FIRST HOME BUYER’S GUIDE
First Time Home Buyer’s in Los Angeles, California
Most of the programs for US citizens. Residents with green cards or work visas can qualify for a U.S. mortgage even if they are not U.S. citizens. In fact, these homebuyers can qualify for government-backed and -sponsored loans offered by FHA, Fannie Mae, and Freddie Mac at the same terms as can citizens. To find more information’s for International Buyers, please visit web page “International Buyer Guide”.
Choosing to own your first home can be an enormous decision. Many people feel a varying rush of emotions when they are trying to decide what exactly to buy and when they should buy it. While owning your own home can seem quite scary at first, there are also numerous benefits that come with this incredible milestone in your life. Just think of it this way, you were probably extremely excited to finally get your first car. Well, buying your first home is even better because a house appreciates in value! Unlike a car that depreciates as soon as you drive it off the lot, a house will continue to increase in value as soon as you make the purchase. This is especially true for homes located at Los Angeles. Aside from the more surface level benefits, owning a home in California will allow you to exclude capital gains, reduce your mortgage, and gain preferential treatment when it comes to paying your taxes. The first-time home buyers that live in California qualify for numerous different loans and financial assistance programs. These programs will lower the cost of owning a house so you can securely purchase your dream home. All of this information may seem confusing to you now but once you become a homeowner, you will quickly begin to reap financial benefits that you won’t regret. Keep reading to learn about the various loans, grants, and programs you can take advantage of when you’re becoming a first-time home buyer in Los Angeles.
CALIFORNIA FIRST-TIME HOME BUYER LOANS
Conventional 97
About: There are actually a lot of different options for numerous homebuyers to utilize when trying to purchase their first home. This specific loan is available for people of all annual income levels. You don’t have to meet certain income requirements if you want to utilize this loan to purchase your first home in California. This can come from Freddie Mac or Fannie Mae. The HomePath Ready Buyer Program is also offered by Fannie Mae. It allows the borrower to purchase a foreclosed property that is owned by Fannie Mae. If you want to purchase the home through this program, you only need to put 3% down on your purchase while also having the opportunity to get 3% of your home’s value back from the assistance you receive with the overall closing costs. To utilize this loan, you must put down at least a 3% down payment. Additionally, you have to have at least a 620-credit score minimum. For most people, they are able to discontinue their mortgage payments after only a few short years.
Overview: This loan was created to help those homebuyers who have incomes that are considered to be quite low in comparison to other homebuyers in California. This specific loan is great for you if you don’t have the resources or the ability to pay the upfront money that is usually required for conventional loans. The Conventional 97 (Fannie Mae and Freddie Mac) loan allows you to go around the usual 5% down payment requirement. Given their greater amount of accessibility to the average first time home buyer, these loan programs have become extremely popular throughout the past few years.
Pros & Cons: The most attracting factors here are the extremely low-down payment requirements. For most conventional loans you have to put at least 5% down for your down payment. For the Conventional 97 loan, you only have to front 3%. Additionally, you don’t have to obtain an amazing credit score to get approved for this specific loan. You can have a fairly average line of credit and you are still most likely going to get approved for the financial assistance you need to purchase your first California home. There are various types of loans you can utilize that are qualified under the broad title of “Conventional 97”. The only deterrent that is usually reference here is the fact that you could potentially have higher interest rates when you utilize these loans given you aren’t required to assume a lot of risk.
Summary: If you have a lower annual income than most people who live in California, this loan option may be extremely attractive to you. Living in an underprivileged area could also allow you to not have any specific income requirements to be considered eligible for this loan. These types of loans don’t require you to assume a lot of risk up front so you can purchase your dream home while also not having to worry about extreme financial burdens. Although this is true, you should always look at other loan programs that may have lower interest rates that you might qualify for as well. If you don’t qualify for any and this is your only option, it is still a great choice that has numerous short terms and long-term benefits.
FHA Loan
About: These loans are solely supported by the Federal Housing Administration. You only have to put 3.5% down for your initial down payment which is much less than most other conventional loan programs that require a minimum of 5% down. Also, you only need a 580-credit score minimum to be eligible while other programs usually require you to at least be in the 600’s with your current line of credit. This is the perfect option if you are a first-time homebuyer that has a low credit score.
