Special Loan and Purchase Programs for Homebuyers
Special home purchase programs are usually for buyers with very limited downpayments and/or low-to-moderate income. Most programs, but not all, are for first-time homebuyers, usually defined as anyone who has not owned a primary residence in the past three years.
Because most special home buyer programs have strict income guidelines, many bay area home buyers find that their income is higher than the program will allow. Because of the variety of programs, and the very different qualifications for each, ask your lender early in the process if there is one that might work for you if down payment is an issue. New programs appear periodically, so the list below is not exhaustive.
The five primary, and very different, program types:
1. The low-income census tracts program is quite interesting. Census tracts are small, geographically defined areas. As a reference point, San Rafael, with a population of 58,000, comprises two zip codes, and thirteen census tracts. Low-income census tracts make up about 15% of all bay area census tracts. By statistical quirks – ‘low income’ is relative and the overall bay area income is high – some are in surprisingly desirable areas, for example parts of San Anselmo in the coveted Brookside school district. Contact me for a current list of eligible census tracts in the areas that you are looking. There is no restriction on income for this program. The maximum loan amount is $625,500, and the program provides 30 year fixed mortgages at up to a 95% LTV with no mortgage insurance and very low rates, and has a low minimum credit score of 620.
2. The moderate-income buyer program has an income limit of $121,440 in San Francisco, Marin, San Mateo and Santa Clara counties, and $107,040 in Alameda and Contra Costa counties. Sonoma is $89,880, Napa is $96,720, and Santa Cruz is $88,560. This is the maximum income for one loan, whether there are one or two borrowers. This program also has a maximum loan amount of $625,500, and the program provides 30 year fixed mortgages at up to a 95% LTV with no mortgage insurance and very low rates, and has a low minimum credit score of 620.
3. The California Housing Finance Agency has several programs for first-time homebuyers with very little down payment, including one specifically for teachers. In the bay area, the maximum income allowed for a couple using these programs, depending on the county where the property is located and the specific program, ranges from around $75,000 in Sonoma county to around $97,000 in Santa Clara county.
These programs are designed to provide the minimum down payment necessary to get an FHA loan in the form of a low-interest or no-interest second mortgage; the minimum down payment on FHA is 3.50% of the purchase price; these programs provide a loan or subsidy for that 3.50% down payment.
The CalPLUS FHA program uses a CalHFA fixed interest rate first mortgage. This loan is fully amortized for a 30-year term and is combined with the CalHFA Zero Interest Program (ZIP) for down payment assistance only. The ZIP second loan is only available with CalPLUS and is a silent second loan for up to 3.5% of the first mortgage total loan amount, including Up Front Mortgage Insurance Premium (UFMIP). The interest rate is zero percent (0.00%) and the payment(s) are deferred for the life of the first mortgage or until the property is transferred or the first mortgage loan is refinanced.
The California Homebuyer’s Downpayment Assistance Program (CHDAP) is a deferred payment, simple interest rate second mortgage. The CHDAP loans are available up to, but cannot exceed, 3% of the sales price or appraised value of the property, whichever is less. These loans are generally combined with a special FHA loan, CalHFA, to allow a purchase with almost no down payment.
For detailed program guidelines, including all borrower and property restrictions:
4. Below Market Rate (BMR) is not a loan program, BMR properties are actual housing units which sell at a discount, sometimes substantial, to market prices. Often there will be a lottery for these units.
5. A Mortgage Credit Certificate (MCC) is a federal income tax credit that allows a tax credit – more valuable than a deduction – for a portion of the mortgage payment, effectively reducing the purchase price.
Many bay area counties and cities have other special programs to assist low and moderate income borrowers – for a couple, some of these programs allow combined incomes of over $100,000.
Using Retirement Funds for Down Payment
A ‘first-time’ homebuyer, defined in this case as someone who has not owned a home in the previous two years, can take up to $10,000 (a lifetime limit) out of an IRA or SEP IRA, without paying the 10% withdrawal penalty, for the purchase of a primary residence. However, the income tax on that withdrawal does have to be paid with your next tax filing. You have 120 days to close after withdrawing the money or the 10% penalty will apply. These same rules apply if a child or spouse of the owner of an IRA is a first-time homebuyer.It is often possible to borrow up to 50% of the funds in your 401k for a down payment; then, you simply pay yourself back, with interest, over time. Contact your plan administrator for the specific rules that apply.
Wherever you live, the best sources of information for first-time homebuyers are generally the websites for the housing/community development agencies of the city or county and/or state where you’re looking to buy. Local lenders and real estate agents who work with first-time homebuyers should be aware of relevant programs. If you are a municipal employee, especially in public safety or education, there may be specific programs for you, which your union or employee credit union will know about.
Below is a list of some of the most helpful San Francisco Bay Area websites for first-time homebuyers:
- City of Oakland
- City of San Francisco
- City of Palo Alto
- Marin County
- San Mateo
- City of Petaluma
- Santa Clara County
- City of Santa Rosa