First Time Home Buyer

Programs for Petaluma first time home buyers

Here are some of the benefits offered to a first time home buyer (down payment assistance programs):

First, the definition:

A first time home buyer (FTHB) is really anyone who hasn’t owned a home in the last 36 months. If you had ownership interest in a home just prior to that time, you will be asked for a certified settlement statement proving the property had been sold and the minimum amount of time has elapsed. All buyers in the transaction must meet this requirement.

Next, there are two categories for FTHB benefits:

• Improved pricing (rates)
• Down payment assistance

A first time home buyer will benefit from better loan pricing if a Fannie Mae or Freddie Mac product is being used. Generally speaking, much of the risk markup is eliminated depending on down payment and credit score. The higher the risk profile, the more the borrower will benefit. In some instances, the improvement can be striking.

The next benefit is down payment assistance. These come in many forms, and it is important the borrower understand fully what they are getting into.

• Grants
• Shared appreciation liens
• Silent seconds and thirds

A grant is just that–money from a local entity that does not have to be repaid. There are often income limitations a minimum amount of time that the buyer must occupy the home as their primary residence–these cannot be used for investment properties. Credit score minimums are usually higher than other loan products as well, but not in all cases. I have seen local municipalities offer these with a shared appreceation feature built in (see next item)

A shared appreciation lien, such as California Dream for All, looks great, but it’s not for everyone. the 20% down payment provided by the investor will at some time need to be repaid. Not only that but the investor also owns 20% of any appreciation of the property in excess of the original purchase price. Also, you are allowed to refinance only once to take advantage of lower interest rates. If you take out a loan at 7.5% and rates were to drop to 6.5% and you refinance, that is it. If rates were to drop to 5.5%, you can still refinance, but now you have to pay back the investor along with 15% to 20% of any appreciation of the property depending on their income qualifications when they took out the loan. It’s good way into a property but getting out can be quite painful. Just know before you owe.

Silent second and third liens such as CalHFA (California Housing Finance Agency). This is my favorite of the group. They offer the Zero Interest Program (ZIP loan) which provides 2% for closing costs and the MyHome Assistance Program which can provide up to 3.5% for down payment. Both have to be repaid eventually, but the ZIP loan does not accrue interest–you pay back what you took out and nothing more. The MyHome assistance does accrue interest and gets larger over time. You do not make payments on either loan until you actually pay them off. It’s a good way to get into a property without giving up equity later.

Scott Lawson – (707) 763-7900