First-Time Home Buyer Guide for California

Danetha Doe

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Danetha Doe

March 17th, 2022
Updated March 17th, 2022

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First-time home buyer requirements | Assistance programs | Low-income options | FAQs

The state of California and local non-government organizations offer several first-time home buyer assistance programs to help you move into the home of your dreams.

These programs can assist first-time home buyers with:

Additionally, first-time home buyers may qualify for grants to cover a portion of their down payment or closing costs. Grants are free money that you don't have to pay back if you meet the grant’s requirements, such as remaining in the home you buy for a certain number of years.

Many of these first-time home buyer programs can be good alternatives to conventional loans for buyers who don't have a down payment saved up, have a low credit score, have low income, or live in an expensive area.

Keep reading for more information on how to achieve your goal of buying your first home and building wealth in the process.

🏠 California's housing market

Property values are rising slightly: California's median house price rose 1.8% to $796,570 from December 2020 to December 2021.

Mortgage rates are rising: In California, mortgage rates average 3.25% for a 15-year mortgage and 4.125% for a 30-year mortgage according to U.S. Bank.

It's a competitive seller's market: The average time a home is on the market in California is 69 days vs. the national average of 78 days.

What are first-time home buyer requirements in California

Residency requirements | Credit score | Debt-to-income ratio | Savings needed

A first-time home buyer is someone who hasn't owned and occupied their own home in the last three years. That means if you've never owned a home, you're a first-time home buyer.

You also qualify as a first-time home buyer if you owned and sold a home three or more years ago.

What are first-time home buyer residency requirements in California?

To qualify for California's first-time home buyer programs, the home you purchase must be your primary residence. You can't rent it out or use it as an investment property.

In California, you don't have to be a resident to qualify for the first-time home buyer programs. A resident is an individual who has lived in the state for at least 12 months.

What credit score does a first-time home buyer need?

In California, many lenders require a minimum credit score of 620. However, the credit score requirement for a first-time home buyer will depend on a variety of factors.

🔑 Some lenders may be flexible on their requirements
For example, lenders may be lenient on your credit score if you have a low debt to income ratio or a lot of savings. When it comes to buying a home, nearly everything is negotiable.

For example, the minimum credit score required to apply to California’s California Housing Financial Agency (CalHFA) programs ranges between 620-680, depending on the program you are applying to.

» LEARN: How to Fix Your Credit Score in 6 Months

What debt-to-income ratio does a first-time home buyer need?

Many lenders in California require a debt-to-income ratio (DTI) of 43% or less to qualify for your first home purchase.

Let’s say your income matches the median household annual income in California of $77,358, which is approximately $6,446.50 per month. And 43% of $6,446.50 is $2,772. This means that your monthly debt payments could not exceed $2,772 per month in order to remain under the 43% DTI threshold.

What shape do my finances need to be in?

You'll need to have adequate savings to cover the down payment and closing costs, in addition to having a qualifying credit score.

You'll need to save at least 3-10% of the home purchase price for the down payment. For conventional loans outside of first-time home buyer programs, some lenders require a down payment of 20%.

You should also save 11% of the home sale price to cover the closing costs, according to the California Land Title Association.

On average, closing costs nationally are between 3–6% of the purchase price, but if you're buying in California anticipate needing closer to the 11% recommended by the California Land Title Association.

Closing costs can be higher in California than other states because the fees related to the closing costs — including the commission, loan processing, escrow, title insurance, and inspections — can be more expensive than other states.

Connect with top local agents who can help you get a great deal on a new home. Eligible buyers will also get 0.5% of the price back as cash in their pocket after closing.

» MORE: Find top local agents and save with Clever Cash Back

How much should I have saved?

A home at the median California price of $796,570 would mean you should anticipate saving between $23,898–159,314 for the down payment, and an additional $87,622 for the closing costs. This is a total of $111,520–246,936 in total savings.

You'll also need to budget for your monthly loan payment (mortgage) and unexpected expenses such as maintenance costs.

The average U.S. homeowner spends $15,405 each year on maintenance, home improvements, and other hidden costs. This is an additional $1,283.75 in potential monthly costs.

