost. Similar to down payment assistance programs. There are other private and government-sponsored programs that will help First Time Home Buyers California pay their closing costs either through a grant or loan.
First Time Home Buyers California can also ask the seller for help on closing costs, which are known as seller concessions. I.e., the seller gets to help with the title insurance, real estate tax services, and attorney fees.
Federal programs for First Time Home Buyers California
As a First Time Home Buyers California, you can take advantage of some of the available federal, state, and local government programs. These include:
a. HomePath Ready Buyer Program
First Time Home Buyers California can also opt for Fannie Mae's foreclosed properties with a down payment of as low as 3%. This program also allows homebuyers to apply 3% of their closing costs back to the program.
While this is a great opportunity, the program sells houses 'as is,' and if you buy one, you might incur costs associated with repairs. The HomePath's offer is only available for First Time Home Buyers California looking to live in the home full-time.
For more information regarding the requirements and selection criteria, visit HomePath's website.
b. Good Neighbour Next Door
The Good Neighbor Next Door is a flagship program of the Department of Housing and Urban Development (HUD), aimed at helping law enforcement officers, firefighters, emergency medical technicians, or pre-k-12 teachers.
This program offers all eligible applicants 50% of selected properties, which are mainly foreclosures that, even without the discount, comes with great prices.
c. State and local programs for First Time Home Buyers California
Most governments will offer homebuyers assistance through both local and state programs, with the location of these programs varying greatly. Visit the HUD website for more information.
Non-profit and charitable programs for first time home buyer CA
Apart from government and private entities, first time home buyer CA, and especially those with low income, can also access help through non-profit or charitable organizations. These offer both financial and educational resources to guide you through the home buying process. They include:
a. Neighbourhood Assistance Corporation Of America (NACA)
NACA is a nationwide charitable organization that will help first time home buyers CA buy a new home. The organization works with financially unstable households to provide both mortgage education and counselling and also source lenders willing to offer them financing.
One does not have to pay any down payment if he or she is eligible for a NACA loan. Additionally, beneficiaries do not require a minimum credit score and offer you insight into the different paths to homeownership. For more information, visit NACA's website.
b. Habitat for humanity
This is one of the most popular housing non-profits across the U.S. Habitat for Humanity is an international non-profit organization that offers low-income families access to simple, decent, and affordable housing. This organization works by sourcing volunteers who help build homes for families in need. The organization is the largest non-profit builder across the globe, having overseen the building of over 800,000 homes.
Employer-Sponsored programs for the First Time Home buyer CA
This might come as a shock to many, but your employer can also contribute towards your first home purchase. Recent years have seen employers adopt housing incentives that cover the down payment and closing costs for their employees' home purchases in the form of a forgivable loan or grant.
However, employer-based programs are limited in terms of they will be used depending on the employer's offer, and not every employer offers these programs. You can set up a meeting with the H.R. representative or manager of your company to check whether they do offer this help and if you qualify.
Most non-profit and governmental first time home buyer programs CA will come with a strict definition of a First Time Home Buyers California, i.e., not owning a home within the last three years. Therefore, if you own an investment or rental property, you will be excluded from using these programs.
For you to qualify for government-backed loans such as FHA or USDA, the house has to meet certain standards, and most of these will come with income restrictions. Employer-sponsored programs and tax deductions, on the other hand, offer room for flexibility since they allow buyers to deduct their mortgage insurance from their personal homes even if they own other properties.
It is important that you talk to a Home Loan Expert to help guide you on the programs you qualify for and can use to your advantage. A Home Loan Expert looks at your situation from a different perspective and then advises on the right direction to take.
Call 800-807-5022 or text Jason Whigham at 916-413-3967 - First Time Home Buyers California Programs.