Overview: The Federal Housing Administration insures this loan to allow the mortgage lenders to have a little bit of insurance as well given they are usually servicing buyers with poor credit and low incomes. This allows lenders to offer these types of buyers extremely low interest rates and down payments as low as 3.5%. Although this loan is usually used by first time buyers with a low credit score and low annual income, anyone is able to apply for this loan. To successfully apply for this loan, you only need a credit score in the range of 500-579 and a debt-to-income ratio that is less than 50%. These are great numbers for people just starting about in the home buying market.
Pros & Cons: Most people are attracted to the fact that these loans have extremely low-down payment costs as well as low credit score requirements. Although this is true, the interest rates continue to increase as your credit score value decreases. The whole purpose of these loans is to help people with lower incomes still have the ability to purchase the home of their choice but the lenders need some form of mortgage insurance to be sure that you will make good on your house payments once they lend you the money to do so.
Summary: If you are a first-time homebuyer with a low line of credit and not much income, the FHA loan may be a great option for you. The FHA will even insure a loan for you if you have a credit score as low as 500. The only caveat to this is the fact that you will have to front a 10% down payment instead of only 3.5%. This is not a horrible ideal if you have that kind of money up front but if your credit is as poor as 500, then you most likely don’t. That being said, as long as you are actively using the FHA loan for your home, you have to also pay mortgage insurance that isn’t optional.
VA Loan
About: These loans are specifically for veterans and active duty service members. The best part about these loans is that you don’t have to put down any money for a down payment. Also, you only need to have a minimum credit score of 620. This value is extremely low which allows for numerous people to take advantage of the benefits the VA loan has to offer. Unlike the FHA loan, you don’t have to worry about ongoing mortgage insurance payments after you close on your new house. You will also receive a government guarantee when you utilize the VA loan because it is supported by the Department of Veterans Affairs. This means some of the loan amount is going to be paid back to the outside lender if you are unable to make all the payments.
Overview: If you qualify for the VA loan, this is arguably the best type of loan you can get when purchasing your first home. Interestingly, you don’t even have to be a first-time homebuyer to utilize the VA loan. This loan is completely supported by the United States Department of Veterans Affairs so it can efficiently help active duty members and veterans purchase the homes that will help them take care of themselves and their families. Additionally, there are very flexible rules when it comes to the qualification process for this specific loan. There are plenty of different VA loan rates out there which allows you to find the best rates that suit your specific financial needs.
Pros & Cons: There are many attracting factors that are associated with this loan and that is why it is so strongly desired by many people. You can get up to 100% coverage for the entirety of your home’s value. Additionally, the closing costs that are associated with the VA loan are usually much less than those for the other conventional loans on the market. Although there are numerous benefits associated with this loan, there are a few deterrents that may make the process of receiving this loan a bit more tedious than the other conventional loans. The application process itself can be quite long and drawn out. This is because there are numerous forms of paperwork required to ensure you are an active duty military member or veteran. Also, you have to pay the VA funding fee that is associated with the VA loan. In the grand scheme, this funding fee is nothing compared to the amazing short term and long term benefits you will receive from being able to utilize this very flexible loan.
Summary: The VA loan is the best choice for veterans who don’t receive very much monthly income. Also, if you are an active duty member that doesn’t have a lot of savings to your name, this loan may be a great choice for you to start out your home buying journey. You don’t want to make the dangerous mistake of using too much of your funds when you are purchasing your first home because this could lead to terrible long-term effects when you are ready to purchase your second or third home. You should take advantage of this loan because it is specifically made for military members, veterans, and surviving spouses so they can be adequately taken care of for their service to the nation. It is important that you understand how the VA loan works. You are not physically lent the money. The Department of Veteran Affairs insures your loan with the financial assistance provided by the outside lender. Either way, you are receiving the financial assistance you need to make your purchase as a first-time homebuyer in California.
