California First-Time Homebuyer Guide 2023

If you are a first-time homebuyer who wants to buy their dream home in the Golden State, New American Funding (NAF) may be able to help. While the prospect of buying your first home might seem like an overwhelming challenge, the truth is that there are several first-time homebuyer programs and loan options that can help you achieve your homeownership goals.

Read on to learn more about buying a home for the first time in California, as well as first-time homebuyer programs you can take advantage of to sign on your first mortgage. 

Resources Available for First-Time Homebuyers in California

There are several resources that are available for first-time homebuyers in California. Some of the most popular include:

• Down payment assistance programs: First-time homebuyers in California may have access to various down payment assistance programs that can help reduce the upfront costs of purchasing a home.
• CalHFA Programs: The California Housing Finance Agency (CalHFA) provides a range of programs and resources for first-time homebuyers, including low-interest loans and help with your down payment. CalHFA does not offer loans, but works with lenders like NAF to provide their products and programs.
• Homebuyer education: The state government of California offers a series of free education programs first-time buyers can use to learn more about the buying process. Participating in a homebuyer education course may be required or incentivized for first-time buyers to access certain assistance programs.

We’ll go into more depth on these programs and who qualifies in later sections.

Qualifications for First-Time Homebuyers in California

The requirements for a first-time homebuyer in California can vary depending on the specific loan program, down payment assistance program, or tax credit you are interested in. That being said, there are no state-wide legal requirements that you must meet to buy a home in California. As long as you can afford to finance the home you want to buy and the homeowner is willing to sell you the property, you’re free to move ahead with the buying or mortgage process.

Questions to Ask Before Buying Your First House in California

The average purchase price of a home has skyrocketed since the onset of the COVID-19 pandemic. This makes it more critical to ask plenty of questions before buying a property. Be sure to investigate the following before applying for a home loan or making an offer on a property.

1. What Are Your Personal Long-Term Goals?

Think about the timeline that you plan to live in your property before making an offer. If you love a particular area or you’re bound to it due to work or school, you might want to be more flexible in determining your budget, as you’re likely to be living in the home for a significant amount of time.

2. What Is Your Financial Situation?

Homeownership is a long-term financial commitment — you’ll need to consider both your actual income and future income expectations when calculating whether you can afford to buy a home. Evaluate your current rent and income and compare it to the costs associated with owning a home. Be sure to include expenses like homeowner’s insurance, mortgage insurance, utilities, and other expenses that come with owning and maintaining a property before setting a budget.

You can use our affordability calculator to help you determine how much house you can afford.

3. What Are Your Housing Needs?

Your housing needs play a direct role in the budget you’ll need to set when choosing a home. For example, if you need to stay in a certain area, you may want to be more conservative when making an offer, especially if there’s competition in the area. If you need a larger home because you’re planning to start or grow your family, this will require a higher budget and a larger down payment to be approved.

4. What Is the Real Estate Market Trend?

Real estate trends can provide valuable insights into the current and future property values in specific areas. By analyzing trends, buyers can determine if property prices are rising or falling, helping them make informed decisions about when and where to buy to get the best possible deal.

Your local real estate market can also guide your offer when you finally find the perfect property. A seller's market, where demand is high and inventory is low, can lead to higher prices and increased competition. Conversely, a buyer's market, with more inventory than demand, may offer more negotiating power and potentially better deals for homebuyers. Take a look at recent home sale data with your real estate agent to determine how much flexibility your local housing market will provide when negotiating.

5. What Are Your Mortgage Options?

Finally, think about the type of mortgages and down payment assistance available before applying for a loan. Check your credit score and compare it to the requirements in the mortgage section below to learn more about which types of mortgages you could qualify for. Depending on your income, credit history, and the location where you’re buying a home, you might be able to increase your budget or lower your down payment when selecting a property with the right mortgage loan.

First-Time Homebuyer Statistics in California

• Average Home Value in CA: $743,362
• Minimum Down payment in CA: From $0 (loan type dependent)

How to Apply for First-Time Homebuyer Loan Programs in California

Several first-time homebuyer programs in California can make the dream of homeownership a reality. Use these steps to apply for a first-time homebuyer program as a resident of the Golden State.

1. Determine Your Budget

Determining your budget when shopping for a home is a critical first step in the homebuying process. Begin by evaluating your current financial situation, including your income, savings, recurring debt payments, and monthly expenses. Calculate your debt-to-income ratio to understand how much of your income goes towards debt payments, as this will influence how much you can comfortably afford in a mortgage.

