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While it may seem like an intimidating process, purchasing and owning your first home is an attainable goal. Mortgage programs specifically for first-time homebuyers can make it even more so. Both the federal government and the California state government offer these programs. Knowing what options there are can help you decide which federal or California first-time homebuyer program is right for you and how you can qualify.
If buying your first home feels stressful, it may help to build a comprehensive financial plan with a financial advisor.
Federal First-Time Home Buyer Programs
Before we break down the programs specifically for California residents, we’ll discuss a handful of federal home buyer programs available to people in all states. Be sure to consider both national and state options in your mortgage search.
FHA Loans
| Pros | – Low down payment requirements – Don’t need a high credit score for approval |
| Cons | — A larger down payment is necessary for those with a credit score below 580 |
| Eligibility | – A down payment as low 3.5% – A credit score of at least 500 |
| Best For | – Those who don’t have a great credit history and money for a down payment |
A Federal Housing Administration (FHA) mortgage is one of the best loan options for a first-time homebuyer. It has few eligibility requirements and they’re all easy to meet, meaning it offers many Americans the chance to take advantage of its benefits.
First and foremost, your down payment can be as low as 3.5% of your new home’s value. (If your FICO® credit score is below 580, that minimum could rise as high as 10%.) A conventional mortgage, for comparison, typically requires a 20% down payment.
If you can pay off an FHA loan early, you can do so without the typical penalty fees of a conventional loan. Your closing costs will also be lower than most loans.
VA Loans
| Pros | – Can offer up to 100% loan coverage of your home’s value – Usually come with lower closing costs than conventional loans |
| Cons | – Potentially drawn out application process – Must pay a VA funding fee |
| Eligibility | – Must be a current or former military member, their spouse or other eligible beneficiary – Typically must have a credit score of 620 or higher, though this can vary by lender |
| Best For | – Veterans with little monthly income and savings for a comfortable down payment |
A VA loan is tailor-made for current military members, veterans and their spouses, as well as other beneficiaries that the Department of Veterans Affairs deems eligible. However, the VA doesn’t physically lend you the money. Instead, it guarantees your loan in conjunction with an outside lender.
You do have to pay a VA funding fee for these loans, though. This fee ranges from 1.25% to 3.3% of the loan amount, depending on how much you’re putting toward your down payment and whether you’ve previously taken out a loan.
The main draw of a VA loan is its lack of a down payment requirement. Because of this, you can use the loan to pay for the entire value of your home. This is an especially valuable feature if you’ve got the income for monthly mortgage payments but have struggled to save for a down payment. The VA also lowers the closing costs typically associated with these mortgages, helping to keep your initial costs as low as possible.
While your credit doesn’t have to be top-notch to get approval for a VA loan, most lenders require at least a 620 FICO® score to qualify.
USDA Loans
| Pros | – No down payment required – Can be used to cover up to 100% of your new home’s price – Doesn’t require a great credit score |
| Cons | – If you qualify for a conventional mortgage, you can’t get one |
| Eligibility | – Household income cannot be more than 115% of the median income for that area – Must be purchasing a home within an eligible rural area |
| Best For | – Low-to-mid income Americans looking to live in a rural or semi-rural area |
A United States Department of Agriculture (USDA) mortgage likewise doesn’t require a down payment. Even applicants with a scarred credit history will usually get a USDA loan, as the credit stipulations attached to this type of loan are fairly easy to fulfill. Should you fall below the acceptable threshold, though, you may need to make a 10% down payment.
To qualify for a USDA loan, the home must be in a federally recognized and approved rural or semi-rural area. On top of that, your household income cannot exceed 115% of the area’s median income.
Good Neighbor Next Door Program
| Pros | – Get a flat 50% discount on the value of your new home – After three years, you can sell the home and keep all equity |
| Cons | – Not available to most people and in most areas – You’re required to live in the home for at least three years following purchase |
| Eligibility | – Must be a police officer, firefighter, emergency medical technician or a pre-K to 12th grade teacher |
| Best For | – Teachers or emergency personnel with little in savings |
In an effort to boost communities around the country that the Department of Housing and Urban Development (HUD) has termed “revitalization areas,” the government agency created the Good Neighbor Next Door Program.
Rather than provide an actual mortgage, this program offers a 50% discount on homes in these areas for emergency medical technicians, police officers, firefighters and pre-K through 12th-grade teachers. To cover the remaining half, the program allows borrowers to get any kind of mortgage they want, including VA, FHA and conventional loans.
Anyone who chooses to utilize this program must agree to make the new home their primary legal residence for at least three years after purchase. After that, you can sell the home, with entitlement to the full home equity and profit from the sale.
