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California First-Time Homebuyer

Buying a home for the first time can be overwhelming. However, California first-time homebuyers have access to special loan programs and resources that will make the process more manageable.

I created this California first-time homebuyer guide to help new homebuyers navigate the process of buying their first home. With over 17 years of experience as a Mortgage Loan Officer, I understand what first-time homebuyers go through.

If you have a question, want to discuss loan program options, or need a pre-qualification letter. You can reach me by phone (1-800-550-5538) or through my website.

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What You’ll Learn From My First-Time Homebuyer Guide

  • CA Homebuyer Programs: There are three main California first-time homebuyer loan programs. I cover the essential requirements and qualifications for each home loan program.
  • Down Payment Assistance: The California Finance Agency has a specialized California first-time homebuyer Down Payment Assistance program.
  • The Home Loan Process: This is an overview of the home loan process and how to stay on top of your first mortgage transaction.
  • Mortgage Calculator: This is my simple-to-use home mortgage calculator. With this house finance calculator, you can figure out your monthly payment.
  • How To Get A Lower Rate: Here, I give you ten solid ways to lower your home loan interest rate. A better rate means you’ll pay less interest during the loan.
  • Frequently Asked Questions: In this section, I answer California first-time homebuyers’ most common questions. Like – What are impounds?; When is my rate locked?
  • Why First-Time Homebuyers Need A Great Team: Having experienced and trustworthy professionals working on your behalf is a key ingredient to a successful transaction.

California First-Time Homebuyer Programs

There are three main loan programs for California first-time homebuyers to consider.

  • Conventional/Conforming loans
  • FHA home loans
  • VA home loans

There are other options available, but nearly all first-time homebuyers use one of these three loan options, and below I’ll discuss them in detail.

Conventional/Conforming loans

You’ll hear these two terms a lot as you start the process (Conventional and Conforming). Conventional loans are any home loans not backed by the United States government (such as FHA home loans which the government backs).

Conforming loans are specific types of Conventional loans that “conform” to the underwriting standards and loan amount requirements of mortgage giants Fannie Mae and Freddie Mac. All Conforming loan programs are Conventional loans; however, not all Conventional loans are Conforming loans.

As a California first-time home buyer, you’ll most likely consider a Conforming home loan as a first option unless you have a low credit score and a small down payment or if you are a veteran.

The most popular Conforming loan is the 30-year fixed-rate option, and then there is also a 20-year fixed-rate and a 15-year fixed-rate option. Two additional programs include a 25-year and a 10-year fixed rate option, but few California first-time homebuyers select those two programs.

FHA Home Loans

If you are a first-time homebuyer in California, have a credit score below 700, and have a small down payment, you may want to look into the FHA home loan program. It’s one of the best loan programs for first-time homebuyers who don’t qualify for a Conforming loan.

Like Conventional/Conforming home loans, the most popular FHA home loan program is the 30-year fixed-rate loan program. It offers the stability of a fixed rate and the flexibility of a lower monthly mortgage payment.

If you have a credit score above 580, you can put down as little as 3.5%; if your credit score is 579 or below, you can put down as little as 10%. FHA home loans can be used for Single Family Residences (SFR), Condominiums, Townhomes, and Multi-Unit (2-4) properties (as can Conforming loan programs).

Another great feature of the FHA home loan program is the ability of a first-time homebuyer to purchase a home even if they are only one day out of a Chapter 13 Bankruptcy. That’s a huge benefit the FHA program offers to those trying to get back on their feet after completing a Chapter 13 Bankruptcy.

VA Home Loans

Are you a veteran and a California first-time homebuyer? If yes, you’ll want to consider the VA home loan program. It’s an excellent loan program with significant benefits. The benefits of the loan program are;

  • No down payment requirements
  • No Mortgage Insurance
  • High debt-to-income ratios are allowed
  • Low fixed mortgage rates

The VA home loan program for California first-time homebuyers helps thousands of people annually, and the program’s benefits are significant.

First-Time Homebuyer Down Payment Assistance Program

A Down Payment Assistance (DPA) program is offered to eligible California first-time homebuyers. The program is provided through the California Finance Agency, and it’s called the MyHome Assistance Program.

