Everything You Need to Know About California Down Payment Assistance
If you’re new to the idea of down payment assistance, you may assume that down payment assistance is the same in every state across the U.S. While there are similarities between all of them, there are also a lot of differences when you compare them side by side. It’s for this reason we’re doing a special shout out for California.
California is unique for many reasons, but the main reason it’s different is that it’s the most population dense state in the country. Pair this with the fact that it’s a huge geographic area, and the result is a state with a lot of down payment assistance programs. In fact, California is so ripe with DPA programs that it literally took us well over two weeks to comb through them. So don’t think you have too much competition to get down payment assistance money— the odds are in your favor with this state, especially if you’re willing to adjust your purchase area a bit.
This article isn’t a list of down payment assistance programs in California (for that you’ll want to go here). Instead, it is a list of tips to help you through your DPA journey. Having scoured through every searchable program in the state, we’re in a unique position to give you a good overall view of down payment assistance programs in California.
To learn more about down payment assistance programs in California and how to apply, keep reading.
Tip 1: Many California Down Payment Assistance Programs Don’t Have To Be Repaid
Many counties in California offer forgivable loans to DPA recipients (with some being forgiven after only 3 years). All that’s required for you to never have to make any payments on the money is that you live in the house for a certain amount of time and that you keep the title in your name. If for any reason the house is foreclosed, sold, rented, transferred, or if you move out, you will be required to repay the full amount (sometimes immediately).
Some DPA loans are forgiven a certain percentage each year after you’ve lived in the house for a while. For example, many are 0% interest, 0 payments for ten years. The money starts being forgiven at a rate of 25% per year afterwards. So by year fifteen all of the loan is forgiven.
Tip 2: Buyers Often Still Have to Put Down Some Money Down With California Down Payment Assistance Programs
Read through all DPA programs and you’ll see a wide array of minimum buyer down. How much often depends on your income. For the ones that do, 1% of the purchase price is a common amount. Another common amount is $1,000.
All programs don’t do this. For every program that requires you to put something down, you can find another one that doesn’t.
If you’re new to real estate, the minimum you must put down is usually 3.5% of the purchase price with an FHA loan. However, if your house is USDA loan eligible, you don’t have to put anything down (but the house must be in an area the USDA deems in need of economic development).
Tip 3: Most Programs Don’t Require Buyers To Live In The County They Want to Buy in Prior to Applying
Knowing this, we recommend you find the program with the most money that is an acceptable driving distance to work. It’s unnecessary to only apply to programs that serve the area you are currently living. One or two require you to live in the county or city for a certain amount of time beforehand, but most don’t have this requirement.
Note: Programs that require you to live in the county prior to receiving DPA will normally say so in the accompanying literature.
Tip 4: The Amount of Assistance You Receive Depends on How Your Income Compares To The County’s AMI (Average Median Income)
Usually DPA programs in California want at or below 80%, but many can be found going much higher. We’ve seen some as high as 180% in California. Generally, the less money you make, the more money you’ll receive from a DPA program.
If you make 100% of the median, that means you make the same amount of money as is typical for people in your area. So if the average is $50,000, and you make $50,000, you make 100% of the AMI. To be at 80% would mean you make $40,000.
Each county has different average median incomes, and the amount of people under the same roof changes the requirements. Two parents with three kids would have easier requirements to meet than two people without kids.
Tip 5: Not All Programs Are Currently Listed On The Internet
If you don’t see any programs listed for your area (possible, but unlikely), or you just found out that the program you wanted to apply to isn’t accepting any more applications at the moment, call your local housing authority. They may know of programs that aren’t listed online.
Tip 6: Some Programs Require You to be Pre-Approved with a Mortgage Lender Before You Apply
There’s no point in approving you for down payment assistance funds if you can’t get approved for a first mortgage. Though you should know about this, this isn’t a big deal. Just be sure to read through the application process to see if this is necessary before you apply.
Should you just go ahead and get pre-approved now?
We don’t recommend that you do. Go to tip 7 to find out why!
Tip 7: Some Programs Only Allow Buyers to Work with Certain Approved Lenders
For DPAs to be an effective home buying strategy, you want them to be a part of your game-plan as early as possible.
If you already have a lender, but it’s not on the list, don’t be afraid to do one of two things: Option 1, call the program manager for your DPA(we usually try to list them) and ask if they’ll accept your lender. If they will, call your lender and ask if they’ll accept DPA funds as a down payment. Option 2, drop your lender in favor of one on the approved lender list.