If saving tens of thousands of dollars feels overwhelming or unattainable, don’t give up! Several first-time home buyer programs can help you with the costs.

What are first-time home buyer programs in California?

The California Housing Finance Agency (CalHFA) provides first-time home buyer programs that can assist with the down payment, closing costs, or securing a favorable interest rate for your mortgage.

Many of these first-time home buyer programs are designed to support those with low-income to get into the first home and build wealth.

Down payment assistance | Mortgage assistance | Tax credit programs | Help with closing costs

What are first-time down payment assistance programs in California?

Various government and non-government programs can help lower your down payments. A program can either:

  • Reduce the percent of a home's purchase price lenders like buyers to pay from 20% to a lower percentage
  • Cover a percentage of the down payment

In California, expect your down payment to be 3-10% of the home purchase price. (For conventional loans, some lenders require a down payment of 20%.)

As an example, the median home price in California is $796,570. This means that you should anticipate saving between $23,898–$79,657 for the down payment.

If saving more than $20,000 for a down payment feels overwhelming, these programs can help cover the cost.

Government down payment assistance programs

In addition to the programs in the chart below, check with your local city or county government for additional assistance in your area.

Loan typeDown payment amountMinimum credit scoreTerms
California Golden State Finance Authority (GSFA)Up to 5%640
  • forgivable after 3 years
  • 0% interest
  • no monthly payments
CalHFA Government Loans (FHA)3.5%, up to $15,000No minimum
  • deferred-payment junior loan
  • varying interest rate
CalHFA Conventional Loans3%, up to $15,000 (there are exceptions to this cap)No stated minimum
  • deferred-payment junior loan


Non-government down payment assistance programs

In addition to the programs in the chart below, check with your local city or county for non-profits, organizations, or credit unions for additional assistance. None of the following programs state a minimum credit score

OrganizationDown payment amountSpecial aspectsTerms
Empower Homebuyers SCC17%, if you have 3% savedFor Santa Clara County residents onlyA loan with no monthly payments and 0% interest rate. When the loan matures, you sell or refinance the home, you'll pay back the original loan amount plus a percentage of the appreciation of the home’s value.
San Francisco Federal Credit UnionUp to 100% of the down payment costs - which can be up to 20% of the purchase price.Must work in San Francisco or San Mateo County, and your home must be in one of the nine Bay Area countiesA loan with a $1,500 origination fee and a 5/1 adjustable rate mortgage.
Wells Fargo NeighborhoodLIFT®Up to $25,000Your property must be located in a Bay Area county.A loan that's forgiven if you live in the home as your primary residence for at least five years and you don't refinance your loan.


What are first-time mortgage assistance programs in California?

CalHFA and other local programs can assist with securing a more favorable interest rate for your mortgage than you might get with a lender outside of a program. Some programs may also have a reduced private mortgage insurance (PMI) or relaxed credit standards.

In addition to CalHFA, check your local city and county for other mortgage assistance programs. You can also check with your current bank.

Government first-time mortgage assistance programs

Borrowers must:

  • Occupy their property as a primary residence
  • Complete home-buyer education counseling and obtain a certificate of completion through an eligible counseling organization

There are no minimum credit scores stated.

Loan typeTerms
CalHFA FHA Loan ProgramLoan at a fixed interest rate for 30 years.
CalPLUS FHA Loan ProgramLoan at a fixed interest rate for 30 years. This interest rate is slightly higher than the CalHFA FHA program.
CalHFA USDA ProgramThis can be combined with CalHFA’s MyHome program, which offers down payment and closing costs assistance.

Do these first-time mortgage assistance programs have income limits?

Yes. The income limits are based on the city and county where the buyer resides. The CalHFA USDA program has more restrictive limits.

As you review these income limits, if you find that you earn above the income threshold but could still use financial assistance, check out the Home Buyer Empowerment Loan Program in the Bay Area or the Moderate Income First Time Homebuyers Program in Los Angeles.

Below is a chart of the ten most populated counties in California and their income limits as of June 2021. If you don’t see your county listed, check the CalHFA income limits page for your county’s information.