USDA Loan
About: The USDA loan was created for people who make low to moderate annual incomes within the more rural areas of California. This is the main stipulation to be eligible for this loan. You must be purchasing a home that is located on the outskirts of the major California cities. Also, no down payment is required and you only have to reach the minimum credit score that is specifically required by the outside lender who you are borrowing the money from. This number can vary but the minimum is usually a credit score value of 640 which is quite low compared to other conventional loan programs. For the VA loan, you don’t have to pay any mortgage insurance given the users of this loan are active duty military members or veterans. On the other hand, you do have to pay mortgage insurance for the USDA loan but these values are much lower than those for the FHA loans.
Overview: These mortgages are supported by the United States Department of Agriculture which is a small portion of the larger Rural Development Guaranteed Housing Loan program. This supports the concept of having a larger number of people living in the rural areas of California. Even if you only thought you would ever be able to rent a home, the USDA loan is a great option for you to make your first home purchase which will kick off your home buying journey throughout your entire life. The requirements that you must meet to be eligible to buy a home with the help of the USDA loan is dependent upon your specific financial history as well as well as the home you want to purchase. To be officially eligible for this loan you can’t make more than 15% above the local median income within your area in California. Additionally, the home you are trying to purchase must be considered your primary residence. You can’t assume a co-borrower status if you want to use the USDA loan to make your purchase. The only income eligibility minimum you need to uphold is showing that you have a steady job that can be proven by your tax returns.
Pros & Cons: You don’t have to front a down payment and you can also use this loan to cover up to 100% of your home’s value. These are both extremely attractive factors for first time homebuyers in California. If you are in the market to purchase your first home, you most likely don’t have a large amount of funds or an amazing credit score. To receive USDA loans, you don’t have to have a high credit score or a large amount of annual income. These loans are specifically tailored to people that live in lower income households. The only true downside to the USDA loans is the fact that you can’t get one if you qualify for other conventional loans. This doesn’t necessarily have to be a “con” because this means you have a better credit score and income range than you originally thought. There are many great conventional loans with low interest rates that you can utilize to become the first-time homebuyer you always wanted to be.
Summary: The mortgage rates produced by the USDA loan are easily some of the lowest rates you will ever see. When you choose to use this loan, you will be able to complete finance your home’s purchase price. This means 100% of the purchase price can be successfully finance by you. You will also have the opportunity to receive really low mortgage rates that can only truly be compared to those of the VA loan. Additionally, you have to take a fixed-rate loan. You can’t adjust your mortgage rates throughout any part of you actively using the loan. This should not really be an issue given the mortgage insurance rates are extremely low anyways. The USDA also guarantees its mortgage loans so the outside lenders who are giving you the money can be sure they are going to get at least some of their loan back if you aren’t able to make good on your payments. The current rates are a 1% upfront fee if you’re purchasing or refinancing a new home and a 0.35% annual fee for all loans.
Good Neighbor Next Door
About: The Department of Housing and Urban Development supports the Good Neighbor Next Door program. This program allows people with various community occupations to get HUD-owned homes at an affordable price. This loan is usually offered to people working as police officers, firefighters, EMTs, and teachers. The usual discount rate is about 50% which is a large amount considering these loans are for people who already receive lower incomes compared to other residents who live in California. If you choose to use this loan to purchase your new California home, the Department of Housing and Urban Development has a few specific requirements you need to fulfill first. The department requires you to sign a second mortgage and note for the exact amount of the discount. Although this is true, you don’t have to worry about making interest payments or paying for any other extraneous items.
Overview: This program was originally created to help provide a much-needed boost to the communities that were considered to be “revitalization areas” by the Department of Housing and Urban Development. These areas are located all around the world are in much need of financial assistance especially when it comes to purchasing houses for first time homebuyers. This government agency created the Good Neighbor Next Door Program to help support this initiative. These programs offer the recipients a large discount of 50% for the home they are trying to purchase. This program is focused on helping people who have low income jobs that are extremely beneficial and essential for any community. In order for you to pay the other half of the purchasing cost, you are allowed to get any mortgage you want. These mortgage options include the FHA, VA, or any other conventional mortgages of your choosing.
