CalHFA—The Zero Down Payment Mortgage Program for Californians
If you live in California, you may be able to buy a home with no money down through the CalHFA mortgage program (California Housing Finance Agency).
Before I describe this program and its variations let me set the context:
The Ideal Mortgage Applicant Situation
In an ideal situation, to buy a home, you would be in the best position if:
you had 20% of the sales price as down payment
your credit score was 680 or more
in addition to the 20% you had 3% more in cash to cover for closing costs
after the transaction closed you had at least 3 months of payments in the bank
and all your monthly debts plus your new mortgage including property taxes, insurance and home owner’s association (if any) would be less than 43% of your total gross monthly income.
Any time your deviate from the above, a compensating factor has to be introduced to keep everything in balance.
For example, you can buy with a 10% down payment instead of 20%, but now you need to pay an insurance premium to protect the bank in case you default.
Another example, if your score is less than 680, in this case the lender will still do the loan but at a higher interest rate.
As an extreme example, what if your credit is low, you don’t have enough for the downpayment, your reserves are low AND all your debts plus your new mortgage are above 43%?
These loans can still be done, but either you are going to pay a lot more, and/or these loans are only possible with government sponsorship because they are too risky for the regular lender.
For some people, a government sponsored loan is a good solution. However, there are some things you need to know before applying for such a loan.
Government Sponsored Mortgage Programs
When you enter the territory of Government Loans, regulations come in. Such as in the case of:
FHA - Federal Housing Administration Loans
VA - Veterans Affairs Loans
USDA - United Stated Department of Agriculture Loans
CalHFA - California Housing Finance Agency
These loans require a lot of paperwork and have very tight rules. There is no flexibility here: if you don’t exactly meet or exceed the guidelines, you are out.
For example, CalHFA loans have a maximum Debt to Income Ratio (DTI) of 50.00, if you come at 50.01 your file is denied.
Another version of Government Loans is when cities or municipalities in different counties offer various flavors of down payment assistance.
Most of these city incentives:
are temporary
only for low income borrowers
have strict conditions attached to it
are for very small amounts
they could be available one year and never again, they are unpredictable
have to be paid back
In short, there is no free lunch.
The reason these Government/City plans are so restrictive is because they are designed as a last resort to help a homeowner buy his first home to live in it for a number of years.
These plans are not in place to create your real estate portfolio, their (stated) intent is to help people escape the dwindling spiral of poverty by helping them to become a homeowner, thereby gaining real estate equity over time, and—through the mortgage payments—establish savings for the whole family.
Studies confirm that homeowners take better care of their environment and are more responsible, so this uplifts the whole neighborhood.
This is why most Cities don’t like Air B&B short term rentals, because renters are not so invested in the communities where they rent, and transient tenants such as those renting Air B&Bs don’t have any ties to the local community whatsoever.
If you are a first-time homebuyer, defined as someone who has not owned ANY interest in ANY real estate property for the past 3 years, and you genuinely need a government loan in order to get into a home and you intend to live there for several years, then this may be for you!
The CalHFA program—buying a home to live in long-term in California
For California Residents, The California Housing Finance Agency (CalHFA) has a genuine no-down-payment program at competitive rates and costs that I am about to discuss.
The cool thing about this zero-downpayment program is that it is not going away any time soon, since CalHFA is a self-financed agency and they don’t depend on the California state government. They have engineered their loan programs in a way that makes them sustainable!
You can get a loan for 100% of the appraised value of the home and in some instances even the closing costs! The version of their program that includes the closing costs is extremely expensive (remember the more you depart from the ideal, the costlier it becomes), and we don’t promote or recommend it. But even without that, getting a loan for 100% of the appraised value of a home can be a very good deal for a lot of people.
To get this loan, the mortgage broker/loan officer has to be trained and approved by CalHFA, and the Lender (lending institution ultimately providing the mortgage funds) also has to be on their approved list. (Remember, government loans = more regulation.)
I am trained and approved by CalHFA, and the lender we use is an approved CalHFA lender.
How the CalHFA program works
This is how it works:
CalHFA gives you a primary mortgage up to 97% of the purchase price of the home. Then they give you another loan on top (a second) for the reminder 3%. (There seems to be no particular reason for this, other than that this loan seems to be based on a previous loan structure where they only gave you the 97%—so they took the previous loan structure and added another loan on top to make the whole thing cover 100%).
This is what you need to qualify for a CalHFA mortgage:
Have funds for the closing costs, about 3% of the purchase price.
Have 3 months of payments in your bank account by the time the loan closes.
Your credit score needs to be 661 or better.
Your new loan payment + monthly debts cannot be greater than 45% of you gross income.
If your credit score is 700 or better, you can get away with 50% of your gross income
You need to show two years of Tax Returns and W2s.
You have to be a USA Citizen or legal permanent resident.
Every person on the loan has to live in the house—no exceptions.
This is only available for first-time homebuyers as defined above (someone who has not owned ANY interest in ANY real estate property for the past 3 years)
Like most of these programs, your income needs to be below a certain threshold; however, this program is designed with the middle class in mind.
In Los Angeles County, the top income limit is $180,000.
In Orange County, the top income limit is $235,000.
In Riverside and San Bernardino Counties, the top income limit is $173,000.
The cost of the first loan is about 1% more than a regular FHA loan.
The cost of the second loan is 1% per year until you pay it off, sell or refinance.
CalHFA doesn’t accept applications directly; you have to go through an approved lender or mortgage broker like us.
We can let you know if you qualify for a CalHFA mortgage and help you through the entire process.
If you would like to get pre-qualified for this program, shoot me an e-mail at alejandro@prosperitylending.us and I will give you a free pre-qualification and mortgage roadmap.