County
Income limit
Alameda
$248,000
Contra Costa
$248,000
Fresno
$139,000
Los Angeles
$158,000
Orange
$211,000
Riverside
$153,000
Sacramento
$180,000
San Bernardino
$153,000
San Diego
$188,000
San Francisco
$248,000

Non-government first-time mortgage assistance programs

OrganizationTermsCredit requirements
Habitat for Humanity-Los AngelesTerms depend on your income. Habitat for Humanity's goal is to provide an affordable monthly mortgage based on your income.Must have good credit, defined as no recent bankruptcies, collections, liens, or judgments.
Frontwave Credit UnionFixed or adjustable interest rate for 15- or 30-year terms. Frontwave offers down payments for as low as 3% and eliminates the PMI.Offers relaxed credit score standards.
Patelco Credit UnionFixed or adjustable interest rate for 15- or 30-year terms. Patelco offers down payments for as low as 3% and sometimes waives the closing costs.740


What are first-time home buyer tax credit programs in California?

The Mortgage Credit Certificate (MCC) program allows families with low income who are first-time home buyers to claim a dollar-for-dollar tax credit for a portion of the mortgage interest paid per year, up to $2,000.

A tax credit essentially reduces your federal tax bill, leaving more money in your pocket.

Individual California counties run MCC programs. Each county determines the percentage of the interest that you can claim as a tax credit. Check with your county to see if MCC is available and the percentage of the interest that you can claim as a tax credit.

What are first-time home buyer grant programs in California?

A variety of organizations provide first-time home buyer grant programs.

Government home-buyer grant programs

City and county governments are your best bet in California, as the state doesn't appear to offer statewide grants.

The Homeownership Grant Program in San Diego, for instance, offers closing cost assistance of up to 4% of the purchase price, not to exceed $10,000. The funds are forgiven at escrow closing. In order to qualify, home buyers can't earn more than 80% of San Diego’s area median income (AMI). In San Diego, 80% AMI for a single person is $67,900 and for a family of four it's $97,500.

Additionally, federal grants are available for first-time home buyers. Visit the U.S. Department of Housing and Urban Development (HUD) HOME Investment Partnerships Program for information.

Non-government home-buyer grant programs

The California Association of Realtors (CAR) offers $10,000 grants to help with closing costs for first-time home buyers. In addition to being a first-time home buyer, you must meet other requirements, including being a member of an underserved community and you must buy a single-family residence. CAR has a list of the complete program criteria.

In addition to grants, check your local city for deferred loan programs or zero interest loan programs. With deferred loans, you don’t have to make a payment on the assistance from the program until your home is sold, refinanced, or paid in full.

While deferred loans aren't “free” money like grants, they do offer significant savings.

What are first-time home buyer closing costs assistance programs in California?

Closing costs assistance programs, which are loans to help to cover the expenses associated with finalizing the real estate transaction, are available through several programs.

Closing costs typically range 3-6% of the home purchase price. In California, however, closing costs can hover around 11%, according to the California Land Title Association. While your closing costs may be less, it's best to prepare to pay 11%.

Closing costs can be higher in California than other states because the fees related to the closing costs, including the commission and loan-processing fees, can be more expensive than in other states.

Most government programs that offer closing costs also offer down payment assistance.

Government closing cost assistance programs

Loan typeClosing costs assistanceMinimum credit scoreTerms
California Golden State Finance Authority (GSFA)Up to 5%640A forgivable loan, also known as a forgivable second mortgage. There is 0% interest and no monthly payments, and it's forgiven after three years — except if you sell or refinance the property prior to the end of three years.
CalHFA Government Loans (FHA)3.5%, up to $15,000 (there are exceptions to this cap)No stated minimumA deferred-payment junior loan
CalHFA Conventional Loans3%, up to $15,000 (there are exceptions to this cap)No stated minimumA deferred-payment junior loan.


What assistance is available for first-time home buyers with low income in California?

State, county, city, and non-profit organizations all offer programs for low-income first-time home buyers. This assistance includes relaxed credit standards, reduced down payment requirements, and more favorable mortgage interest rates.

What defines a low-income home buyer in California?

Income limits throughout California range from $118,550–248,000. They vary by program and by city and county.