Down Payment Assistance Programs

The money you put “down” or the down payment on your home loan can be one of the largest hurdles for many first-time homebuyers. That’s why CalHFA offers several options for down payment and closing cost assistance. This type of assistance is often called a second or subordinate loan. CalHFA’s subordinate loans are “silent seconds”, meaning payments on this loan are deferred so you do not have to make a payment on this assistance until your home is sold, refinanced or paid in full. This helps to keep your monthly mortgage payment affordable.

Source: CalFHA

This is an excellent way for low to moderate income borrowers to obtain the down payment they need to buy their first home. Here are the key requirements of the MyHome Assistance Program;

It’s important to know that the property you are buying must either be a one-unit Single Family Residence or an approved Condominium or PUD. Some Manufactured Homes are permitted.

The Home Loan Process

As a first-time homebuyer, you’ll want to be prepared for the home loan process before you decide to look for a new home. Here’s a quick breakdown of the home loan process.

Pre-Qualification

A home loan pre-qualification is an excellent way to get prepared when you begin your home search. Getting pre-qualified will allow you to know how much you can afford and determine what home loan program is right for you.

There are hundreds of various loan programs, and this process alone (of figuring out which one is best for your situation can) can take several days.

Pre-qualified will allow you to search for a home and avoid additional stress. Also, it will strengthen your offer when the agent presents it to the seller.

Documents You’ll Need To Get Pre-Qualified

  • Gather your income documentation: If you receive a W2, this includes the last two years of your W2s and your most recent pay stubs. If you are self-employed, that means the previous two years of your tax returns.
  • Asset Statements: Have ready the most recent statement from which closing costs and your down payment will come from. If you can provide the two most recent statements, even better!

The Next Step For Pre-Qualification

The next step for getting pre-qualified is completing an application. You can do this online, complete the physical application by hand, or you can complete the application over the phone. Being a first-time homebuyer, we highly suggest you complete the application over the phone. It will take a lot less time and be significantly easier for you.

Here is the general information you’ll need to complete the home loan application;

  • Personal information: Your name, address, social security number, and date of birth.
  • Employment information: Name of your employer, address, job title, contact phone number, and how long you’ve been in the same line of work and with this current employer. You’ll need the necessary information about your business if you are self-employed.
  • Income information: If you are a W-2 employee, you’ll need your gross annual or monthly income. If you are self-employed, you’ll need your net annual income.
  • Asset information: Be prepared to provide the amount of cash you have in the bank for a down payment and/or liquid reserves. Also, they will need the name of the bank and the address.

What Happens Next?

The next step in the first-time homebuying process is for the Loan Officer to complete the pre-qualification process and issue a pre-qualification letter. The Loan Officer should only take 24-48 hours to complete this, and once you are pre-qualified, you’re ready to start looking for that perfect home!

Making An Offer

You are pre-qualified, and you are ready to make offers. Make sure you stay in contact with the Loan Officer as you make offers, and don’t hesitate to get updated quotes and loan payment information.

When you make an offer, it will be in the form of a contract. You need to be familiar with many clauses, actionable items, and definitions in the contract. This is where an experienced, and trusted Realtor can help, and I suggest every first-time homebuyer use one. An important item I would like to point out is the contingency clauses.

What is a home purchase contract contingency clause?

Basically, it’s a requirement that must be met for the purchase of the home to move forward, and if it’s not met, the buyer or seller can cancel the contract without a negative legal consequence. An example of one contingency clause is the “Loan Contingency” clause.

This is where the buyer has a certain period of time (usually 14-17 days) to obtain an underwritten approval from a mortgage lender’s underwriting team (which is different than a pre-qualification from a Loan Officer). If the underwriting team does not approve you, you can cancel the contract and receive back your earnest money deposit.

Other contingency clauses include an Appraisal Contingency and Home Inspection Contingency.

Here Is What Happens After You Have an Accepted Offer

Congratulations on your accepted offer! Once this happens, we move everything forward to ensure we close on time or before. You’ll have to provide updated income and asset documentation if it’s been more than four weeks since your initial pre-qualification.

Here are a few things to keep in mind while the underwriting team reviews your file

These are two essential steps before you can move forward with closing. The home inspection will give you insight into the quality of the house you are buying. The home appraisal will provide an independent property valuation based on recent sales in the area.

Once all the conditions are cleared, you’re ready to close. You’ll sign the loan documents and wire the funds for closing.

A Suggestion To Each First-Time Homebuyer

You may be asked by the seller (or even your Realtor) to waive your “contingencies” to make your offer “stronger.” I highly suggest you do not waive any of your “contingencies” when making an offer.