Pros & Cons: If you want to purchase a home that is located in a “revitalization area”, there are numerous benefits you can encounter when choosing to use the Good Neighbor Next Program. This program will make your first time homebuying journey a nice experience that doesn’t cause you to worry about too many financial burdens. With this program, you will receive a 50% discount off the total price of the home you are trying to purchase. Granted, you stay in sole possession of the home for at least three years. After your three years is up, you are eligible to sell the home while still keeping all the equity. Unfortunately, there are a few deterrents associated with this program as well. When using the Good Neighbor Next Program, you are not allowed to leave your new home for at least three years. This is perfectly fine for people who love the stability of staying in the same place for a while but if you love to move often, then this program may not be the right one for you. Also, most people aren’t eligible to utilize this program because they either don’t have the correct occupation to qualify or they don’t like in an area that is considered to be “revitalized”. You must be a firefighter, police officer, pre-K to 12th grade teacher, or an emergency medical technician to qualify for this program.
Summary: If you live in a single-family residence within the previously designated “revitalization areas”, you are eligible for the Good Neighbor Next Door Program loan. Once the properties are listed on the program website, they are available to be purchased for seven days. In order for you to utilize this loan, you need to ensure that this home is going to be considered your primary residence. You are not allowed to assume a co-borrower status if you want to use the Good Neighbor Next Door Program. If you want to participate in this program for the state of California, you need to check the specific listings that are associated with that state. You will go through a few necessary requirements to secure your interest in purchasing a specific home that is listed. Remember, you will be able to purchase these homes at a 50% discounted price while utilizing a different mortgage to pay the other portion of the price.
NADL
About: The Native American Direct Loan was created by the VA to support those people who consider themselves to be Native Americans or Pacific Islander veterans of the United States. The NADL loan can also be used by the spouses of the people who qualify as well. The best part about this loan is that the requirements to receive it are extremely flexible. You can still be eligible for this loan even if you have a very low credit score and no assets to your name. The asset requirement for a down payment is very minimal so you should still apply for this loan even if you don’t believe you have the funds to back up your application. You can receive this mortgage without even putting down money upfront for a down payment or having any private mortgage insurance. Although this is true, you are still going to have to pay the necessary closing costs to finalize the purchase of your new house. Once again, this shouldn’t scare you off because the money required to close are your house with this loan is much less than what it usually costs for more conventional mortgage loans.
Overview: This loan was created to help Native Americans and Pacific Islander veterans receive the financial assistance they need to purchase homes in the state of California. There are some requirements you need to meet such as having a valid VA home loan Certificate of Eligibility and meeting the minimum credit standards. Once you choose to use the NADL loan to purchase your home, you need to make sure you are still living in that specific home while you are actively using the NADL loan. This should not be an issue for you if you don’t mind the stability of staying in the same location for a few years. Also, there is a great reusable benefit associate with the NADL loan. You can receive more than just one NADL when you are trying to purchase and build on your current home or a residence that you want to purchase in the future. Once of the most interest benefits that most people don’t realize is the fact that you can borrow up to the conforming loan limit set by Fannie Mae and Freddie Mac. Additionally, you still don’t have to pay a down payment for this loan in most areas.
Pros & Cons: When you are trying to receive the NADL loan, you shouldn’t worry about the current status of your credit score because you only need to have a very minimal line of credit to be eligible for this loan. Also, you don’t have to put any money down for an initial down payment to still reap the benefit of very inexpensive closing costs. Most conventional loans require you to have private mortgage insurance when you are a first-time homebuyer trying to purchase a new home but this is not the case for the NADL loan. You can make this purchase at an extremely low upfront cost to you without having your own source of private mortgage insurance. If you qualify for this loan, you are set with a great first-time home buying experience. The only real deterrent for this loan is the initial eligibility requirements. There is a very small pool of people who are actually going to meet the requirements to borrow money through this loan. Your home has to be located in the following areas for you to qualify allotted lands, Pacific Island territories, Alaska Native corporations, or federally-recognized trusts.
Summary: There are numerous benefits you can enjoy from using the NADL loan to purchase your new California home. You don’t have to worry about a down payment even if you don’t have your own private mortgage insurance. Having your own private mortgage insurance is usually a requirement whenever you are trying to borrow money through conventional loans. Also, the NADL loan allows you to make your purchase with very low closing costs. These are the fees you have to pay in order to receive the services that are necessary for you to get the loan in the first place. You will have a 30-year fixed mortgage that accrues a very low amount of interest throughout all the years of you owning the service. The current interest you should expect to pay when utilizing this loan starts at 2.75%. This interest rate is even lower than that of both the VA and USDA loans that come in around 3% to 3.5%. If you are a Native American or a Pacific Islander veteran that does not have a lot of money, this is a great option for you to purchase your first home with very little hassle.