Generally speaking, low income is measured as 80% of the area median income (AMI). However, some counties in California allow income limits higher than the stated definition of 80% of AMI to accommodate the increasing housing costs.

Below is a chart of the ten most populated counties in California and their income limits as of June 2021. If you don’t see your county listed, CalHFA’s income limits will provide your area’s information.

County
Income limit
Alameda
$248,000
Contra Costa
$248,000
Fresno
$139,000
Los Angeles
$158,000
Orange
$211,000
Riverside
$153,000
Sacramento
$180,000
San Bernardino
$153,000
San Diego
$188,000
San Francisco
$248,000

Government programs for low-income first-time home buyers

CalHFA offers three programs for folks with low incomes, all of which have no minimum credit score requirements.

Loan typeAssistance offered
CalHFA FHA Loan ProgramFixed interest rate for 30 years.
CalPLUS FHA Loan ProgramFixed interest rate for 30 years. However, the interest rate is higher than the standard CalHFA FHA loan.
CalHFA USDA ProgramThis can be combined with CalHFA’s MyHome program, which offers down payment and closing costs assistance.

In addition to the programs above, check your local community for additional assistance. Below are two examples of local, non-government programs that provide mortgage assistance to first time home buyers with low incomes.

Non-government programs for low-income first-time home buyers

OrganizationAssistance offeredCredit score requirements
Habitat for Humanity-Los AngelesProvides an affordable monthly mortgage based on your incomeMust have good credit, defined as no recent bankruptcies, collections, liens or judgments.
Frontwave Credit UnionDown payments as low as 3% and a reduced PMIOffers relaxed credit score standards.


What assistance is available for first-time home buyers with disabilites in California?

California doesn't offer specific programs for buyers with disabilities.

However, the HomeReady Mortgage by Fannie Mae is a federal program that offers special assistance for persons with disabilities.

What's the process of buying a house for the first time in California?

Below are eight home buying steps to guide you in the process of purchasing your first home.

Step 1: Evaluate your financial situation

Check your credit score and your savings. Ask yourself, “Am I prepared to cover 3–20% down payment costs and the 11% closing costs?”

Step 2: Choose the right neighborhood

Think about the things you need in your neighborhood. This could be public transportation, a quality public school system, arts and cultural activities, or a high walkability score.

Write these down and keep them in mind as you assess the different homes you're viewing.

Step 3: Find a great real estate agent in California

Take your time to interview real estate agents.

👋 Need a great agent on your side?

Connect with top local agents who can help you get a great deal on a new home. Eligible buyers will also get 0.5% of the price back as cash in their pocket after closing.

Step 4: Get pre-approved for a mortgage

You'll need to know how much home you can afford in order for your realtor to be able to best support you in the home-buying process.

» GET PRE-APPROVED: Get pre-approved by a licensed lender

🔑 Tip
Interview three lenders and ask them what products they offer for first-time home buyers. Not all lenders offer the same product; there are some lenders that may offer
3-5% down with or without private mortgage insurance. - Ria Cotton, Broker-Owner of Cotton Realty

Step 5: Start house hunting in California

Check out a ton of open houses to get a sense for what you like and what's available on the market.

Step 6: Make offers

In California, you’ll want to move quickly with putting in an offer because homes are selling fast. However, balance this need for speed with doing your due diligence in the inspection process (Step 7).

🔑 Tip
Review the purchase contract prior to writing your first offer. Price is not always the most competitive in a bidding war. Sellers also look for what contingencies play a factor. The less contingencies the more aggressive the offer. - Ria Cotton, Broker-Owner of Cotton Realty

Step 7: Inspections and appraisals

Always go through the inspection process. Otherwise you may end up with an expensive headache if you later find issues with the home that require you to spend a lot of money to fix.

🔑 Tip
It is wise to allow for an inspection of the home, roof, and wood-destroying organisms (pests) as part of your due diligence. - Ria Cotton, Broker-Owner of Cotton Realty

Step 8: Final walkthrough and closing

Sometimes hiccups come up in the closing process and the opportunity to buy the home falls through. That's ok. Keep pushing and you’ll soon land the home of your dreams.

When you close, pop the champagne and celebrate.

FAQs for first-time home buyers in California

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