8 Home Loan Options

Whether you’re a first time home buyer or a seasoned homeowner, there’s a mortgage program that’ll meet your needs. New programs are constantly being released or are available for limited time but here are 8 commonly used options.

California Mortgage Terms

The term, or duration, of most mortgage programs in California is 30 years followed by 15-year mortgages. Adjustable Rate Mortgages have the shortest terms and require borrowers to refinance their mortgage in the future to reset the term and rate, typically to a fixed-rate mortgage.

4 Government-Insured Home Loans

1.FHA Loan

FHA loans are popular kinds of mortgage programs in California for first-time home buyers. FHA loans allow down payment gifts from blood or by-marriage relatives. Many first-time home buyers get started with a little financial help from their families.

Requires:

3.5% down payment

FICO scores down to 620 (and sometimes lower, depending upon circumstances) are allowed.

If you make a smaller down payment (less than 20%), an annual mortgage insurance premium (MIP) is required. MIP is paid monthly and tacked onto the principal, interest and insurance portions of the payment. To get rid of FHA mortgage insurance, borrowers must refinance into another type of loan, typically switching over to a conventional mortgage.

FHA loans have a one-time, upfront mortgage insurance premium (UFMIP) at the time of closing.

While popular with first time home buyers, California FHA loans can also be used by anyone as long as they’ve not owned or had an interest in a property in the last three years. But that doesn’t mean you can go out and buy a home in Malibu with an FHA loan. FHA loan limits, for one-unit properties, are:

$420,680 floor in low-cost areas
115% of median home prices in the county, or a maximum of
$970,800 ceiling in high-cost areas.

2. VA LOAN

Requires:

$0 down
FICO scores down to 620.
VA eligibility certificate
VA funding fee (usually 2% of loan, unless eligible for a service-related disability).

Borrowers must be active duty or honorably discharged veterans (and in some cases qualifying spouses). Unlike other government-sponsored loans, no mortgage insurance is required. However, there is one-time, upfront VA Funding Fee. Like other programs, loan limits apply. California VA loan limits, for one-unit properties, are:

$647,200 in low-cost counties
$970,800 in high-cost counties

3. STATE PROGRAMS

The California Housing Finance Agency (CalHFA) was established in 1975 to help low and moderate income Californians get safe and affordable housing. First-time home buyer programs in California include two down payment assistance programs, each of which can be combined with standard mortgages. Qualifying FICO score is usually 680.

MyHome Assistance Program is a small loan (5% of loan amount) to help offset the down payment and closing costs for first time buyers. The loan is deferred; you don’t have to pay it back until the home is sold or paid in full.
Zero Interest Program (ZIP) is very similar to MyHome above, but the loan amount is 3% of the total mortgage and carries 0% interest rate. ZIP repayment is also deferred.

The interest rate for the state programs are usually double the standard rate, and can affect your monthly payment or loan qualification but is a great option for certain needs.

4 Conventional Home Loans

1. CONFORMING LOAN

A conventional loan is also called a “conforming loan” when it meets guidelines set by Fannie Mae/Freddie Mac, two government-sponsored entities (GSEs) that acquire the bulk of mortgages after they are made between a lender and a borrower. One major restriction on conforming loans is their size. They cannot exceed California conforming loan limits, which are:

$647,200 floor in low-cost areas.
$970,800 ceiling in high-cost areas.

In the past, conventional programs required 20% down payment. The combination of higher credit score and down payment requirements earned conventional loans the reputation as being “out of reach” to most first time buyers. Like their government-insured counterparts, conventional mortgages require mortgage insurance when the loan-to-value is greater than 80%. Conventional loans use private mortgage insurance (PMI). PMI goes away on its own, over time, as the LTV gets to 80% or lower. That’s a stark contrast to FHA loans which carry mortgage insurance for the life of the loan (borrower must refinance to get out of MI).

Requires:

5-20% down
FICO scores down to 680, 740 is ideal for a competitive interest rate.

2. CONVENTIONAL 97

Conventional 97 loans are a type of low down payment mortgage for first time home buyers with good credit. Borrowers only need to come up with a 3% down payment, which then creates a mortgage balance of 97% loan to value (LTV), hence “97” in the mortgage product’s name.

3. HOME POSSIBLE

Home possible is affordable given the smaller 3% to 5% down payment requirement. The one that’s right for you will depend upon your income, the type property you wish to finance, and property location. Home Possible mortgages are designed for low to moderate-income homebuyers and are well-suited for first-time home buyers and younger borrowers.

4. JUMBO (NON CONFORMING)

Home prices in California are high compared to many states in the United States. Borrowers here sometimes need a bigger loan, one that exceeds conforming loan limits. That’s when jumbo mortgages come in handy. Jumbo loans are available in amounts up to $3 million.

You know you need a jumbo loan if the size of it exceeds the loan limits posted above.

Find out how much you can borrow, estimated costs, monthly payments, programs, and more. Complimentary loan consultation with our preferred lender.

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