It’s no secret that home values in California are higher than in most other parts of the country. That can mean a challenge for first-time home buyers who are trying to save up enough money for a down payment in addition to the closing costs needed to close the loan.
Yet there are a few myths that have always floated around about first-time home buyer loans and one of them is having to save up enough money for a down payment of 20 percent of the sales price.
The median home value in California hovers around $760,000 but can be higher or lower depending on the location of the property. A 20 percent down payment on a $760,000 home is $152,000. That alone is enough of an obstacle to keep many first-time buyers on the sidelines. However, there are options that do not require such a down payment and they all three come with a guarantee to the lender.
The FHA home loan was first introduced in 1934 in an attempt to both shore up an ailing economy as well as provide some stability in the mortgage market. Prior to the introduction of the FHA loan, lending guidelines were all over the map and banks could ask for a down payment of 30 percent down and higher. The FHA program fixed all that and today the FHA loan is the most popular loan choice for those buying and financing their very first home.
The FHA loan program asks for only a down payment of 3.5 percent of the sales price. With a $760,000 sale, that’s $26,600. Quite a difference compared to a 20 percent down payment. While still not a small amount of money it’s easier for first-time buyers to save up for a 3.5 percent down payment.
The USDA loan is also an option for first-time buyers but does not have a down payment requirement. However, with the USDA mortgage, the property has to be located in an area previously approved by the USDA. With a zero down payment, this mortgage helps first-time buyers tremendously saving thousands.
So why wouldn’t everyone select the USDA loan over the FHA program which does need a down payment? The USDA mortgage limits household income to approximately 115% of the median income for the area and is designed to help low to moderate-income buyers finance homes in more “rural” areas. Buyers can learn more about California USDA loans under the loan programs section.
You won’t be able to use the USDA loan in Los Angeles, California but you can in areas that the USDA has declared as rural. Many locations in East and North California are still eligible for USDA Rural Housing. USDA approved locations are only reviewed once every 10 years or so, it’s very possible an area that looks suburban is still listed as an approved area and the USDA home loan can be used.
The VA home loan program is also a government-guaranteed loan that does not ask for a down payment. Yet as the name implies, it’s reserved for those who have served in the armed forces, those with at least 181 days of active duty and members or veterans of the National Guard or Armed Forces Reserves with at least six years of service.
VA is a great option because the program requires no monthly mortgage insurance or more commonly known as “PMI” VA Jumbo mortgages for eligible buyers remain very popular in California high-cost locations and permit loan amounts to $2m for 100% financing.
The VA and FHA loan programs are offered in various loan terms ranging from 10 to 30 years as well as variable rate options. The USDA program does not have adjustable rate terms or hybrid mortgages but does offer competitive fixed 30 yr fix rates.
Finally, 90% and 95% Jumbo programs. If you are a first-time buyer that has at least 5% down payment, the Jumbo loan program should be considered. The Jumbo loans come in a variety of different structures and terms. Single loan options, Combo 80-10 or 80-15 options, fixed-rate loans and adjustable rate loans. Buyers using the Jumbo loan will need to meet tighter qualifying standards – please learn more about Jumbo loan requirements here.
All of the options listed above are available to approved homebuyers across the nation. Current homeowners can also learn about refinancing options available for FHA, VA, USDA and Jumbo loans.
Call us 7 days a week at the number above to learn more about any of the programs mentioned.
California First Time Home Buyer Mortgage Programs, Proud to serve CA: Oakland, San Francisco, LA, San Diego, Fresno, San Jose, Sacramento, Malibu, Palm Springs, Palo Alto, Irvine, Berkeley, Riverside, Santa Clara, Temecula
Kristen J says
What programs are available in Orange County?
National Mortgage says
It depends on the loan amount, credit, among other factors. FHA and Conventional loans are certainly available for lower loan amounts. Jumbo loans are available with 5% down for qualified buyers in need of higher loans up to 1.5mil. 100% USDA rural housing is the only program that would be limited in Orange County.