The most common barrier to home ownership today is cash for a down payment and closing costs. For many people today, especially those just starting out, it’s a real struggle to save that much cash.
The California Housing Finance Agency (CalHFA) offers a down payment assistance program that has helped thousands of Californians realize the dream of home ownership.
Recognizing that the lack of cash has traditionally been the biggest problem, CalHFA has created a down payment assistance program, the California Home Down Payment Assistance Program (CHDAP). Used in conjunction with a standard FHA-insured mortgage, CHDAP requires a cash investment of just ½%—well within the reach of any first time homebuyer.
A traditional FHA loan requires a down payment of 3½% of the purchase price. That down payment can come from the buyer’s own funds—or an approved down payment assistance program such as CHDAP.
The buyer applies for and receives an FHA loan for 96.5% of the purchase price plus a CHDAP loan of 3% from CalHFA. This leaves a required cash investment of ½%. The CHDAP loan has an interest rate of 3.25% and no monthly payments. The balance plus accrued interest does not have to be paid until the first mortgage is paid off through sale, refinance or amortization (potentially 30 years).
The requirements for CHDAP are as follows:
- The buyer has not owned their personal residence for the last three years
- They meet certain maximum income limitations, depending on the number of people in the household and the county in which they reside. In the Bay Area counties, a family of three can have a maximum income of $95,550
- The property value falls within the maximum price limitation. In Alameda and Contra Costa Counties, for example, the maximum price for CHDAP is $673,615
Borrower qualification is essentially the same as for an FHA loan by itself: minimum credit score of 640, maximum Debt To Income ratio 55%, subject to automated underwriting approval. Once the lender has underwritten and approved the loan, the package is sent to CalHFA for final approval. This adds approximately ten business days to the process.
The monthly payment for a purchase with this scenario often turns out to be lower than a landlord would charge to rent the same kind of property!