Most first-time buyers are now faced with a higher credit score requirement and tighter standards after the sub-prime market went through its shakeup. For many, that has created an additional challenge above and beyond the high cost of housing in California.
The answer to this is a very much overlooked first-time home-buyer program that solves this problem for many entry-level buyers with low FICO scores. The CALHFA (California Housing Finance Agency) program is sponsored by the state of California and has many features not available anymore through sub-prime lending.
To start, the program allows for 100% financing with only a 620 fico score. In the current lending environment, most programs now require at least a 660 FICO score. Aside from the low FICO score requirement, loan approval can be accomplished with the buyer's debt to income ratio exceeding 50%. CALHFA offers the buyer below market interest rates on a loan that has a fixed rate of 30, 35, and 40 year terms. With this type of loan, the consumer will never have to worry about his loan changing because it is not an adjustable rate mortgage product.
Currently available is an interest only loan with a 6% rate fixed for 35 years. This is a type of loan product in which the buyer gets a loan once and never has to think about refinancing the home. This type of loan program does require PMI (Primary Mortgage Insurance), but once you have reached a 20% equity position in the home and two years have gone by, you can eliminate the mortgage insurance and lower your payments even more, which is truly a better option for most homebuyers.
CALHFA also has available their HICAP (High Cost Area Home Purchase Assistance) program with $7,500 of assistance for down payment and their CHDAP (California Homebuyer's Down-payment Assistance Program), which offers an additional 3% of the purchase price for down payment or closing cost assistance. Many other community silent (no payment) second, third, fourth, and fifth loans can also be added to the loan to further lower the payments, by reducing the amount of principal that the buyer is borrowing. Another very unique feature of this loan program is the Mortgage Protection Program. This program can make up to six months of mortgage payments if the borrower becomes involuntarily unemployed and is receiving state unemployment benefits.
After reading, this I hope you have come to the conclusion that although buying your first home can be challenging in the aftermath of the sub-prime lending shakeup, there is still hope and with the right guidance from a knowledgeable professional, first-time housing can still be affordable.
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