What to know about buying a house in California
You don’t need to be told that home prices in the Golden State are eyewatering: the highest in the continental United States. So it’s just as well that California first-time home buyers have a vast number of resources to turn to for advice, education, and financial help. Here’s what you should know.
In this article (Skip to…)
California home buyer overview
The average home purchase price in California is considerably higher than most states. So eligible first-time buyers really stand to benefit from the homeownership programs described below.
|California Home Buyer Overview|
|Average Home Sale Price||$758,990|
|Minimum Down Payment in California (3%)||$22,770|
|20% Down Payment in California||$151,798|
|Average Credit Score in California1||716|
|Maximum California Home Buyer Grant2||Deferred loan up to 17% of home’s appraised value
(San Diego and Silicon Valley only)
Down payment amounts are based on the state’s most recently available average home sale price. “Minimum” down payment assumes 3% down on a conventional mortgage with a minimum credit score of 620.
If you’re eligible for a VA loan (backed by the Department of Veterans Affairs) or a USDA loan (backed by the US Department of Agriculture), you may not need any down payment at all.
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 over $150,000.
But the good news is, 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 mortgage programs:
- Conventional 97 — From Freddie Mac or Fannie Mae. 3% down payment and 620 minimum credit score. You can usually stop paying mortgage insurance after a few years
- FHA loan — Backed by the Federal Housing Administration. 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 home, or pay off your loan
- VA loan — Only for veterans and service members. Zero down payment is required. Minimum credit score varies by lender but often 620. 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
Depending on the mortgage loan you choose, you could potentially get into your new house with minimal cash out of pocket.
These programs even let you use gifted money or down payment assistance to cover the down payment and closing costs.
If you’re not sure which program to choose for your first mortgage, your loan officer can help you find the right match based on your finances and home buying goals.
California first-time home buyer programs
If you’re looking for help with the home buying process, here’s where to turn.
For a California first-time home buyer, a good place to start looking for assistance is the California Housing Finance Agency (CalHFA).
This agency offers a wide range of first-time home buyer loan programs at its own special interest rates, including:
- The CalHFA FHA program
- CalPLUS FHA loan program (which can be combined with the CalHFA Zero Interest Program (ZIP) to cover closing costs)
- The CalHFA VA loan program
- The CalHFA USDA loan program
- CalHFA conventional loan program
- CalPLUS conventional loan program (which can be combined with the CalHFA Zero Interest Program (ZIP) to cover closing costs)
CalHFA also has an eight-hour online homebuyer education course for $99. Participation is mandatory if you want to be eligible for financial help from the agency (more below).
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.
The agency has income limits and purchase price limits if you want financial help. And you’ll need a good credit score of 660-680 or higher, depending on some other factors. To see if you’re eligible, use the wizard on the CalHFA website.
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. You can call CalVet loan originators to check your eligibility at (866) 653-2510 (Monday-Friday, 8 am-5 pm).
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 program:
Qualifying home buyers could borrow up to $11,000 toward their down payment and closing costs under the CalHFA MyHome Assistance Program.
To qualify for the MyHome down payment assistance program, homeowners 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
Note, the $11,000 DPA cap doesn’t apply to “school employees and fire department employees, or those purchasing new construction homes, manufactured homes, or homes with ADUs.” An ADU is an accessory dwelling unit, which is a home or apartment that’s part of a larger home.
Regardless of whether that $11,000 cap applies, you can’t borrow more than:
- 3.5% of the home’s purchase price for an FHA loan
- 3% for a conventional, VA, or USDA loan
These are loans (second mortgages, aka 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.
If you like the sound of the CALFHA offering, don’t commit until you’ve checked out other DPAs covering your area. One of those may suit you better.
Use the links for your city or county below. And, of course, if you’re a veteran, explore CalVet’s products.
Buying a home in California’s major cities
California’s big cities are some of the most costly in the nation. So home buyers in these areas will want to know what to expect.
