Down Payment Assistance Programs in California

The words of American humorist Mark Twain still ring true: “Buy land…they’re not making it anymore.”

If only it were that easy.

Home ownership as a way to build wealth is particularly challenging in California, home to four of the top 10 most expensive housing markets in the country.

Only Hawaii is pricier than California where the median home price has climbed to $860,500 with predictions that it will soon reach $1 million.

In recognition that few people in California come to the real estate market with Jed Clampett oil money, the state has long offered substantial help to qualifying first-time home buyers in the form of special mortgages, down payment assistance and home buyer education.

Without down payment assistance programs, first-time home ownership for many in California is even more daunting than rush hour traffic in a downpour.

Down Payment Assistance Programs in California

State housing finance agencies are a major resource for homebuyers trying to get a foothold in housing markets across the country.

It’s no different in California where the California Housing Finance Agency (CalHFA) was created nearly 50 years ago expressly to expand access to affordable mortgages through first-time home buyer programs.

Those programs have opened the door for low- and moderate-income homeowners to get closing cost help and down payment assistance. In 2023, CalHFA programs helped nearly 7,700 first-time buyers get into the housing market.

Many prospective home buyers, even those with two incomes and the means to make sizable mortgage payments lack the available cash needed for down payments and closing costs.

Down payment assistance programs work in a number of ways, through cash grants, low-cost loans, or loans that might even be forgivable under certain circumstances.

The Urban Institute estimates more than 1,700 down payment assistance programs are offered in the U.S., predominantly at the state level.

CalHFA itself has several programs offering fixed-rate conventional and government-backed loans for first-time buyers who meet certain requirements. Those programs in turn offer the option to roll in a down payment and closing cost assistance for eligible home buyers.

“CalHFA’s homeownership programs are ongoing and open to low- and moderate-income Californians across the state who meet credit requirements which vary by program and will occupy the property as their primary residence,” Chris Saur, Information Officer at California Housing Finance Agency, said.

“Our goal is to promote sustainable homeownership and therefore it requires borrowers to complete homebuyer education counseling.”

California Dream For All Program

This program offers as much as 20% for down payment or closing costs up to $150,000 through a voucher program that might feel like hitting the lottery for cash-strapped first-time homebuyers.

Registered homebuyers selected in a random drawing must meet eligibility and borrowing criteria:

• Be a California resident
• Have a minimum credit score of 680
• At least one first-generational homebuyer, meaning that individual has not owned a home in the U.S. on their own or through their parents in the last seven years
• Must meet first-time homebuyer criteria.
• In utilizing the Dream For All Shared Appreciation Loan, borrowers must not exceed income limits that range from $139,000 to $295,000 depending on the county of residence

MyHome Assistance Program

CalHFA’s MyHome Assistance Program is a deferred payment loan that provides up to 3.5% of the purchase price or appraised value to assist with down payments or closing costs.

Saur said the “vast majority” of borrowers served by CalHFA use its MyHome assistance program in combination with the agency’s FHA or conventional loan.

Eligibility and borrowing criteria for the MyHome program include the following:

• Must be a first-time homebuyer
• Must occupy the property as a primary residence
• Must complete a homebuyer education counseling and present a certification of completion
• Must meet county income criteria

Note: The property must be a single-family, one-unit residence though allowances might be made for guest houses, granny units and in-law quarters.

“Borrowers typically use MyHome down payment/closing costs assistance combined with a CalHFA FHA or Conventional First Mortgage,” Saur said.

First Time Home Buyer California Mortgage Programs

Not everyone can use the equity built in an existing home to meet the needs of a growing family or the challenges of a work-related relocation to a more expensive real estate market.

Exploring the wide variety of available loans and down payment assistance programs and how they might complement other programs is an invaluable exercise for qualified homebuyers.

CalHFA FHA Loan Program

This is a FHA-insured loan that features a 30-year fixed interest rate on first mortgages.

CalPLUS FHA Loan Program

The CalPLUS FHA program is an FHA-insured first mortgage that has a higher 30-year interest rate. It’s combined with the CalHFA Zero Interest Program (ZIP) to help with closing costs.

CalHFA VA Loan Program

The VA insures this loan that offers a CalFHA 30-year fixed rate first mortgage.

CalHFA USDA Program

This program, carrying a USDA guarantee, can be combined with the MyHome Assistance Program. It features a 30-year fixed interest rate first mortgage.

CalHFA Conventional Loan Program

A first mortgage loan insured through private mortgage insurance, it carries a 30-year fixed interest rate.

CalPLUS Conventional Loan Program

Like the CalPLUS FHA loan, this carries a slightly higher 30-year fixed interest rate than the standard conventional program but is combined with the CalHFA Zero Interest Program for closing costs.

Application Process

CalHFA does not directly lend money to first-time homebuyers in need of down payment assistance or help with closing costs.

“Borrowers will access the program through CalHFA’s Approved Lender partners, which are the best resource to examine a potential homebuyer’s individual financial situation and then recommend the best path to homeownership, either through CalHFA or some other program,” Saur said.

The process of identifying and qualifying for a down payment assistance program can go as smoothly if you follow certain steps:

• Check your eligibility. No sense going any further house hunting if you don’t meet the eligibility requirements concerning credit score (typically a 660-680 minimum) and other restrictions.
• Research lenders who participate in the down payment assistance program of your choosing.
• Provide documentation. Collect all pertinent personal information, including Social Security ID, income verification, tax returns, bank statements and proof of debts and assets.
• Get pre-approved for a mortgage. In short, you’ll know how much home you can afford. It will save time when you begin looking at homes with a real estate agent. Once you’re pre-approved you can apply for down payment assistance with your lender.
• Apply for a mortgage. This is similar to the paperwork you filed to get pre-approved.
• Practice patience. It isn’t easy finding a home in a competitive market. Once you do, the process of closing on a property can take anywhere from two weeks to two months.

The U.S. Department of Housing and Urban Development. Visit the local homebuying programs page on HUD’s website and select your state to see a list of programs.

HUD-approved housing counselors. The Consumer Financial Protection Bureau has a tool to find a housing counselor in your area.

Down Payment Resource. The company offers a tool on its website to find home buyer programs in your area. The online form requires you to provide contact information.

Available Resources and Support

Access to down payment assistance programs for first-time homebuyers is available through several sources:

• Workshops
• HUD-approved housing counseling agencies
• City and county governments
• Local community organizations
• Down Payment Resource, a company that can help you find homebuyer programs in your area.
• State housing finance agencies

CalHFA, for instance, does outreach through homebuyer fairs, social media and in tandem with community-based organization partners.

“But mortgage professionals, particularly lenders, are by far the best resource to learn about the programs,” Saur said.

Should You Use a First-Time Home Buyer Program in California?

First-time homebuyer programs in California can be a helping hand or a lifeline depending on your financial situation. Exploring available programs is more than a luxury for some homebuyers. It’s a necessity.

If real estate is location, location, location, as the saying goes, getting down payment assistance for first-time homebuyers requires education, education, education.

Grants, zero-interest loans (some forgivable) that don’t have to be repaid until the home is sold or refinanced, and low-interest loans that spread the down payment and closing costs over several years can make a huge difference but only if you know where to look.

Some first-time homebuyer programs are geared toward government workers, teachers, police officers and emergency responders. Do your homework. And keep in mind that the definition of a first-time homebuyer is a bit of a misnomer as it applies to someone who hasn’t owned a home in the previous three years.

In a state where the housing demand never seems to fade, down payment assistance programs might well be the difference between owning a home and remaining on the outside looking in.