DPAs have approved lenders because lenders themselves don’t like to see down payment funds coming from anywhere but the client. After all, down payments are used as a way to ensure you’re all in and won’t walk away from your monthly payments the moment something goes south. Moreover, they’re also there to verify that you’re financially responsible.
If you need to switch lenders, don’t worry about it. You’re under no obligation to use them, regardless of how many email exchanges you’ve had. You just can’t currently be under contract. Obviously make sure that the APRs are similar between the lenders. If the new lender has a higher interest, how much more would that amount to for the life of the loan? Does it make sense to switch in the long run?
DPA programs are unlikely to partner with lenders who charge exorbitant interest rates. That defeats the entire purpose of the program. Programs have approved lenders for the simple reason that that particular lender has agreed to accept DPA funds as the down payment. Don’t be afraid to pick up your phone and call your original lender and ask. There’s a good chance they’ll say yes if it means keeping your business.
Tip 8: Most Programs Require You to Take a Homebuyer Education Workshop
This is a simple, cheap requirement to complete. Check the fine print if you have to have the class prior to your application or if it’s OK to wait until you’ve been approved. Sometimes they cost a few bucks, and sometimes they’re free. Some you can complete online, and some you have to either go to an evening or weekend class. All are worth doing if they get you down payment money.
Tip 9: Most Programs Only Work With Homebuyers Who Have Not Owned a Home in the Past Three Years
This is also means they’re generally looking for first time homebuyers. This requirement is in place so you can’t sell your house and immediately apply for down payment assistance funds. It has to have either been three years since you owned a house, or you must be a first time homebuyer.
If you look closely, you will notice that there’s one or two programs on the list that don’t have this requirement, but they are far from the norm.
Tip 10: The Amount of Funds Often Vary Greatly County to County
This may have to do with the average house price in the county (but we didn’t research that), or it may just reflect how much funds are available in the county or city. Simply put, the maximum assistance available per applicant can vary a lot just a few miles over.
If you’re open to living in a few different areas, and house prices aren’t that different, why not apply where there’s more money? Especially if each program offers a 0% interest, 0 payment forgivable loan.
Tip 11: Some Programs Have Specific Application Dates
Just read and understand the application process thoroughly before you get your hopes up. Some programs have small application windows. If you happen to miss them by an hour, you lost your chance for the year.
Tip 12: Many Down payment Assistance Programs in California Are City Specific (As Opposed to County)
When searching for DPAs, we noticed a lot more search results if we went city specific.
This doesn’t hold true for all of California, but for the more population dense areas it certainly does.
Tip 13: A Few Programs Have Minimum Credit Score Requirements.
Why? We don’t really know. It seems kind of like a moot point if you ask us. If you can’t get a approved for a mortgage, you’re not going to be able to buy a house (whether you can make the down payment or not). Maybe they just want to save themselves time.
Don’t worry, down payment assistance programs are meant to help borrowers who are moderate to very low income earners. Normally these income groups don’t have the best credit. For the most part, if you can qualify with a bank to buy a house, you’re going to qualify with a down payment assistance program, so don’t let this requirement keep you up at night.
Tip 14: Call Before You Apply to Any DPA
Sometimes programs appear open online, but in reality don’t have any more money left for the year.
So you don’t waste your time, call to verify that they’re taking new applications. If not, ask them when they will, or when they expect to receive further funding. If it’s just around the corner, make a note to yourself.
Tip 15: Some Funds Are Distributed on a First Come First Serve Basis, While Some Are Lottery Based
Your need for the funds obviously plays a role in determining if you qualify, but after that it’s normally on a first come first serve basis, but you can use this knowledge to your advantage. If a program is out of funds, call and determine when it expects to receive more. If there is a waiting list, this obviously won’t work to your advantage, but if there’s not, you can submit your application right when the program opens back up.
Tip 16: Understand the Application Process Before You Start
This has been covered throughout, but it’s worth repeating. Each program has a different application and approval process. If you’re confused about any thing, call. We’ve provided contact information for every down payment assistance program that we could for this reason. Depending on the purchase area, many programs get a lot of applications, and it only takes one mistake to get your application denied. Make sure you understand what’s expected of you before you submit any paperwork.
Is It Worth Doing? Yes! Does It Take a Lot of Time and Effort? Nope.
Have you applied for pre-approval with a bank? Do you still have that paperwork? It takes about the same amount of time to apply for down payment assistance. If you have time to watch TV, you have time to apply for down payment assistance. We’re talking minutes here.
Remember: With down payment assistance you essentially get free equity right from the get go. Future you will thank you one day.