Cal-EEM + Grant Program
About: The CalHFA Energy Efficient Mortgage is a fixed-rate loan you can receive that lasts for 30 years. This loan was specifically created to help homeowners have an avenue to make improvements to their home that will be better for the environment long term. These renovations are considered to be more energy efficient. The CalHFA Energy Efficient Mortgage is paired with the Cal-EEM Grant to give you the best options for the financial assistance you need to make a successful first-time purchase. Fortunately, you don’t have to repay the Cal-EEM Grant when you utilize it to make these energy efficient improvements to your home. This loan is fully supported by the FHA so you don’t have to have an amazing credit score to be eligible to receive this loan. You can have a minimum credit score of 660 to qualify for this loan.
Overview: This loan is most widely used by people who want to make energy efficient renovations to their home. A great perk with this loan is that it can easily be combined with the School Teacher and Employee Assistance Program and the MyHome Assistance Program. This loan effectively combines the EEM Grant with the CalFHA FHA insured first mortgage. You don’t have to worry about repaying the Cal-EEM Grant if you stay in your home for at least three years. If you are able to stay within your location for this amount of time, you don’t have to pay back any of the loan. On the other hand, you don’t have to stay at your home for three years to still use this program to implement the energy efficient renovations into your home. If you decide to leave before the three years is up, you have to use a pro-rated basis to pay back the loan.
Pros & Cons: Clearly, there are various benefits to this loan that will come at no cost to you if you plan to stay at your residence for a minimum of three years. This Cal-EEM + Grant Program can be paired with other programs to accrue a value of up to 4% of the entire value of your first mortgage. These programs accept numerous applicants that have a low credit score. Also, you can easily combine this program with the School Teacher and Employee Assistance Program as well as the MyHome Assistance Program to receive the sufficient amount of financial assistance you need to make the proper renovations to your new home. Although this program seems quite beneficial, it is not useful at all to anyone who isn’t trying to make any energy efficient improvements to their current home. This means you can’t use this specific program as a means to purchase your new California home because the money can only go towards the home improvements you complete after your home as already been purchased. Also, you must live in a single-family residence or this program will not apply to you either.
Summary: The main purpose of this grant is to provide people an avenue to make energy efficient changes to their homes that will be better for the long-term scope of the environment. This is why you don’t have to have an amazing credit score and a high level of annual income to be eligible for this grant. This is the perfect program for first time homebuyers who want to create an energy efficient home for themselves in California. You don’t have to have a great line of credit to be eligible so if these home improvements are something you’ve been considering for a while, you should go ahead and apply for this program. You won’t regret the ability to utilize the money gained from this grant without having to worry about paying it all back in the short term or long-term future.
GENERAL CALIFORNIA FIRST-TIME HOME BUYER’S PROGRAMS
CalVet
About: This is a loan program that is similar to the VA loan in that it is only available for active duty service members, veterans, and their surviving spouses. CalVet is focused on allowing first time homebuyers to have an extremely stress-free experience when they make their first purchase. They don’t believe that this process should be stressful so they try to alleviate some of the financial burden by providing you with the financial assistance you need to purchase your first home. They provide specific VA loan options for the veterans or active duty military members that want to purchase homes in the state of California. The state agency, California Department of Veterans Affairs, has continued to provide veterans and their families the resources they need to take care of themselves for many years now. There are two specific categories you need to look into to make sure you actually qualify for this loan. You need to ensure that you are either a veteran who served during a time of war or received a medal for your service. Additionally, you can also qualify for this loan if you are a current member of the United States Military Reserves or the California National Guard.
