If you are a first-time home buyer in Orange County, there are some essential things to know about your options including the availability of first-time home buyer programs that can help with your down payment and closing costs.
Before you start house hunting in California it’s a good idea to get familiar with your options; some of them could add to your borrowing power or free up cash for you to use for other purposes.
There are a variety of basic loan options you can choose when buying real estate in Orange County. They include conventional mortgages and government-backed home loan programs. There are pros and cons for each, but much depends on your financial needs and goals for the property.
A conventional mortgage in Orange County may be the most flexible; you can purchase a primary residence or an investment property using a conventional mortgage.
Credit score requirements are typically higher for these home loans than for many government-backed mortgages but the loans can be more affordable because your interest rates may be lower (based on credit scores) and the mortgage insurance premium you pay may also be lower than a government-backed loan where applicable.
Conventional loans are more expensive for borrowers with lower FICO scores, often due to the higher interest rates offered to these borrowers. Borrowers who apply for conventional loans typically pay mortgage insurance unless they pay 20% down at closing time or their home equity reaches 20%.
Government-backed mortgages such as VA, USDA, and FHA loans offer more flexible credit requirements, a government guarantee to the lender, and a lower down payment requirement. VA and USDA loans include a no-money-down option, and FHA mortgages only require a minimum 3.5% down payment for qualifying applicants.
Government mortgages typically have no penalty for early payoff of the loan, they feature restrictions on certain closing costs, and some government-backed mortgages have no mortgage insurance requirement.
VA, FHA, and USDA mortgages are meant to help borrowers get into affordable homes, and feature special refinance options for VA and FHA mortgages that have no government-required credit check or appraisal. These refi loans, called Streamline Refinances, typically must result in a benefit to the borrower like a lower interest rate or mortgage payment.
Some borrowers get confused when they read about Jumbo loans, thinking this is a separate loan program from conventional or government-backed mortgages.
The truth is that any mortgage that exceeds area conforming loan limits is known as a Jumbo mortgage no matter if it is conventional, FHA, USDA, VA, etc. These loans typically have higher credit qualifying requirements and your lender may have additional approval guidelines for these larger-than-normal mortgage loans.
Jumbo loans are available in many areas, not just high-cost housing markets but they can help in places like Orange County which is traditionally a more expensive place to buy a house.
The Golden State Finance Authority (GSFA) Platinum Program offers down payment assistance and closing cost help for low-to-moderate-income borrowers in California. You do not have to be a first-time home buyer, perfect credit is not required, and there are flexible income limits for the program.
Types of mortgages eligible for this program include:
- Conventional mortgages
- FHA home loans
- VA mortgages
- USDA mortgages
The GSFA Platinum Program offers a variety of loan options, all offered through a network of participating lenders.
- The Platinum standard program is the one most Orange County home buyers likely use the most, featuring down payment help up to 5% in the form of a 15-year second mortgage.
- The Platinum Select program features down payment help up to 3.5% as a 15-year second mortgage with an additional 2% of assistance that is not repaid.
- The Member County “Assist-to-Own” program features 3.5% of down payment help as a second mortgage with a zero interest rate. This loan is not due until the home is paid off, sold, or refinanced. To qualify for this option you must be employed by a GSFA Member County.
The CalHFA MyHome Assistance Program offers first-time home buyers down payment assistance up to 3.5% of the purchase price. This is a deferred loan which is not due until you sell the home.
You must be a first-time home buyer, take home buyer education classes, and meet the income restrictions and purchase price limits. CalHFA is not a direct lender, you will apply for loans through a network of approved lenders to get the process started.
Neighborworks Orange County offers a variety of options for first-time home buyers including down payment assistance programs such as Keys To Doors and Keys To Doors 2 which offer down payment help for first-time buyers with deferred payments for up to five years. Income caps and other restrictions may apply.
Other options include CalHome, Wish, and the Daisy program. These all feature down payment assistance with repayment features that may be unique for that program. Many have income caps, some may be deferred while others may be forgivable.
Orange County Down Payment Assistance Program options include the Orange County Mortgage Assistance Program (MAP) which offers down payment assistance loans for first-time home buyers who meet income restrictions and who can make a 1% down payment.
Orange County MAP loans are 3% simple interest loans to be used on the down payment and have a maximum loan limit of $80,000. Homebuyer education is required.
The City of Brea Homebuyer Program is essentially a requirement for “most new” residential real estate development to provide a certain percentage of units at below market rates.
There is a waiting list for these units, you are required to complete an application with the City of Brea to be added to the list. If you purchase such a home from the list, you agree to certain “affordability covenants” which require profit sharing with the city if you sell the property for a profit within 45 years of purchase.
The City of Santa Ana My First Home Down Payment Assistance program similarly provides up to $120,000 in down payment assistance for first-time buyers who live or work in Santa Ana.
These funds are offered as an interest-free loan to borrowers who meet income limits that vary depending on the size of your household. If you have never owned a home before, or have not owned one in the last three years, this program may be helpful.
CalVets Home Loans are an option for first-time home buyers who are also currently serving military members or veterans. CalVets offers loans to any veteran buying a primary residence in the State of California who has an Honorable discharge and who served a minimum of 90 days on active duty.
There are no prior residence rules and this program is open to borrowers who are members of the Guard/Reserve who serve in the state. These loans are manually processed and offered by a network of CalVets loan originators.
Some programs offer down payment help, but still require you to make a “minimum required investment”. Other programs may offer to help with the down payment alone, or closing costs alone.
The first-time home buyer requirement for many programs may include people who have not owned a primary residence in the last three years.
The amount of down payment assistance you get may or may not be dictated by the down payment requirements of the mortgage itself. For example, VA loans and certain USDA loans may not have a down payment requirement but you may wish to make a down payment anyway to help lower your mortgage payment each month.
Down payment assistance may be offered toward closing costs, too and this will help for any type of mortgage loan.
It’s a bad idea to turn down the option of down payment help if you can free up money toward other closing costs or toward the upkeep of the home once you have moved in. Remember that any closing cost assistance can potentially free up more money to go toward your down payment. The lower your starting principal balance is on the mortgage, the better.
Maximum loan amounts for these programs may vary, but do not be surprised to find purchase price limits applied with some first-time home buyer programs. If you are considering purchasing a California home but have never lived in the state before, the prices for these home loans and the down payment requirements for them may seem intimidating.
But Orange County is a high-cost housing market and the down payment assistance numbers you see for some programs may seem very generous until you get used to looking at the home prices in the area where you may want to buy a home.
Some home loan programs may cater to buyers with low credit, thin credit, or bad credit. Remember that you can get help with pre-purchase home loan planning and saving that can help you improve your credit over time.
Call the U.S. Department of Housing and Urban Development or the Federal Housing Administration to request a referral to a HUD-approved housing counselor near you who can give you good first-time home buyer advice and planning help before you start planning your mortgage.
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