Down payment assistance programs, also known as community seconds, play a crucial role in increasing access to homeownership for low and moderate-income individuals and families throughout California. They are central to the State's efforts to address housing affordability and promote inclusive communities across various counties and cities.
Community Seconds assist qualified homebuyers to afford the upfront costs of purchasing a home, including both down payments and closing costs. These programs are typically funded by a combination of federal, state, and local sources and are administered at various levels of government, from state agencies to local counties and cities. Statewide Offerings
California Housing Finance Agency (CalHFA) offers a variety of loan programs, including the School Teacher and Employee Assistance Program (School Program) and the CalHFA Conventional Loan Program. These programs provide second mortgages and in some cases third mortgages layered on top of one another to help low and moderate-income homebuyers pay for down payment and closing costs. CalHFA sources funding comes from tax-exempt bonds, federal grants, and other sources. Choosing the right program for you requires the advice of a professional mortgage originator.Golden State Finance Authority is a federally financed down payment assistance (DPA) program that is available on primary residences throughout California. The DPA can be used towards down payments, closing costs, or to reduce the principal on the First Mortgage Loan. These programs do not require that the applicant be a first-time homebuyer to qualify. You don't have to have perfect credit and the income limits are very generous. Borrowers with income at or below 80% of the Area Median Income may qualify for improved interest rates, lower MI coverage requirements, and more DPA assistance. County and City-Level Programs
County and City-level programs are specific to each community. They are intended to serve home buyers seeking to own a home within a community’s boundaries. Each community defines its own program to include the amount of money available to an applicant and the rules to be met for qualifying. These programs are found by going to the county or city website and searching for housing programs. The programs are too numerous to describe here, but rest assured their purpose is to help low and moderate-income homebuyers afford to purchase homes in their community. Sometimes community-level funds are limited, and these programs are known to run out of funds. They can also have impractical administrative limitations, such as only accepting applications on one date annually. One should always inquire with a town or city government just in case
Some mortgage lenders offer in-house programs that contribute up to 3.5% directly to the borrower to cover the down payment. These programs are specific to each lender but are rather easy to qualify for. They never run out of money, and have lower closing costs. For many borrowers, these are far easier to secure and aren't subject to income limitations. They often target first time home buyers. What are the benefits and what downsides should I consider?
Choosing to go with a down payment assistance program when purchasing a home has its advantages and disadvantages. It's important to carefully weigh these factors to determine whether it's the right option for you.
Lower Up-Front Costs: The most significant advantage is that down payment assistance can be the critical difference that gets a borrower over the hump by filling the gap in their savings preventing them from buying a home. Many programs are available to anyone and are not limited to first-time homebuyers.
Reduced Monthly Mortgage Payments: if the amount of assistance is substantial enough it can reduce the loan amount of your primary mortgage, leading to lower monthly mortgage payments, and making homeownership more sustainable and easing your monthly budget.
Low or No Interest: Many programs offer loans with low or zero interest rates, which can save you money compared to other borrowing options.
Deferred Payments or Forgiveness: Some programs forgive the second mortgage over time, typically if you stay in the home for a certain number of years. This means you may not have to repay the assistance, effectively making it a grant.
Higher Buying Power: While it is rare, I have seen programs that actually increase your buying power, allowing you to consider homes in a higher price range or in more desirable neighborhoods.
Disadvantages Income Limits: Most programs have income limits, meaning not everyone will qualify for assistance. Your income must fall below the specified maximum set for each county, or each area defined by the US Census Bureau, and if it exceeds the limit, you may not be eligible for a program.
Property Restrictions: Some down payment assistance programs may have restrictions on the type or location of properties you can purchase. You may be limited to certain neighborhoods or property types.
Eligibility Requirements: You will need to meet specific eligibility criteria, including credit score requirements, debt-to-income ratios, and homeownership education requirements, which could be more stringent than traditional mortgage lending.
Home Price Limits: There may be restrictions on the maximum purchase price of the home you can buy with the assistance, limiting your options in high-cost areas.
Potential Repayment: While some programs forgive the second mortgage over time, others may require repayment when you sell the home or refinance. Be prepared for potential repayment obligations down the road.
Limited Availability: Particularly at the city or county level, these programs can and do run out of money. Once their allotted funds are allocated, they stop accepting applications until more funds become available. As a result, they may not always be an option when you're ready to purchase a home.
Complexity: Navigating the application process and meeting program requirements can be more complex and time-consuming compared to a standard mortgage.
In summary, down payment assistance programs are created to help individuals and families with limited savings or income to secure the financing to purchase a home. However, it's essential to carefully review the specific program's terms and conditions, understand the eligibility criteria, and consider both the short-term benefits and potential long-term obligations.
If you have any questions on grants or subsidies offered by any of these programs, feel free to reach out to me and we can discuss possible options.
California Association of Realtors offers a website for searching for programs available in the area you are interested in purchasing a home. Feel free to check it out.