Los Angeles first-time home buyers
The median home listing price in Los Angeles was $950,000 in May 2021, according to Realtor.com. That was up by 10.6% year-over-year.
If you want to buy a home at that median price, your down payment options might fall between:
- $28,500 for 3% down payment
- $190,000 for 20% down payment
The snappily named City of Los Angeles Housing + Community Investment Department (HCIDLA) has a couple of programs that can help first-time buyers. These are the Low Income Purchase Assistance (LIPA) program and the Mortgage Credit Certificate (MCC).
The former can provide deferred payment loans of up to $90,000 to low-income borrowers. These loans have no monthly payments and are repayable when you move or refinance.
There are similar programs for those buying outside the LA city limits run by the Los Angeles County Development Authority.
San Diego first-time home buyers
The median home listing price in San Diego was $775,000 in May 2021, according to Realtor.com. That was up by 8.3% year-over-year.
If you want to buy a home at that median price, your down payment options might include:
- $23,250 for 3% down payment
- $155,000 for 20% down payment
The San Diego Housing Commission (SDHC) First-Time Homebuyer Program offers several types of help, including deferred loans, homeownership grants, and mortgage credit certificates.
The website continues: “Low-income, first-time homebuyers may qualify for a low-interest, deferred payment loan of up to 17% of the purchase price for down payment assistance and 4%, up to $10,000 in closing costs assistance.”
San Jose first-time home buyers
The median home listing price in San Jose was an eye-watering $1.1 million in May 2021, according to Realtor.com. That was up by 10.2% year-over-year.
If you want to buy a home at that median price, your down payment options could range between:
- $33,000 for 3% down payment
- $220,000 for 20% down payment
Housing Trust Silicon Valley has a program called Empower Homebuyers SCC, which can lend you up to 17% of your next home’s appraised value (with strings).
This is another deferred loan, meaning you make no monthly payments but have to pay the whole amount back “when the loan matures, you decide to sell or you refinance your mortgage” … plus. The plus here is a share of the amount by which your home has appreciated over the years.
How it works
The website explains:
“You will share your appreciation in equal proportion to the amount you borrowed. This means if your loan was 17% of the purchase price, you will share 17% of the appreciation and the rest of the equity that builds up on your home over time is yours.”
“For instance, if you buy a house for $600,000 and use Empower to borrow 17% ($102,000) for the down payment, and the home is later sold for $800,000, you would owe a total of $136,000 (the original loan amount of $102,000, plus $34,000/17% of the $200,000 appreciation).”
Of course, you have to have 3% of the purchase price saved to benefit. But then you can put down 20%, which should get you a low mortgage rate and save you from paying any form of mortgage insurance.
If your income is too high for that program, the Homebuyer Empowerment Loan Program (HELP) is an alternative, also run by Housing Trust Silicon Valley.
Where to find home buying help in California
All the organizations we’ve listed above should provide advice freely to any first-time home buyer in the state of California.
In addition to our selection, the US Department of Housing and Urban Development (HUD) provides a few lists for statewide, regional, and local resources:
Statewide and Regional CA home buying programs
CA home buying programs by city and county
What are today’s mortgage rates in California?
Current mortgage rates in California are low. But your own interest rate depends on many factors — including your credit score, down payment, loan type, and more.
If you’re using a home buyer assistance program, you’ll choose from a list of participating lenders. Your mortgage lender will then assign a loan officer to help you through the rest of the transaction.
Just because you initially choose an approved lender, that doesn’t mean you must stick with it.
You should still shop around for your best mortgage rate and overall deal. Because doing so could save you thousands.
If you’re not using a down payment assistance program, you’re free to pick any mortgage lender you want. Compare at least 3-5 lenders’ quotes to find the best deal.
1 Source: Experian.com 2021 study of 2020 data
2Based on a review of the state’s available DPA grants at the time this was written
California First-Time Home Buyer | 2021 Programs & Grants is written by Peter Warden for themortgagereports.com