Fannie Mae/Freddie Mac
| Pros | – Very low down payment stipulations – Little to no credit needed for approval – Many loan styles available |
| Cons | – Could come with higher interest rates |
| Eligibility | – In some cases, no income requirements in underserved areas |
| Best For | – Anyone who is looking for a low down payment loan option but who doesn’t qualify for any of the above options |
Fannie Mae and Freddie Mac are federal government-backed lenders created to address a number of loan issues in the U.S., including for first-time homebuyers. Though the two lenders are similar, their loan offerings are different.
The Home Possible® mortgage from Freddie Mac requires just a 3% down payment, which is why you may see it called a 97% LTV loan. LTV means “loan-to-value,” or the percentage of your new home’s value that the loan will cover. A Home Possible mortgage offers a good deal of choice, with 15- to 30-year fixed-rate and 10/1, 7/1, 5/5 and 5/1 terms available. It comes with cancellable mortgage insurance as well.
Fannie Mae’s answer to Home Possible loans is the HomeReady® mortgage, which also calls for a 3% down payment. To qualify, you must have a FICO® credit score of at least 620 and a debt-to-income ratio no higher than 50%. Your income must be less than or around the U.S. median. Unfortunately, private mortgage insurance is necessary for this loan, though there is the option to cancel it after you have own at least 20% equity in your home.
NADL
| Pros | – Minimal credit score requirements – No down payment and no private mortgage insurance – Cheap closing costs |
| Cons | – Limited group of eligible borrowers |
| Eligibility | – Home must be located on allotted lands, Alaska Native corporations, Pacific Island territories or federally-recognized trusts |
| Best For | – Native American veterans that lack money for a down payment |
The VA formed the Native American Direct Loan (NADL) for Native American and Pacific Islander veterans of the U.S. and their spouses. Even if you have low credit and no assets for a sizable down payment, an NADL is still attainable if you’re eligible.
This mortgage requires no down payment or private mortgage insurance. However, you still must pay closing costs, though they’re significantly lower than those related to a conventional mortgage.
The final precondition associated with this loan is that your new home is on one of the following: allotted lands, Alaska Native corporations, Pacific Island territories or federally-recognized trusts. If not, a VA loan might be a better choice.
California First-Time Home Buyer Programs
CalHFA & CalPLUS Conventional Loan Programs
| Pros | – Can be paired with different programs to customize your loan |
| Cons | – Higher interest rates for CalPLUS |
| Eligibility | – Must be a single-family home – Cannot be worth more than county price guidelines – Have to attend homebuyer education |
| Best For | – Anyone searching for a standard loan with closing cost and down payment assistance |
The CalHFA and CalPLUS loans are both part of California’s conventional loan program. Both are 30-year fixed-rate mortgages, although the CalPLUS is fully amortized. These are fairly standard loans with solid interest rates. Private insurance is necessary. To be eligible for this loan, your annual income can’t exceed the limit set by your county.
It’s possible to pair these mortgage options with the CalHFA Zero Interest Program and Extra Credit Teacher Home Purchase Program to enhance the benefits. California set up the Zero Interest Program to provide borrowers with closing cost assistance, a perk only available to CalPLUS applicants. The Extra Credit Teacher Home Purchase Program is exclusively for CalHFA loan borrowers who are first-time homebuyers and who are employed as a teacher, school district employee, school administrator or other kind of school staff member.
CalHFA FHA & CalPLUS FHA Loan Programs
| Pros | – Can be paired with other programs – More lax credit requirements |
| Cons | – CalPLUS FHA loans have higher interest rates |
| Eligibility | – Single-family homes only – Home must meet county price guidelines – Have to attend homebuyer education |
| Best For | – Applicants with a low credit score or poor credit history |
FHA-insured CalHFA FHA and CalPLUS FHA loans are 30-year, fixed-rate mortgages. The CalPLUS FHA loan is offered as a fully amortized loan.
Aside from the backing from the FHA, these loans are identical to the conventional CalHFA and CalPLUS loans listed above. That means the CalHFA FHA loan is also eligible for the Extra Credit Teacher Home Purchase Program and that it pairs with the Zero Interest Program.
MyHome Assistance Program
| Pros | – Can use up to 3.5% of your home’s value to cover closing costs or a down payment – Payments are deferred until the home is sold, paid off or refinanced |
| Cons | – Stringent application requirements |
| Eligibility | – For only first-time homebuyers – Must be a single-family home |
| Best For | – Middle- to low-income individuals who need help covering a down payment and/or closing costs |
To help qualified Californians pay their closing costs and make a down payment, the state created the MyHome Assistance Program. For those who are eligible, it’s possible get up to 3.5% of your home’s price back as a deferred payment loan. That means that until you refinance, pay off your existing mortgage or you sell the home, you do not have to start making payments.
