What to know about buying a house in California

Buying your first home can be a real challenge, especially in a state like California where prices are often sky-high.

Luckily, the Golden State has a variety of first-time home buyer loans and grants to help those who need an extra hand. Here’s how to get started.

California first-time home buyer programs

For California home buyers, a good place to start looking for assistance is the California Housing Finance Agency (CalHFA)⁴. This agency offers a wide range of first-time home buyer loan programs at its own special interest rates.

To qualify for any of CalHFA’s special mortgage loans, you’ll need to:

• Be an eligible first-time home buyer
• Complete a home buyer education course
• Meet CalHFA’s median income limits⁵
• Have a minimum credit score of 660-680, depending on the program
• Purchase a primary residence within the state of California

CalHFA offers an eight-hour online home buyer education course for just $99. Participation is mandatory if you want to be eligible for financial help from the agency. And, it facilitates one-on-one counseling sessions for home buyers, which can be face-to-face or virtual. But fees vary depending on the service you choose.

CalHFA FHA loan

The CalHFA FHA loan program is guaranteed by the Federal Housing Administration and features a 30-year mortgage with a fixed interest rate. You can use this loan to purchase a single-family home or approved condominium.

CalPLUS FHA loan

The CalPLUS FHA program is another government-backed mortgage that comes with a slightly higher interest rate than its standard FHA loan. However, this home loan is combined with a closing cost assistance program, called the CalHFA Zero Interest Program (ZIP).

Similar to the CalHFA FHA loan, this program features a 30-year mortgage that will finance the purchase of a single-family primary residence.

CalHFA VA loan

Eligible veterans and active-duty service members have access to this VA-insured mortgage with a 30-year loan term and fixed-interest rate. The CalHFA VA program can be used to finance the purchase of a single-family home or condo.

CalHFA USDA loan

This 30-year, fixed-rate loan is backed by the USDA and comes with down payment assistance, called the “MyHome Assistance Program.” In addition to CalHFA guidelines, applicants to the CalHFA USDA program must meet both USDA income limits and eligible rural area requirements to qualify.

CalHFA conventional loan

The CalHFA conventional program is a 30-year mortgage with a fixed interest rate. Like all conventional loans, you’ll have to pay for private mortgage insurance when your down payment is less than 20% of the home purchase price.

CalPLUS conventional loan

This 30-year, fixed-rate loan comes with a slightly higher mortgage rate than the standard conventional home loan. But the CalPLUS conventional program comes paired with the MyHome and ZIP programs that will cover both your down payment and closing costs.

CalVet home buyer program

The CalVet program is open only to veterans, service members, and those in closely associated groups. It says its website “is designed to help you understand the steps to homeownership and discover just how easy and stress-free purchasing a home and securing a CalVet home loan can be.”

The agency provides special VA loan options that can help veterans who wish to buy homes in the Golden State. 

The Dream For All Shared Appreciation Loan

The Dream For All Shared Appreciation Loan is a down payment assistance program for first-time homebuyers and provides funding up to 20% of the home’s sales price. It is to be used in conjunction with the Dream For All Conventional first mortgage for down payment and/or closing costs.

As the program name implies, you will need to repay the original down payment loan plus a share of the appreciation in the value of the home. So for example, if you receive a 20% down payment loan toward your new home, the state housing authority will collect 20% of the increased value when you sell, transfer, or refinance the home.

As with most down payment assistance programs, you’ll need to meet the minimum credit score requirements and stay within the county income limit. You must also complete a homebuyer education course before closing.

California first-time home buyer grants

The Golden State has countless down payment assistance programs (DPAs) that can provide financial help toward your down payment and often closing costs.

Some of those are local and serve specific counties or cities. But here are the details of the main statewide programs.

CalHFA MyHome Assistance

Qualifying home buyers could borrow up to 3.5% toward their down payment and closing costs under the CalHFA MyHome Assistance Program.