Overview: When you choose to utilize the CalVet loan instead of the traditional VA loan, you are allowing the state of California to be the outside lender that is providing you the loan you need to purchase your home. In order for this to happen, the CalVet agency first purchases your home and then you buy it from them through a contract of sale. You are going to be able to hold the equitable title over the home but CalVet is still going to hold the legal title. This does still mean that you will be able to have the full benefits of being a homeowner so you can deduct your mortgage interest during tax season. On the other hand, the VA loan allows the money to come from an outside (third-party) vendor who supplies you with the money you need to buy your home of choice. You can think of this third-party lender as a bank who is providing you the money as part of the overall VA loan program.
Pros & Cons: There are plenty of different pros and cons associated with this loan that you should consider before using it as your financial source. If you utilize the CalVet loan, you are going to be eligible for group rates when trying to find ways to pay for your homeowners’ insurance. As was stated earlier, the official legal title for your home is held by the CalVet agency. This allows them the opportunity to provide you with the group homeowners insurance rates that you can receive at a discount. Your low deductible insurance is already included with your homeowner’s insurance most of the time so you can get amazing coverage that is at a low cost to you. Additionally, you can finance the funding fee that is required for you to receive the CalVet loan. You can qualify to get up to 100% of your home’s value financed by CalVet. Although this is true, the amount of financing you can receive depends on how much your home costs. The CalVet loan has a limit of $521,250 so you won’t be able to receive financing that is above this amount. One of the major deterrents associated with the CalVet loan is the fact that you won’t have as much flexibility with your loan choice given CalVet is in possession of the legal title for your home. This means you won’t be able to refinance your loan through the CalVet agency. You will have to go through another conventional loan program to make this happen.
Summary: The CalVet loan is a great option for people who are active duty military or a veteran of the armed services. There are many benefits associated with the CalVet loan that are quite comparable to the VA loan. You should do extensive research to make sure this is the loan you want to use when purchasing you first home in California. It is essential that you understand that the legal title of your home will be held by CalVet while you hold the equitable title. There is a major difference that you need to be fully familiar with before you borrow money from the state of California. Although there are a few drawbacks, this can be a great loan option for you to become a first-time home buyer in California.
General Recap of Minimum Requirements for CalHFA Loans
Making the decision to purchase your first home in the beautiful state of California can bring on a large variety of emotions and hardships. Most of these hardships are associated with the financial burden you now have to bear from purchasing a new home. A decent portion of the loans available for first time home buyers are CalHFA loans. These loans are supported by the California Housing Finance Agency. It was originally established in the year 1975 to provide more affordable options for people trying to purchase homes in California for the very first time. Through this agency, you won’t receive physical money. The main goal of this agency is to put you in contact with the third-party lenders who are going to want to lend you money to purchase your home.
There is a succinct list of general requirements you need to fulfill in order to be eligible for these loans within the state of California.
1. Qualified as a First Time Homebuyer. You must be considered a “first time homebuyer” to qualify for any of these loans. This doesn’t necessarily mean you’ve never owned a home before. This just means that you have either never owned a home before or you haven’t owned a home within the past three years.
2. Reasonable Credit Score. You need to have a decent credit score that proves you are somewhat responsible with your money. No third-party lenders are going to want to let you borrow money if they don’t think you are going to eventually pay it back. Your credit score is a great determinant for outside lenders to understand how you handle your current influx and outflow of money. You need to usually have a 660 minimum credit score to be eligible for these loans.
3. Learn from the Homebuyer Educational Course. There is a homebuyer educational course you have to take before you purchase your first home. This course is designed to provide you with all the information you need to know in order to make the most beneficial decision for you. There are a lot of financial nuances associated with purchasing a home. The one-on-one sessions provided in this course will give you the chance to make sure you understand the financial undertaking you are committing to when purchasing a home.
4. Annual Income and Debt-to-Income Ratio Values. When you are applying to receive these loans, your annual income can’t exceed a certain limit that is specified by CalHFA. These limits can vary depending on the area you want to purchase your home in. If your annual income exceeds the specified limits, you may not be eligible to receive a loan from CalHFA.
You also need to have a debt-to-income ratio that is considered acceptable when comparing the amount of income, you make to the amount of expenses you have. This ratio can’t be any higher than 43% for manual underwriting and 45% for underwriting that is completely automated. Even if you meet all of the above requirements, you must also be either a United States citizen, qualified alien, or permanent resident to be eligible for the CalHFA loan.