As a first-time homebuyer, you are still learning the process of buying a home, so it’s important to have these protections in place. They allow you to cancel the contract if the inspection shows deficiencies with the property, the appraised value is below the purchase price, and/or you cannot obtain full underwritten approval.

Consumer Protection

Here in California, four main agencies protect consumers during the mortgage process.

As a California first-time homebuyer, it’s important to know what consumer protections are in place. These four agencies are actively ensuring that all homebuyers are protected.

As a group, they regulate the mortgage industry to ensure the consumer is not taken advantage of. They also license Loan Officers and mortgage companies so that industry professionals are knowledgeable about state and federal laws.

In addition to that, they provide a wealth of educational information so homebuyers can make better decisions. The CFPB is an excellent resource for educational tools, and we highly suggest you use the tools they provide.

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Home Mortgage Calculator

Here is our easy-to-use home mortgage calculator. Just enter your estimated home value, loan amount, interest rate, and how long you want your home loan to be to get your monthly mortgage payment.

You can also add things like property taxes, property insurance, and PMI (or MI) to your payment.

Advanced Mortgage Calculator For City Pages

Loan Information

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Financial Analysis

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How to Get a Lower Rate

Here are the top ten ways to lower your home loan interest rate.

Bring Late Payments Current 

If you have any late payments on consumer debt, bring them current. Credit bureaus consider a payment late if it’s over 30 days late. This shows lenders you are a risk. Bring all late payments current and apply for a mortgage loan when you have a 12-month history of on-time payments. 

Pay Credit Card Balances Down 

Your credit card balances shouldn’t exceed 30 percent of your credit line. For every $1,000 credit line, you shouldn’t have more than $300 outstanding. If you do, it lowers your credit score and decreases your chances of securing a better mortgage. 

Make Your Rent Payments On Time 

If you have housing payments (rent), make sure you make the payment on time. A late housing payment shows lenders you are high risk, and they won’t give you the best rates available. They want borrowers with a track record of paying their rent on time.

Have a Stable Employment Record 

Lenders like it when you have at least a two-year history at the same employer. This shows stability and consistency, two things lenders want to see. If you changed jobs in the last two years, that’s okay, but try keeping it within the same industry. 

For example, if you were a teacher before and changed to become principal or take an admin job at the school, you’re in the same industry. But if you switch from teacher to accountant, there is no consistency or stability. 

Have a Sizeable Down Payment

If you’re buying a home, save as much money as possible for the down payment. The more money you invest, the lower the risk you pose to a lender. You don’t need 20 percent down to get the lowest mortgage rates, but a sizeable down payment helps. 

And saving for a down payment might not be as hard as you think.

Take A Shorter Term 

Most borrowers automatically go for the 30-year fixed loan, but what if you could afford a shorter term? Most lenders offer lower interest rates on shorter terms. You don’t have to take a 15-year term if you can’t afford the higher payment; the 20-year term offers lower mortgage rates too.

Buy The Rate Down 

If you have the lowest rate you qualify for, consider paying discount points. One point may lower your rate by 0.25 percent. This varies by lender, but that’s the average. 

One point is equal to $1,000 for every $100,000 you borrow. If this is your “forever home,” it may be worth paying the points to get the lower mortgage rate. Look at the total savings; your savings over the loan’s term will likely far exceed the cost of the points at closing. 

You also should consider a temporary buydown mortgage. This type of mortgage allows for a temporary interest rate reduction.

Consider an ARM Loan 

If you want the absolute lowest rates available, you might want an Adjustable Rate Mortgage (ARM) loan, but proceed cautiously. ARM loans have low introductory rates. They are usually lower than the fixed rate but only last for a certain period. 

Let’s say you take a 5/1 ARM. You’d have the lower rate for five years. At the end of the five years, your rate will adjust according to the current market, chosen index, and pre-determined margin. 

ARM loans are good for borrowers who will be in the home for a short time and want to save the most on their payments while in the home. 

Lower Your Debt-To-Income Ratio 

After your credit score, lenders look at your debt-income ratio. Underwriters want borrowers with minimal debts so that they can afford the mortgage payment. 

Each loan program has different DTI requirements, but no matter the program you choose, the lower the DTI, the lower the rate lenders offer. Before you apply for a mortgage, pay down as much consumer debt as possible to get the lowest mortgage rates. 