To qualify for MyHome down payment assistance, buyers must:

• Be a first-time home buyer
• Purchase a single-family home
• Live in the home as their primary residence
• Complete home buyer education counseling
• Meet income limits
• 3.5% of the home purchase price or appraised value, whichever is less, for an FHA loan
• 3% of the home purchase price or appraised value, whichever is less, for a conventional, VA, or USDA loan

These are loans (a.k.a. “second mortgages” or “junior loans”) rather than grants. However, they’re deferred-payment loans. That means you don’t have to make monthly payments. Instead, you pay back the whole amount (plus interest) when you move, sell, refinance, or otherwise change the ownership of your home.

CalHFA Accessible Dwelling Unit (ADU) Grant Program

As part of the 2023-24 State Budget, $25 million has been allocated to The CalHFA ADU Grant Program. This initiative provides up to $40,000 for pre-development costs and non-reoccurring closing costs to build the ADU.

To qualify for The CalFHA ADU Grant assistance, buyers must:

• Meet income limits
• Live in the home as their primary residence
• Complete and sign the CalHFA Participant Affidavit
• Provide a Certificate of Occupancy upon completion of the ADU

To build an ADU and take advantage of this new California homeowner grant, reach out to CalHFA-approved mortgage lenders, non-profits, and local government agencies.

• Be a first-time home buyer in California
• Be a member of a designated Underserved Community
• Buy a single-family residence
• Live in the home as their primary residence
• Meet income limits
• Be represented by a member of the California Association of Realtors
• Be left with no more than $20,000 in savings after the home purchase

Forgivable Equity Builder Loan

The Forgivable Equity Builder Loan is a newer California home buyer program that aims to help first-time homeowners buy property more affordably. Via this program, buyers can get a loan of up to 10% of the purchase price which is forgivable after five years, provided they continue to live in the property full-time during that period.

To qualify for the Forgivable Equity Builder Loan, you must:

• Be a first-time home buyer in California
• Buy a single-family, one-unit residence
• Live in the home as your primary residence
• Complete a home buyer education course if borrowing through CalHFA
• Meet county income limits

California first-time home buyer loans

If you’re a California first-time home buyer with a 20% down payment, you can get a conventional loan with a low interest rate. And you never have to pay for private mortgage insurance (PMI).

Of course, few first-time buyers have saved a 20% down payment. Doing so could be especially challenging in California, where 20% of the average sales price is nearly $160,000.

But the good news is that you don’t need 20% down. Not by a long shot. California home buyers can often get into a new home with as little as 3% or even 0% down using one of these low-down-payment mortgage programs:

• Conventional 97: With Freddie Mac or Fannie Mae, you may qualify with a 3% down payment and 620 minimum credit score. You can usually stop paying private mortgage insurance after a few years
• FHA loan: Backed by the Federal Housing Administration, you could qualify for an FHA loan with a 3.5% down and a 580 minimum credit score. But you’re on the hook for mortgage insurance until you refinance to a different type of mortgage, move, or pay off your loan
• VA loan: Only for veterans and active-duty service members, the VA mortgage offers a zero-down-payment option. Minimum credit score varies by lender but often 620. There’s no ongoing mortgage insurance after closing. These are arguably the best mortgages available, so apply if you’re eligible
• USDA loan: For those on low-to-moderate incomes buying in designated rural areas. Zero down payment required. Credit score requirements vary by lender but often 640. Low mortgage insurance rates
• CalHFA mortgage programs: Government and conventional home loans offered via the California Housing Finance Agency. Offers 30-year fixed-rate first mortgages along with home buyer assistance

Note that government loan programs (including FHA, VA, and USDA home loans) require you to buy a primary residence. That means you can’t use these loans for a vacation home or investment property.

In addition, most programs let you use gifted money or down payment assistance (DPA) to cover your down payment and closing costs. Depending on the mortgage loan you choose, you could potentially get into your new house with minimal cash out of pocket.

If you’re unsure which program to choose for your first mortgage, your lender or real estate agent can help you find the right match based on your finances and home buying goals.