There are many loan options available on the market today for homebuyers. None are easy. Some have more restrictions than others with limited loan amounts. What we are not hearing about is first-time home buyer programs. Yes, they do exist.
What is a first-time home buyer?
Lenders define a first-time home buyer (FTHB) as an individual or couple who have not taken a mortgage deduction for a principal residence for the last three years on their federal tax returns. It is fine to own other real estate, so long as the mortgage deduction was not claimed. It is fine to have lost a home to a short sale or foreclosure over three years ago, so long as the mortgage deduction had not been claimed for the three years preceding the new loan application.
In order to qualify for any of these loans/grants, the home must be owner occupied as a principal place of residence within 60 days of the closing of the loan. The prospective homebuyer must also complete an 8-hour Homebuyer Education Class.
California Housing Finance Agency
The California Housing Finance Agency (CHFA) is actually the official State of California FTHB program and they offer two different FTHB Loans: the CalFHA-FHA as well as the Cal Plus. In addition, the CHFA offers down payment assistance at low interest with the CHDAP (California Homeowner Down Payment Assistance Program) to the ZIP (Zero Interest Program) which can be used to help cover the down-payment as well as your closing costs.
There is also a special program just for teachers – the Extra Credit Teacher Program, or ECTP. The CHF even has three different grant programs which never have to be repaid.
All of the loan programs being discussed in this article are tied to a government-insured loan such as a VA, FHA or USDA. All will require a 640+ FICO Score and a 43 to 45 percent debt-to-income ratio and require three years of tax returns. There may also be loan limits or purchase price limits. A nice feature of all of the various programs offered by the CHFA is that each program will set the fees and interest rate so you’ll never have to worry if your lender is offering you the best deal – if they are offering you the program then they must follow program guidelines – a huge benefit.
One of the great benefits of a CAL-FHA loan is that in many cases a non-occupant co-signer can be on the loan and help with the qualification process. The co-signer cannot live in the home or be on title to the home – but their income, assets, credit history and liabilities will all be considered when qualifying for one of these FTHB loans/grants.
Not only does the borrower have to qualify for one of these loans, but so does the residence, which must be a one (1) unit residence. A condo or town home will qualify as long as it is FHA approved. The home cannot have more than five acres of land. A new requirement since October of 2013 is that the home must carry a two-year home warranty policy.
CAL-FHA & CAL ZIP
Both of these loans are almost identical with the difference that the CAL ZIP is set at a slightly higher interest rate because it automatically qualifies with the zero interest loan as a “Silent Second,” meaning for the life loan it does not have to be repaid.
The Silent Second is for 3.5 percent of the total loan amount, including the UpFront Mortgage Insurance Premium (UFMIP).
With some seller credits and possibly taking advantage of other programs available, it’s possible for a FTHB to purchase their new home with very little or nothing out of their pockets.
California Home Buyers’ Down Payment Assistance Program – CAL CHDAP
The CAL CHDAP is another zero interest silent second that is deferred for the life of the loan. The CHDAP is for three percent of the purchase price and not the loan amount as the CAL ZIP. Perhaps the nicest feature of this program is that it can be used behind any loan and not restricted to another CFHA program.
Income limits are strict and the borrower cannot earn over a set amount, based on the number of family members living at home. A CHDAP loan can be used in any loan position, so it’s possible to fall in line behind a CAL ZIP or other program the borrower may qualify for.
Extra Credit Teacher Program – ECTP
The ECTP for teachers and staff or anyone working for any low performance API California school with an API (Academic Performance Index) rating of 1 to 5. It is a deferred payment simple interest rate subordinate (second) position loan.
The ECTP is a fixed rate loan for either three percent of the loan amount of $7,500 – whichever is greater. The really powerful feature of this program is that so long as you remain employed by a qualifying low API rated school, interest will be retro actively waived to day one at zero percent!
In order to qualify for this program, the ECTP must be used with either the CAL HFA or the CAL Plus first mortgage.
Nothing mentioned here is easy. To take advantage of any of these programs you’ll need to be both prepared and have a team of professionals in your corner to navigate the processes. Contact your REALTOR and loan officer now to see what else may be available. Call us today and get the information you need to make the right decision. The info is free, call now! (951) 296-8887.
Questions regarding available inventory and/or other real estate matters please contact me, [email protected] Mike Mason, Broker/Owner of MASON Real Estate Cal. BRE: 01483044, Board of Director of your Southwest Riverside County Association of Realtors® (SRCAR), Traveling State Director, California Association of Realtors® (C.A.R.).