Next, think about how you will come up with the money needed upfront when buying a home. While you won’t necessarily need 20% down to buy a home, consider factors such as the down payment amount you can afford, as a higher down payment can lead to lower monthly mortgage payments. Factor in potential future expenses, such as property taxes, homeowners insurance, and maintenance costs when determining how much you can afford to pay each month on your mortgage loan.

An online mortgage calculator can be a major benefit in determining a budget for your home shopping. Remember to be realistic about your financial capacity, and avoid stretching beyond your means to ensure a financially sound and comfortable home purchase. Once you have a budget range in mind, you can start looking for homes in your area that meet both your homebuyer requirements and your budget.

2. Get Pre-Approved for a First-Time Home Mortgage

After determining your budget, get pre-approved for a mortgage loan. Mortgage pre-approval is a tentative agreement from lenders to provide you with financing for a home purchase based on the personal information you’ve submitted. These pre-approvals are subject to borrower underwriting, so be sure to be honest when listing your income and assets.

After being pre-approved, your Loan Officer may provide you with a maximum loan amount. Now is also a great time to apply for one of California’s many homebuying programs, including the following.

• MyHome Assistance Program: This program provides eligible first-time homebuyers with a deferred payment and a second mortgage loan to assist with down payment and closing costs. The loan amount, which can be up to 3.5% of the home purchase price or appraised value, does not accrue interest and is due when the home is sold, refinanced, or paid off.
• CalHFA Zero Interest Program: This program is a more inclusive assistance program used in conjunction with the CalPLUS Conventional Program. Depending on qualifications, this program can be used to cover up to 100% of eligible closing costs with a zero-interest loan.
• CalHFA FHA: The CalHFA FHA loan offers more competitive interest rates on California FHA loans when purchased through a CalHFA lender. To qualify for closing cost assistance, buyers must complete a homeownership education course.
• CalHFA Conventional: Similar to the FHA program, CalHFA Conventional loans offer more competitive rates on loans structured as conventional mortgages.
• CalPLUS Conventional: CalPLUS Conventional loans are similar to the CalHFA Conventional loans but can be combined with the CalHFA Zero Interest Program.
• CalHFA VA: This program offers loans with lower interest rates and credit and income requirements. These loans offer guaranteed approvals and more flexible credit requirements but are reserved for veterans and select family members.
• CalHFA USDA: This program offers more competitive qualification criteria and interest rates on USDA loans, which are home loans that don’t require a down payment so long as you buy a home in a rural area.
• Forgivable Equity Builder Loan: The Forgivable Equity Builder Loan is a program for first-time homebuyers to help them get a jump-start on building home equity. This loan, put towards the balance of your home loan, is forgivable if you live in your home for five continuous years as your primary residence.

Note that many of these programs do not directly lend to borrowers, but work with qualified lenders to help assist homebuyers. Ask your Loan Officer which programs may be available to you. Qualifications for borrower programs may vary by income and location.

3. Hire a Real Estate Agent

Start by asking friends, family, or colleagues for recommendations, as personal referrals can provide valuable insights. You can also search online directories or social media platforms to find agents specializing in the area where you want to buy or sell a property. Don’t forget to read reviews and call to interview a few agents before deciding which you want to work with.

4. Start the Search for Your Dream Home

Now comes the most fun part of the homebuying process — finding your dream property. Start by searching online real estate databases to see what types of homes are available in your area. Consult with your real estate agent as well, as they may have access to additional homes not yet listed on public databases. Schedule a few tours to see some properties firsthand and be sure to note any areas where the home needs repairs.

5. Make an Offer

Once you find the right property, it’s time to submit an offer. Your real estate agent can assist you in creating a valid offer letter, but you can write an offer letter on your own if you include all the following information:

• The buyer’s information and the location of the property
• The monetary value that you’re offering for the home
• Information on your earnest money deposit
• Financing details (whether you plan to buy the home using cash or a loan)
• Contingencies or repairs that need to be made by the seller before purchase
• A date by which you need a reply
• A date on which you plan to close on your mortgage loan 

From here, the seller may accept your offer, reject it, or engage in negotiations. Your real estate agent can guide you through the negotiation process and help you determine when to accept or walk away from a deal.

7. Conduct a Home Inspection

When the seller and you agree on a price, it’s time to move toward the closing process. Start by scheduling a home inspection. Your home inspector will walk through the property and make note of anything that needs to be repaired or replaced before you move in. If the inspection reveals serious issues that you weren’t aware of when making an offer, you may be able to negotiate down the price further with the seller.

