California is one of the most expensive states, with real estate prices second only to Hawaii. The current average home value in California is close to $670,000, with some areas being a lot pricier – in Orange County, for example, the median home price is over $871,000.
These are daunting amounts when you consider that most home purchase deals require a down payment equaling about 6% of the loan value. If you buy a $1-million home, the down payment may easily reach $60,000. Many people simply don’t have that much money upfront.
Prospective homebuyers, especially first-time homebuyers, might want to look into down payment assistance programs when getting ready to purchase property in the Golden State.
What Is DPA And How Does It Work?
Down payment assistance programs can help qualifying homebuyers cover down payment and closing costs. DPA programs may operate through federal agencies, state or county organizations, or private funds.
While some DPA programs offer non-repayable grants, others provide interest-free, low-interest, deferred, or forgivable loans.
Who Is Eligible for Down Payment Assistance?
Many DPA programs specifically target first-time homebuyers. This definition usually applies to all potential homebuyers who haven’t owned real estate property in the last three years.
Eligibility terms may vary depending on the specific down payment assistance program. Generally, the programs target reliable homebuyers who can repay a loan but are struggling to provide a lump sum for a down payment. Most DPAs have a cap, so borrowers might still have to advance a certain amount at closing.
Often, DPA programs require participants to get a home loan pre-approval. To meet this condition, applicants need a fair credit score and a steady income. Many programs also state that applicants must complete a homebuyer’s course focused on responsible homeownership, financial planning, and money management.
Down Payment Assistance Programs in California
Here are five DPA programs active in California in 2021:
MyHome Assistance Program
MyHome Assistance Program by CalHFA (California Housing Finance Agency) offers deferred-payment junior loans through participating lenders. The loan sums may amount up to 3.5% of the property purchase price on FHA loans and up to 3% of the purchase price on USDA and VA loans. The program has a cap of $11,000.
The program targets borrowers who:
- Are first-time homebuyers
- Intend to use the property as a primary residence
- Meet the program’s income limits ($211,000 for Orange County in 2021)
- Have completed the CalHFA homebuyer education course
Eligible homes are one-unit, single-family residences with a maximum property size of five acres. The loan interest rates vary depending on lender fees, the applicant’s financial circumstances, and other factors.
Orange County MAP
Orange County’s MAP (Mortgage Assistance Program) offers down payment assistance in the form of deferred loans to homebuyers with low incomes. The loan may equal 3% of the property purchase price, with a cap of $80,000.
To qualify for MAP, applicants need to:
- Be first-time homebuyers
- Occupy the property as a primary residence
- Invest a minimum of 1% down payment
- Complete a homebuyer education workshop
The maximum total sale price for qualifying properties is 85% of the Orange County median for all homes – i.e. if the median is $870,000, participants can purchase property worth up to about $740,000.
GSFA Platinum Program
The Platinum Program by GSFA (Golden State Finance Authority) offers down payment and closing cost assistance to California homebuyers with a low-to-moderate income. Eligible applicants may receive a non-repayable grant equaling up to 5% of the total home loan amount. Unlike many DPA programs, the Platinum Program doesn’t only target first-time homebuyers.
To participate in the GSFA Platinum program, applicants must:
- Occupy the purchased property as their primary residence
- Have an income within the program’s limits ($162,180 for conventional loans in Orange County)
- Have a credit score of 640 and up and a debt-to-income ratio no higher than 45%
Eligible properties include both new and existing homes. Borrowers must apply through participating lenders and meet all mortgage loan requirements. The program is compatible with conventional financing, FHA, USDA, and VA loans.
The OpenDoors program by the GSFA targets California homebuyers with low-to-moderate income. The program provides flexible-term down payment and closing cost assistance equaling up to 7% of the loan amount. The maximum conventional loan limit is currently $548,250.
The GSFA OpenDoors program targets applicants who:
- Have an income within the program limits ($162,180 for Freddie Mac conventional loans in Orange County)
- Have a minimum FICO score of 620
- Are looking into single-family properties
- Complete a homebuyer education program prior to closing.
Applicants don’t necessarily need to be first-time homebuyers. People with incomes below 80% AMI may qualify for more attractive terms. Second homes and investment property aren’t eligible for the program.
USDA Single Family Housing Direct Home Loans
Homebuyers who don’t qualify for traditional home loans and are interested specifically in rural properties might look into a loan through the USDA Rural Development. Eligible participants may qualify for a low-interest mortgage with 0% down payment.
The program targets specifically disadvantaged applicants with low and very low incomes who need sanitary, safe housing.
USDA home loans can be a good fit for applicants who:
- Currently don’t have decent, sanitary, and safe housing
- Can’t qualify for a conventional home loan
- Are looking into a rural property as their primary residence (areas with a population under 35,000 usually qualify)
- Meet the program’s income requirements (varies by county and the number of people in the household)
As of June 1, 2021, the interest rate for this program’s loans was 2.5% for qualifying borrowers. The payback period is up to 38 years for applicants with very low incomes.
Want to Learn More About Down Payment Assistance in California?
Would you like to know more about DPA in California and how a down payment assistance program can help you become a homeowner? Reach out to us for more information.