What is Down Payment Assistance?

A Down Payment Assistance (DPA) program is designed to help prospective homebuyers overcome the financial barrier of a down payment, making homeownership more accessible. These programs offer financial aid that can be used towards the down payment and/or closing costs associated with purchasing a home. In California, various DPA options are available at the state, city, and county levels, each with specific eligibility criteria and benefits.

Statewide Down Payment Assistance Programs in California:

1. MyHome Assistance Program: Offered by the California Housing Finance Agency (CalHFA), this program provides a deferred-payment junior loan of up to 3.5% of the purchase price or appraised value for FHA loans, and up to 3% for conventional loans, to assist with down payment and/or closing costs. Eligible participants must be first-time homebuyers, occupy the property as their primary residence, and meet specific income limits.
2. Golden Opportunities Program: Managed by the Golden State Finance Authority (GSFA), this program offers financial assistance up to 5% of the first mortgage loan amount. It is available to low-to-moderate income homebuyers and does not require participants to be first-time homebuyers. The assistance can be used towards down payment and/or closing costs.

City and County-Specific Down Payment Assistance Programs in California:

• San Francisco:
  • Downpayment Assistance Loan Program (DALP): Provides a deferred loan up to $375,000 for first-time homebuyers who meet income and residency requirements.
  • Below Market Rate (BMR) Housing Program: Offers homes at below-market prices with specific restrictions.
• Los Angeles:
  • Low-Income Purchase Assistance Program (LIPA): Offers deferred loans to help first-time homebuyers with down payment and closing costs.
  • Moderate-Income Purchase Assistance Program (MIPA): Similar to LIPA but tailored for moderate-income buyers.
  • Home Ownership Program (HOP): Provides deferred-payment loans up to $85,000 for down payment assistance; income limits apply, and homebuyer education is required.
• San Diego:
  • San Diego Housing Commission First-Time Homebuyer Program: Offers deferred-payment loans and closing cost assistance for eligible buyers.
• Oakland:
  • First-Time Homebuyer Mortgage Assistance Program (MAP): Assists low-income families with deferred loans for down payment and closing costs.
• Sacramento:
  • CalHome Program (through Sacramento Housing and Redevelopment Agency): Provides loans to assist with down payments, with eligibility based on income and residency.

*Note: The availability and specifics of these programs can change. It’s advisable to consult the respective city or county housing authority or official websites for the most current information.*

Benefits of Using Down Payment Assistance Programs:

• Increased Affordability: DPA programs reduce the initial financial burden, making homeownership more attainable for individuals and families with limited savings.
• Improved Loan Terms: By supplementing the down payment, these programs can help borrowers secure better mortgage terms, potentially leading to lower monthly payments.
• Preservation of Savings: Assistance allows homebuyers to retain personal savings for future expenses, emergencies, or home improvements.
• Community Development: Encouraging homeownership contributes to neighborhood stability and growth, fostering a sense of community and investment in local areas.

Utilizing Down Payment Assistance programs can be a strategic step toward achieving homeownership, providing essential support to navigate the financial challenges associated with purchasing a home.

Pre-Qualification vs. Pre-Approval

The key difference between Mortgage Pre-Qualification and Mortgage Pre-Approval is the level of verification and commitment from the lender.

Mortgage Pre-Qualification

• Definition: A preliminary assessment of how much a borrower might qualify for, based on self-reported financial information.
• Process: The borrower provides basic financial details (income, debts, assets, and estimated credit score).
• Lender Verification: Minimal or no verification of financial documents or credit.
• Reliability: A rough estimate, not a guarantee of approval or loan terms.
• Best For: Initial home shopping stage, giving a general idea of affordability.

Mortgage Pre-Approval

• Definition: A more in-depth evaluation where a lender verifies the borrower’s financial background and conditionally approves a specific loan amount. This is recommended prior to starting your home search. By getting Pre-Approved you will know your actual Purchase Power.
• Process: The borrower submits financial documents (W-2s, tax returns, bank statements, credit report) for lender review.
• Lender Verification: Extensive review of credit, income, debt, and assets.
• Reliability: Stronger commitment from the lender, often required by sellers to take an offer seriously.
• Best For: Serious buyers ready to make offers with confidence.

Bottom Line

A pre-qualification is an estimate, while a pre-approval is a verified conditional approval. If you’re serious about buying a home, a pre-approval carries more weight and puts you in a stronger negotiating position.

FHA vs. Conventional

FHA Loan (Federal Housing Administration Loan)

An FHA loan is a mortgage that is backed by the government (the Federal Housing Administration). This means lenders are more willing to approve borrowers who might have lower credit scores or smaller down payments.

Pros of an FHA Loan:

✅ Lower Credit Score Requirements – You can qualify with a credit score as low as 580 (or even 500 with a larger down payment).
✅ Lower Down Payment – You only need 3.5% down if your credit score is 580 or higher.
✅ Easier to Qualify – Because the loan is insured by the government, lenders are more flexible with borrowers who have limited credit history or past financial issues.

Cons of an FHA Loan:

❌ Mortgage Insurance is Required for Life – FHA loans require Mortgage Insurance Premiums (MIP), which add to your monthly payment. This insurance lasts for the life of the loan unless you refinance into a conventional loan later.
❌ Property Restrictions – The home must meet certain safety and livability standards, meaning fixer-uppers may not qualify.
❌ Loan Limits – FHA loans have borrowing limits, which vary by location.

Conforming Conventional Loan Option

A conventional loan is not backed by the government but follows guidelines set by Fannie Mae and Freddie Mac. The term “conforming” means the loan amount is within the limits set by these agencies ($766,550 for most areas in 2024).

Pros of a Conventional Loan:

✅ No Mortgage Insurance with 20% Down – If you can put down 20% or more, you won’t have to pay private mortgage insurance (PMI), which saves you money.
✅ Lower Overall Loan Costs – Over time, a conventional loan can be cheaper than an FHA loan because you can remove PMI once you reach 20% equity (unlike FHA’s mortgage insurance, which lasts for the loan’s life).
✅ More Property Flexibility – Conventional loans allow for a wider range of property types, including fixer-uppers, investment properties, and vacation homes.

Cons of a Conventional Loan:

❌ Stricter Credit Requirements – You typically need a credit score of 620 or higher, and better scores (700+) will get you the best rates.
❌ Higher Down Payment for Some Borrowers – While you can get a conventional loan with as little as 3% down, you’ll need a stronger financial profile to qualify for those programs.
❌ More Stringent Approval Process – Lenders look more closely at your credit history, debt-to-income ratio, and employment stability than with FHA loans.

Which One is Right for You?

• Choose FHA if you have lower credit or less money for a down payment but still want to buy a home.

• Choose Conventional if you have good credit and can put down at least 5%, especially if you want to avoid long-term mortgage insurance costs.

Would you like help figuring out which loan would be best for your specific situation? 🚀