8. Close the Deal and Become a Homeowner

Once your home inspection comes back clear and you’re ready to purchase the property, the only thing left to do is close on your loan. During your closing meeting, bring proof of your identification, your closing documents from your mortgage lender, and a cashier's check or proof of wire transfer for your down payment. After closing on your loan, congratulations — you’re officially a homeowner.

4 Traditional First-Time Homebuyer Programs in California

As a first-time home buyer in California, you have access to multiple loan programs with flexible qualification criteria. The best mortgage loan for your individual needs might vary depending on the selling price of your home, your credit score, the location of your property, and more.

1. Conventional Loan

Conventional loans are the most common type of loan and can be used to purchase any property. Contrary to popular belief, you don’t need a 20% down payment to buy a home with a conventional loan — the requirement is 3% down for most lenders. However, if you bring less than 20% to the table during closing, you’ll need to pay for private mortgage insurance (PMI) on top of your loan, interest, and insurance. PMI is a type of insurance required by lenders when a borrower puts less than 20% down on a home purchase. It protects the lender in case of default.

2. FHA Loan

FHA loans, backed by the Federal Housing Administration, are mortgage loans designed to help first-time homebuyers, low-to-moderate-income borrowers, and individuals with less-than-perfect credit to achieve homeownership. These loans offer more lenient qualification requirements. This allows borrowers to secure financing with as little as 3.5% down on their homes. The FHA requires borrowers to pay mortgage insurance for the life of the loan in order to get an FHA loan. Additionally, you will need to pay an upfront mortgage insurance premium, regardless of your down payment. However, you have the option to refinance to a conventional loan after reaching 20% equity in your property after using an FHA loan to purchase the home if you’d like to remove the ongoing mortgage insurance payment.

Additional requirements for FHA loans include income and a valid credit history. Specific requirements vary by lender.

3. VA Loan

VA loans are special types of mortgage loans reserved for members of the U.S. military servicemembers, veterans, and select family members of those who have served. VA loans allow you to purchase a home with 0% down, which can be a major benefit when buying a home in today’s competitive market. VA loans require that you submit documented proof of service with your application and lenders set their own requirements.

4. USDA Loan

USDA loans are loans with insurance from the United States Department of Agriculture and are designed to promote homeownership in eligible rural and suburban areas. These loans aim to assist low-to-moderate-income borrowers in purchasing homes with little to no down payment required and offer more flexible income requirements.

To qualify for a USDA loan, the home you want to purchase must be located in a rural area as defined by the USDA eligibility map. You must have a credit score of at least 640 with most lenders, and you must meet income requirements relative to your local area.

What are the Mortgage Rates in California?

Average mortgage rates are constantly changing, influenced by factors like local housing demand and federal policies. Regularly comparing daily interest rates and tracking how they are changing can empower you to buy your home at a time when rates are affordable.

Buying a Home in the Golden State

When it comes to buying your first home, having the right lender on your side can be an invaluable asset. New American Finance offers multiple loan types, and our team members can assist you in choosing the best type of loan for your situation. Request a quote or connect with a Loan Officer at NAF — and get started on the path of homeownership!

FAQs

Is There an Income Limit for First-Time Homebuyers in California?

No, there is no income restriction related to buying your first home in California. Income restrictions for assistance programs vary depending on the average income in your zip code.

Can a Person with Lower Income Buy a House in California?

Yes, a person with lower income can potentially buy a house in California. There are various first-time homebuyer programs, down payment assistance options, and affordable housing initiatives that aim to make homeownership more accessible for low-income individuals in the state.

How Much Does a First-Time Buyer Have to Put Down in California?

Your down payment requirement will vary depending on the type of loan you’re using. California residents who qualify may be able to buy a home with as little as $0 down.

Does California Have First-Time Buyers’ Programs?

Yes, California does have multiple first-time buyers’ programs. The MyHome Assistance Program, for example, can provide more competitive mortgage rates and deferred payment options that make it easier to afford a home.

Do you Have to Pay Back Down Payment Assistance in California?

In California, whether you have to pay back down payment assistance depends on the specific program you utilize. Some down payment assistance programs offer forgivable loans, meaning the loan does not need to be repaid if certain conditions are met, such as staying in the home for a specified period. However, other programs may require repayment over time, typically with low or zero interest rates, helping to make homeownership more affordable for eligible buyers.