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California Assistance Options
BREAKING NEWS! - Updated for 2018
CalHFA has announced a complete UPDATE that INCREASES qualifying income limits. The number of the people living in the home is no longer a requirement to qualify for down payment assistance.
Income limits throughout the State of California range from $118,550 to $228,300 in high cost Counties.
This increase puts down payment and closing cost assistance within the reach of most first time home buyers in California.
Maximum purchase price limit is $660,000
California Housing Finance Agency
CalHFA is the State of California official first time home buyer assistance agency.
- Zero Interest Program (ZIP) - Either 3% or 4% of first mortgage can be used for closing costs only.
- MyHome Assistance Program - 3.5% of first mortgage can be used for down payment or closing costs. Can also be combined with ZIP
- Extra Credit Teacher Program (ECTP) - Low interest silent second mortgage available to education professionals in State of California
Mortgage Credit Certificate (MCC)
A mortgage credit certificate is a special tax credit available to first time home buyers.
A MCC can only be applied for by your lender, at the time you are securing financing on your first home.
How it Works
A MCC allows home owners to use a portion of their mortgage interest, and convert it into a dollar for dollar tax credit that can be used to offset taxes owed to the IRS.
This is not an assistance program that will help you with the down payment or closing costs on your home loan. It will, however, allow you to offset thousands of dollars of taxes over the life of the loan.
Take Out Less Taxes, Take Home More Pay
You are able to use your MCC tax credit every year that you live in the home. If you refinance the home, it is possible to retain the MCC as long as your loan officer is aware, and knows how to initiate the process of preserving the credit.
Many home buyers will adjust their withholdings to accommodate the reduction in taxes being paid out of each pay check.
Less deductions from each check means more money in your pocket!
Read More: MCC - First Home Buyer Tax Credit
Community Reinvestment Act (CRA)
The Community Reinvestment Act (CRA), enacted by Congress in 1977 is intended to encourage depository institutions to help meet the credit needs of the communities in which they operate.
How it Works
In most cases, a CRA program will offer a discounted interest rate to first time home buyers that meet low to moderate income limits for the are in which you are buying.
It is not uncommon for eligible buyers to receive an interest rate between .25% and .50% lower than the "market" is offering at the time.
Seller Closing Cost Credit
It is not uncommon for you to negotiate a closing cost credit from the seller when writing an offer to buy a home.
This credit will come from the seller's proceeds from the sale, and will be directly applied to the closing of your loan by the escrow or title company, or attorney that is handling your purchase.
Depending on the type of financing you're using, and the amount of down payment you have, the seller credit may be limited to a certain percentage of the purchase price.
Seller concessions cannot be used for down payment, and cannot exceed the actual closing costs.
As a home buyer, you are not allowed to get money back from the purchase of a home.
Closing Cost Credit
It is not uncommon for you to negotiate a closing cost credit from the from your lender or real estate agent to help cover the closing costs when buying a house.
The amount of these credits may fall under maximum interest party contribution guidelines and may be limited if you are also receiving concessions from the seller.
A credit from your real estate agent will come directly from the commission that they earn from helping you buy your home. This money does not come out of your pocket, and will affect the compensation your agent receives for the work that they do for you.
A credit from your lender will typically come in the form of premium pricing that occurs when you choose a slightly higher interest rate in exchange for a closing cost credit.
A credit from your real estate agent or lender can only be used to cover closing costs, and may not be used to meet down payment requirements.
Many employers offer assistance programs for their employees to help them buy their first home.
This assistance can come in the form of a grant, or matching program where the employer will match the employee's down payment up to a certain amount.
These programs are designed to create more stability in the work force by helping employees become more permanently embedded in the area by owning.
Employer home buying assistance programs also make for happy employees!
As long as your employer's home buyer assistance program is documented in the employee manual and is available to all employees of the company, these funds can be used to cover either down payment or closing costs.
Borrow from Yourself
Many 401k and other retirement plans will allow you to borrow money to buy a home.
The terms for withdrawal and paying back the loan may vary from plan to plan, and this is an acceptable source of down payment or closing costs.
If you plan to take out a loan from your 401k to buy your home, it is important that both your real estate agent and lender communicate and coordinate to make sure there are no delays.
It is not uncommon for you to get your offer accepted prior to ordering the funds from your 401k. The exact amount of the loan is calculated is typically calculated off of the actual purchase price, not what you think you might need.
You may also want to have this money wired directly to the closing table to ensure that there is an appropriate paper trail.
If you can document the source of your down payment or closing costs as a 401k loan, then additional seasoning and documentation requirements should not apply.
Using Gift Funds
A "gift" is money received from an acceptable source with no terms for repayment.
Gift funds are most commonly given by a direct relative by either blood or marriage. The most common receipt of gift funds come from a parent giving money to a child for the purposes of paying down payment or closing costs.
If your intention is to get a gift to help cover down payment and closing costs, bring this up to your loan officer early in the process.
Receiving or documenting gift funds the wrong way could result in not being able to use the gift. This could be tragic if you're coming up fast on your closing date.
A first time home buyer expert will be well versed in the proper process and procedure to make sure you don't have any issues with your gift funds at closing.
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A Helping Hand for California Home Buyers
Down Payment Assistance
Down Payment Assistance is available in the State of California through local bond programs, national assistance programs and the State Housing Finance Agency (CalHFA).
Budgetary restrictions have all but eliminated most local City and County down payment assistance programs.
Assistance programs include Zero interest, deferred payment loans as well as several Grant programs that do not need to be paid back.
Always read the fine print when using a down payment assistance program. There are often hidden costs, higher rates, and sometimes even recapture taxes or equity share clauses that if known, would probably prevent you from using the program in the first place.
First Home is Not First Loan
Many first time home buyers don't think of their home loan as temporary. In a perfect world, you have great credit, a large down payment, and you've got a steady job that you've been at for years.
In the event that you are not in a position to qualify for the "best" loan the first time, a mortgage professional can show you how to use home buyer assistance to get you into the home, then set you up for a more permanent loan down the road.
The single most important thing you can do at this point is to buy your first home by almost any reasonable means. Once you're in the home and earning equity, you will have many more options in the future for finding the right long term loan.
It is not unusual to use an expensive assistance program to buy your home, and then refinance it into a lower cost, lower payment loan after 6 to 12 months.
This is the luxury you will have when you work with a mortgage professional that is looking out for your best interest every step of the way.
When planning to buy your first home in California, it's important that you work with a professional loan officer that specializes in guiding first time buyers through the process.
The last thing you want to do as a first time home buyer is to fall for the deceptive advertising and over promises of big box lenders that will try to dump you into mortgage call center somewhere.
Buying your first home is one of the biggest financial investments you're likely to ever make in your life, and it's simply too important to trust to anyone other than an expert that solves mortgage problems for a living.
Working with a first time home buyer expert will save you time, money, and potentially a lot stress by preventing rookie mistakes throughout the process.
A professional mortgage loan officer will discuss your goals, analyze your credit profile, and help guide you into the best loan program you qualify for.