Most first-time homebuyers know that buying something that costs a substantial amount of money like a home is going to require a downpayment. However, it may come as a surprise just how much of a down payment you will need.
Here is your comprehensive guide to understanding down payments for a home mortgage and how you can get payment assistance with your loan program to cover payment and closing costs.
Why the Downpayment Matters with a Mortgage Loan
Learning that you can only qualify or can qualify for better loan terms with a sizable downpayment can come as a bit of a surprise. According to NerdWallet, the typical required downpayment is going to be somewhere between 3 and 20 percent, depending on the lender’s requirements, your credit score, and a few other factors. Therefore, if you find a home with a price tag of $500,000, the lender may expect a down payment of as much as $100,000 if they require a 20 percent downpayment. As a first-time buyer, these kinds of numbers can be intimidating, but there really are good reasons such a downpayment is sometimes required. A sizable downpayment:
- Can fetch you a better interest rate (fixed rates and adjustable)
- Can mean lower, more affordable mortgage payments
- Can help you qualify for a home in a higher price range than what you expected
- Can mean you can get a longer loan term
- Can yield more equity in your home right from the beginning of the loan
As beneficial as a down payment may be, seeing that you have to come up with that much money can be scary. Thankfully, there are options to help buyers through down payment assistance programs in the state of California. Including first time home buyer California down payment assistance.
California Down Payment Assistance Programs
The state of California is a pretty good place to be if you need help with paying for a down payment. Take a look at some of the programs and loans that are available on a state level.
California Homebuyer’s Down Payment Assistance offered by CalHFA
CalHFA, the California Housing Finance Agency, offers a California Homebuyer’s Down payment Assistance Program (CHDAP) for qualified first-time home buyers. If you are having issues coming up with the down payment for a new home and meet certain criteria, you may qualify for as much as three percent of the home’s purchase price so you can have that money to use toward a down payment or closing costs. To qualify for the CHDAP loan, a buyer must:
- Be a first-time homebuyer
- The property must be planned to be used as the primary residence
- Must attend and complete a counseling course for first-time homebuyers
- Have an income level that falls below CHDAP limits, depending on which type of mortgage loan
- Meet the requirements that the lender requires
The CHDAP is deemed as a deferred payment junior loan product. This means that the loan payments are deferred initially; you will not be responsible for paying back the loan until the home is sold, refinanced or paid for in full. (Related: Best Places in Southern California to Raise a Family)
The CalHome Program
The CalHome Program, short for the Homebuyer Down Payment & Closing Cost Assistance (DCCA), is offered by the San Diego Home Consortium to home buyers who need assistance with getting into their first home. Applicants who qualify for DCCA assistance can obtain as much as 17 percent of the home’s appraised value to be used toward the down payment and another 4 percent to go toward other fees and costs associated with buying a home.
The loan funds that you could qualify for will come in the form of a simple-interest loan. The loan only carries a three percent interest rate that accrues annually. Best of all, the payments on the loan are not due until the home is sold or refinanced, or, of course, if the loan is paid off in full. At that time, the loaned amount will be due in full along with the accrued interest.
The requirements to qualify for a DCCA CalHome loan, buyers must be buying a home for the first time. Applicants must also complete a HUD or CalHome-approved homebuyer education class and be able to designate three percent of their own monetary assets to the closing costs associated with buying a new home. Any home being considered must fall within the boundaries of the CalHome jurisdiction.
GSFA Platinum Program
The Golden State Finance Authority (GSFA) offers the GSFA Platinum Program to individuals with a low-to-moderate income level in the state of California and are needing assistance to get into a home. The GSFA Platinum Program is also a grant, which means those who qualify for assistance are not required to deal with extra payments beyond their mortgage or pay back any granted money once they move out of the property or pay off the mortgage.
Through GSFA’s Platinum Program, buyers can get up to five percent of the cost of the home to help them cover the down payment, closing costs, or other associated fees. This program has outlined requirements, such as the buyer must have a credit score of 640 or more, but one of the advantages of this program is the fact that those who apply do not have to be trying to buy their very first home. Homes purchased must be used as the primary residence and not as an investment property.
Localized Down Payment Assistance Programs
In addition to programs that are offered more on a state level, there are other local-level down payment assistance programs for California Homebuyers offered through various entities.
First Home Mortgage Program
Operating between Los Angeles and Orange Counties, the Southern California Home Financing Authority (SCHFA) offers the First Home Mortgage Program for buyers in the area. Under this program, qualified prospective homebuyers may be eligible to up to four percent of the home’s purchase price to go toward the down payment. One of the greatest advantages of this program is the money is not a loan, but instead, it is a grant. Therefore, qualifying applicants do not have to pay the money back later on. To qualify for the First Home Mortgage Program, buyers must:
- Meet certain income limits
- Have a credit score of 640 or above
- Have a debt-to-income ratio that does not exceed 45 percent
- Complete a homebuyer education course at least 12 months prior to the closing
Purchase price limits are also in place and the home must be within the Los Angeles and Orange Counties jurisdictions and fall under certain price guidelines.
Santa Ana Down Payment Assistance Program
Santa Ana makes it easier for locals to buy their first home through their Down Payment Assistance Program for qualified buyers. The program is available only for first-time buyers and can get you as much as $40,000 to pay toward down payment costs. The funding acts as a zero-interest loan, which keeps payments low, and funding is available on a first-come, first served basis every year. (Related: How to Save Up for a Down payment)
In Closing
Overall, there are multiple ways to get assistance if you are looking to buy a home in the state of California. Even though seeing how high a down payment requirement is through a lender can be a little scary, it is programs like this that make the process of buying a home a lot less intimidating. Whether you receive down payment assistance on a state or local level, these programs may make it possible to become a homeowner without having to have a substantial amount of money in the bank.
