Bay Area Homebuyers Have State and Federal Options for Low Downpayment Mortgages

May 29, 2020 Published by

When Bay Area residents start thinking about homeownership the 20 percent down payment required for a traditional home mortgage is often viewed as a barrier to buying into one of the most expensive markets in the country. Fortunately, both California and the federal government have programs that can reduce, and even eliminate, the down payment requirement for middle-to-low-income homebuyers.

These state and federal programs are available to a surprising number of bay area residents because the qualifying incomes are usually calculated based on what other residents in the area are earning. Additionally, both the state and federal governments take local real estate markets into account when providing homebuyer assistance. This means most of the programs can be used to finance Bay Area homes valued at more than $750,000. We will take a closer look at the available programs in the sections that follow.

California Down Payment Assistance Programs

California offers a number of homebuyers’ assistance programs for residents but homebuyers are often left confused as to which options provide the best down payment relief. We will try to provide some clarification here.

CalHFA Conventional Loan Program

The California Housing Finance Agency (CalHFA) provides assistance to low-to-moderate-income homebuyers who meet income specifications with low downpayment mortgages. For most single-family residences and condos, the down payment amount can be as low as 3% of the loan’s value.

The annual income limits for CalHFA loans varies by county, but the maximum income for both Alameda and San Francisco counties is $236,000 as of June 1, 2020. The program may be used to finance the purchase of homes of up to $765,600 in 2020.

Please note that buyers who use CalHFA programs to get loans of more than 80% of the home’s value will be required to pay for mortgage insurance.

CalHFA MyHome Assistance Program

The MyHome Assistance programs are designed to help first time homebuyers with their down payment and closing costs. Program participants will receive either $10,000 or up to 3.5% of the sales price of their home, whichever is lower. The program is only available to buyers with a first mortgage through CalHFA and will satisfy that program’s down payment requirements.

The MyHome Assistance loans are considered “silent” second loans where the homeowner can defer payment for up to 30 years (essentially, the life of the first CalHFA mortgage). If the home is refinanced, sold, or the mortgage paid off the homeowner will be required to pay back the loan at that time. Interest is charged at an annual rate of 2.5%.

CalPLUS Zero Interest Program (ZIP)

CalPLUS ZIP offers home mortgages along with a silent second loan to California homebuyers who are not first-time buyers. The ZIP Loans provide between 3% and 4.5% in down payment assistance as well as reduced mortgage insurance premiums.

CalPlus is a conventional loan program offered by CalHFA with a fixed interest rate and a term of up to 30 years.

GSFA Platinum Program Grants

The Golden State Finance Authority (GSFA) has created a Platinum Program to provide down payment or closing cost assistance to low-to-moderate-income homebuyers. The program provides grants of up to 5% of the total loan amount and need not be repaid by some qualifying buyers. There is also no requirement that applicants be a first-time homebuyer.

The Platinum Program grants may be used with conventional, FHA, and Veterans Administration loans.

GSFA OpenDoors Program

The new GSFA OpenDoors program helps low-to-moderate-income homebuyers with down payment or closing costs assistance of up to 7% of the amount of the first loan. This is a second mortgage where no interest accrues during the lifetime of the first mortgage. No payments are necessary until the first mortgage is paid, the home is refinanced, or the home is sold.

CalHFA School Teacher and Employee Assistance Program

The School Teacher and Employee Assistance Program (STEAP) helps teachers and school employees employed by public or charter schools to purchase homes by providing down payment assistance. The loan is a silent second loan of up to 3.5% of the home’s sale price and charges an interest rate of 2.5%. The loan must be paid back when the home is paid off, sold, or refinanced and can only be used with certain CalHFA loans.

Federal Down Payment Assistance Programs

Both the federal government and private organizations offer down payment assistance nationwide through a variety of programs. We will take a look at each one in the sections that follow.

FHA Mortgages

While a popular option with first-time buyers, Federal Housing Administration (FHA) mortgages are available to all U.S. homebuyers who qualify. The loans allow homebuyers to purchase homes using a down payment as low as 3.5% of the home’s value. For most Bay Area communities’ borrowers may use FHA loans to finance home purchases of up to $765,600.

As with most other low downpayment mortgage programs, buyers with FHA mortgages will be required to purchase mortgage insurance until this outstanding loan amount reaches 80% of the home’s value.

Fannie Mae HomeReady Mortgages

Fannie Mae is a government-sponsored organization that provides mortgages for low-to-moderate-income borrowers. Its HomeReady mortgages give borrowers the option of purchasing a home for a down payment as low as 3% The program is not limited to first-time buyers.

Freddie Mac Home Possible Program

Freddie Mac, is another government-sponsored organization that offers low down payment mortgages through its Home Possible program. Home Possible allows homebuyers to borrow up to 97% of a home’s value.

FHA 203(k) Renovation Loan Program

FHA 203(k) renovation loans are used by homebuyers to finance both the purchase of a residence and necessary renovation work. There are two type of FHA 203(k) loans:

  • Limited loans provide up to $35,000 for renovations but may not be used to repair major structural damage.
  • Standard loans finance purchases needing at least $5,000 in renovations that are non-structural. Borrowers utilizing these loans must hire a Department of Housing and Urban Development consultant to oversee renovations.

The maximum amount for an FHA 203(k) loan is $765,600 and borrowers must make a minimum down payment of at least 3.5%.

Chenoa Fund Down Payment Assistance Program

The Chenoa Fund offers programs that will provide second mortgages for up to 3.5% of the home’s sale price to help borrowers meet the down payment requirements of an FHA loan. Buyers need not be first-time homeowners to take advantage of the program.

NHF Sapphire Program

This is an NHF down payment assistance grant of up to 4% of an eligible home’s price that need not be repaid. Buyers need not be first-time homebuyers to receive the grant. Borrowers must to earn less than 115% of the area median income and the homes must be purchased for less than $417,000. Finally, borrowers need to have homebuyer counseling, pay a 1.5% origination fee, and pay a $1,145 administration fee.

Dream Makers Grant

The Penfed Foundation’s Dream Makers grant program provides matching grants of up to $5,000 to active duty military, reserves, national guard members, and veterans who are first-time buyers or who have not owned a home for three years. The grants are to cover the down payment or closing costs for a home.

Borrowers must earn less than 80% of the area’s median income and the value of the loan must be 97% of the home’s price, or less. Finally, because Dream Makers is a matching program the buyer must contribute at least 50% of the grant amount toward the down payment or closing costs (in other words, if the buyer made a $2,500 contribution for a $5,000 grant, that would make $7,500 available for closing costs).

VA Loans

The U.S. Department of Veterans Affairs provides loans to current members of the U.S. military, their spouses, and veterans. Since the loans allow borrowers to finance up to 100% of the home’s value, no down payment is required. There is no limit as to the amount that the homeowner may borrow, but the VA will only guarantee up to 25% of loans of up to $764,600.

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This post was written by Sean Allaband

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