Note that you cannot take advantage of this offer unless you already have a CalHFA first mortgage loan.
School Teacher and Employee Assistance Program
| Pros | – Get a loan for up to 4% of your home’s value to use toward a down payment or closing costs – Pay nothing on the loan until the home is sold, refinanced or fully paid off |
| Cons | – Can only be combined with a CalHFA first mortgage loan |
| Eligibility | – Solely for teachers, administrators and employees at K-12 public schools in California – Must be a first-time homebuyer purchasing a single-family home |
| Best For | – Eligible applicants with limited funds for a down payment |
Any K-12 public school teachers, administrators and other employees can take advantage of the School Teacher and Employee Assistance Program. You can combine this with some first-time homebuyer mortgages through CalHFA for help with your down payment and any closing costs.
Under this program, you can get back as much as 4% of the purchase price of your home as a second mortgage. Additionally, like some of the other programs on this list, until you sell your new home, fully pay it off or choose to refinance, you do not have to make any payments.
Cal-EEM + Grant Program
| Pros | – Possible to pair with a Cal-EEM Grant that can be for up to 4% of your first mortgage amount – Lowered credit requirements – Can be combined with MyHome Assistance Program & School Teacher and Employee Assistance Program |
| Cons | – Useless for anyone who doesn’t want to make energy-efficient improvements |
| Eligibility | – Has to be for a single-family home |
| Best For | – First-time homeowners looking to make energy-efficient home improvements |
Cal-EEM stands for CalHFA Energy Efficient Mortgage. It is a 30-year, fixed-rate loan specifically for making energy-efficient home improvements. The loan is paired with the Cal-EEM Grant, which does not have to be repaid and can be used for these improvements. Also, because the FHA backs this loan, the minimum credit score required is lower than for most conventional mortgages.
California allows borrowers in this program to pair their loan with the MyHome Assistance Program and/or School Teacher and Employee Assistance Program.
Forgivable Equity Builder Loan
| Pros | – Has a 0% interest rate – Up to 10% of purchase price can go to down payment |
| Cons | – Must meet income limits to qualify |
| Eligibility | – Household income can’t exceed 80% of area’s median income |
| Best For | – First-time homeowners who plan to stay in their home at least 5 years |
One of the newest state initiatives is the Forgivable Equity Builder Loan assistance program. The loan carries a 0% interest rate . If the recipient, who must qualify for a mortgage, stays in the home for five years, the entire principal is forgiven.
The loan is available for first-time home buyers who have a household income of no more than 80% of the median income in their area. For example, if you live in Los Angeles County your household income must be $72,089 or less. Qualified applicants can get up to 10% of a home’s purchase price to use toward the down payment.
How to Choose a First-Time Home Buyer Program in California
The right program depends on what specifically is preventing you from being able to a home. Limited savings may make down payment assistance more important. Meanwhile, a lower credit score could make financing requirements the bigger concern.
Calculate how much you can comfortably bring to closing before comparing your choices. Include the down payment, closing costs and enough remaining savings to ensure you could handle expenses after you move in.
Then check which programs you can actually use. Your income, occupation, military service, credit profile and the location or price of the property can all affect eligibility.
Consider the conditions attached to financial assistance as well. For instance, money provided toward a home purchase may have to be repaid later, so receiving more upfront does not necessarily make a program less expensive overall.
Your monthly budget matters just as much as the initial purchase cost. Compare estimated mortgage payments, interest, insurance and any other required expenses to see what you could afford after closing.
Once you narrow the choices, compare the upfront cash required with the ongoing cost of each option. The strongest fit is generally the one that makes the purchase manageable without creating a mortgage payment that strains your budget.
Bottom Line
California first-time homebuyers can choose from federal and state programs that offer low down payments, flexible credit requirements or assistance with upfront costs. Eligibility depends on factors such as income, credit, occupation, military status and the specific property you’re purchasing. Comparing these requirements with the amount needed at closing, monthly housing costs and any repayment obligations can help you choose an option that fits your budget.
Tips for Navigating the Home Buying Process
- A mortgage is likely the largest loan that you’ll ever take out during your lifetime. That’s one reason it can be helpful to work with a financial advisor to create a financial plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- In addition to taking advantage of any federal or state programs available to you, it’s also vital to shop around to get the best mortgage. Check with specific lenders and look at interest rates so you get the best possible terms.
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