Have Reserves 

Most loan programs today don’t require reserves, but if you have them, and you have a high debt-to-income ratio you might need them. Lenders calculate reserves based on your mortgage payment. 

For example, if you have $10,000 in a liquid account and your mortgage payment is $1,000, you have ten months of reserves. And if your debt-to-income ratio is high, an underwriter might require reserves.

Securing The Lowest Possible Mortgage Rate

Securing the lowest possible mortgage rate isn’t too hard. It takes a little due diligence and plenty of preparation. Maximize your qualifying factors, so lenders want to lend to you and give you the lowest rates to be competitive and earn your business.

Frequently Asked Questions

Here are some of the frequently asked questions first-time homebuyers have.

What are impounds (aka escrows)?

Impounds are a monthly payment for your annual property taxes and/or annual property insurance amounts added to your monthly mortgage payment. And if you have PMI or MI, you will be required to set this up, and the impounds will also include the PMI or MI monthly payment amounts.

What is a rate lock?

A rate lock is when the mortgage company locks in the rate you were quoted. Some lenders do this automatically once you apply, some wait, and some mortgage lenders won’t lock in the rate until you are ready to close. Be sure to discuss with your Loan Officer what their rate lock policy is before you move forward with the process.

What is a debt-to-income ratio?

A debt-to-income ratio (DTI) is a calculation the mortgage company uses to see if you qualify for the home loan amount you are trying to get approved for. It measures the amount of debt you have against your monthly income. Generally speaking, if you have a DTI of 45% or less, you should be approved by underwriting. I’ve seen approvals as high as 50%.

What is a pre-payment penalty, and will I have one?

A pre-payment penalty is a fee you might pay if you pay off your home loan in a certain period of time (if you have one).

When it comes to Conforming and FHA home loans, there are no pre-payment penalties. You can pay off those loans at any time without penalty.

However, some non-Conforming and non-FHA home loans, like the Bank Statement Mortgage, have pre-payment penalties. Keep that in mind if you go outside the loan programs I’ve discussed.

Can the seller of the home pay for some of the closing costs?

Absolutely! The amount the seller can pay has changed throughout the years, but usually, you can have the seller pay closings cost that total 1% to 3% of the purchase price.

Can a family member gift me the downpayment amount?

Yes! However, the guidelines around this have changed several times over the years, so you might be required to provide some funds that either go towards closing costs and/or the downpayment.

Please visit our Key Mortgage Terms page for additional information on important mortgage terms.

first-time homebuyer

Why First-Time Homebuyers Need A Great Team

Buying your first home is very exciting, and at the same time, it can be daunting and confusing. For most California first-time homebuyers, this is the biggest transaction of their lives, and many have never had experience in making an important decision.

Having a great team around you will help dramatically; an experienced realtor with a track record of helping first-time homebuyers, a reputable mortgage company that offers first-time homebuyer loan programs, and an experienced Loan Officer that listens first and then provides solutions.

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Here Are Some Tips For First-Time Homebuyers

Here are some simple tips for First-Time Homebuyers.

Send The Right Documents: Only send in the requested documentation; if you don’t have a document, then discuss that with the Loan Officer before sending anything else in.

Go With A Payment You Can Easily Afford: Being a first-time homebuyer; you may not be aware of many things associated with homeownership. Since this will be your first mortgage transaction, we suggest you obtain a 30-year fixed mortgage rather than a 20-year or a 15-year fixed mortgage. After a couple of years of homeownership, look at a shorter term if it fits your budget.

Avoid Risk When Possible: There is a lot of pressure when buying a home; some of that pressure is internal and others external. It’s important not to let that pressure put you in a risky situation. Previously I mentioned not waiving your Contingency options. That is an excellent example of avoiding unnecessary risk during the homebuying process.

Here are additional money-saving first-time homebuyer tips and if you have any questions or want a free quote you can contact me directly at 1-800-550-5538.

Loan Officer Kevin O'Connor

About The Author

Loan Officer Kevin O'Connor has over 17 years of experience as a Mortgage Loan Originator and is a trusted resource for mortgage education and information. He's licensed by the state of California and the Nationwide Mortgage Licensing System. He has a top rating with the Better Business Bureau, Google, Yelp, and Zillow. You can contact him at 1-800-550-5538. CA DRE #01499872 / NMLS #247447