It’s a myth that a 20 percent down payment is required to qualify for a home loan in California. Though good to have, a 20 percent down payment is not a requirement. Nowadays, there are plenty of different types of loans, including down payment-free Veterans Administration loans, Federal Housing Administration (FHA) loans with down payments as low as 3.5 percent and CalFHA loans through the California Homebuyer’s Downpayment Assistance Program.

As a California resident, there are many down payment assistance programs available that provide potential home buyers with an easier way to qualify for a home loan. If you are a veteran, you can apply for a VA loan. VA loans are available not only in California, but nationwide, and are guaranteed by the U.S. Department of Veteran Affairs. These loans are designed to provide assistance to Servicemembers, Veterans, Reservists, National Guard members, and certain surviving spouses purchase homes in the U.S. The loan itself is issued by a private lender that is a participant of the VA home loan program.

We realize how important it is to find a place to call home for eligible Servicemembers, Veterans, Reservists, National Guard Members or Surviving Spouses of Veterans — a place that can provide stability for you and your family. As such, you may be eligible for a VA home loan, which can come with many advantages.

What is a VA loan?
A VA home loan is a loan that is guaranteed by the U.S. Department of Veterans Affairs. VA loans are designed to help Servicemembers, Veterans, Reservists, National Guard members, and certain surviving spouses purchase homes here in the United States. The loan itself is issued by a private lender, such as a bank or a mortgage company. The lender must be participating in the VA home loan program.

Since the loan is VA-backed, it gives lenders greater confidence, and therefore opens participating veterans up to better rates and terms, and allows a greater number of veterans to fulfill their dreams of home ownership.

To be eligible for a VA home loan, you must have suitable credit and the sufficient income to make payments. You will also need a Certificate of Eligibility that will verify to the lender that you are eligible for the loan.

You don’t have to be a first-time homebuyer to be eligible for a VA loan; you can reuse the benefit over time.

VA loan features and benefits
There are many special features that come with a VA loan, including:

  • Low- and zero-down-payment options.
  • Flexible income, debt, and credit requirements.
  • Down-payment and closing costs that may come from a gift or grant.
  • Available in a variety of fixed-rate and adjustable-rate loan options.
  • You may add extra features such as a temporary buydown.
  • VA loans require no down payments nor monthly mortgage insurance.
  • VA limits the amount you can be charged for closing costs, and they may be able to help you get some closing costs paid by the seller.

Some additional benefits to a VA loan:

  • Loan amounts vary, by county, in California. We suggest that you consult a loan professional for further details.
  • Provides a wide range of rate, term and cost options.
  • Provides financing options even if your credit history is less-than-perfect. For example, even if you’ve foreclosed on a home that was secured with a VA loan, you are still entitled to your VA loan benefit.
  • The lender can’t charge you a penalty fee for paying your loan off early
  • Lenders can come to the VA to cover losses in the event you can’t make your payments in the future.

What can a VA loan be used for?
You can apply a VA loan to a wide number of housing options. For example, perhaps you’ve seen your dream single-family home, condominium or town home unit, and would like to buy it as-is. Or, you may want to start from scratch and build a new home. If you’re a hands-on type of person, you have the option of buying and improving a home simultaneously. All these options are allowed to be financed with a VA loan.
You may already have a home, but want to improve it by making it greener. Your loan can be used to install energy-efficient features or improvements, which will allow you to maintain a green, eco-friendly home for years to come.

Typically, a one-time VA funding fee that can be financed into the loan amount must be paid. The fee reduces the loan’s cost to taxpayers, and must be paid at closing time.
Financing with a VA loan is for primary residences only. It cannot be applied to an investment property or a vacation home.
Plaza loans is a verified lender of VA loans; we would love to help you reach your dream of becoming a homeowner. We’ll help you get pre-qualified, making it easy to find and buy your next home in a timely fashion. To see what your options are, contact us.

If you’re not a veteran, and do not have 20 percent to put down on a home loan, an FHA loan is something that you may want to consider. FHA loans only require a down payment of 3.5 percent of your home’s purchasing price. Other factors required to qualify for an FHA loan are a max debt-to-income ratio of 43 percent, along with a credit score and credit history that demonstrates responsibility – even if there is not a lot of history. The FHA loan allows mortgage lenders to substitute non-traditional credit in place of typical FHA loan credit qualifications.

FHA loans explained
The Federal Housing Administration insures FHA loans and those loans allow private lenders to provide better rates with flexible qualification requirements. An FHA loan allows the lender to consider factors that go beyond just one’s credit history. Ultimately, this gives people a better chance to be able to buy their first home.

FHA loans are open to anyone, unlike a VA loan that requires a military background. To be eligible for an FHA loan, you must be able to make a minimum down payment of 3.5 percent of the home’s purchase price. In general, the FHA also allows for higher maximum debt-to-income ratios of 43 along with a credit score and history that demonstrates responsible borrowing in general. However, the FHA loan is still available to those with little or no credit — and allows mortgage lenders to substitute non-traditional credit in place of typical FHA loan credit qualifications.

For example, even if someone has a credit history that is not the best, the lender can look at other payment history records, such as utility bills, student loan payments, or rent. One is also not immediately disqualified if he or she has undergone a foreclosure, bankruptcy, or short sale of a previous home; as long as enough time has passed and that individual has demonstrated greater financial responsibility, he can still be eligible for a loan.

Additionally homes financed by an FHA mortgage must be the principal home. In other words, they cannot be used for a rental property or investment property. FHA financing is available for detached homes, semi-detached homes, row houses, or condos, as long as they are FHA-approved.

FHA benefits and features
FHA loans are a great place to start, especially if you’re buying your first home.

Some features include:

  • Easy credit qualifying, with loans available to those with a credit score as low as 600
  • Down payment options as low as 3.5%
  • The ability to qualify for an Energy-Efficient loan to improve your home (new or existing) with energy-efficient features
  • No minimum income requirement for an FHA Fixed-Rate Mortgage Loan
  • A variety of fixed-rate and adjustable-rate loan options are available

In addition, you can benefit from an FHA loan because:

  • If you sell your home, the buyer can take over the loan (subject to approval).
  • FHA can offer down payment assistance for first-time buyers.
  • FHA loans can finance up to 96.5% of your loan.
  • FHA loans are available to all income levels.
  • A family member can help you qualify for the loan, without living in the home.
  • Down payments can be made using a gift or grant.
  • Lenders, builders, and sellers can offer to pay closing costs.
  • With an FHA-insured loan, you can be offered some relief down the road, if payments are difficult to make.

There are a few things to be mindful of when you receive an FHA loan, which could affect your finances over time. For example:

  • You will typically pay an FHA mortgage insurance premium up-front and monthly.
  • You typically can only have one FHA mortgage at a time.

With an FHA loan, you can buy your first home with confidence—even if you’re young and still trying to build a better credit history. As an authorized FHA lender, we can help you make your first dream home a reality. Contact us for a consultation.

CalHFA is short for “California Housing Finance Agency”. It was established in 1975 and makes makes low-rate housing loans through the sale of taxable and tax exempt bonds. There are many different types of CalHFA loans that California residents can qualify for. Each loan that’s offered by CalHFA comes with its own set of limits. In short, historically, CalHFA has provided below-market interest rate mortgages and downpayment assistance for first-time homebuyers. With multiple home loan options available through CalHFA, potential homebuyers are wise to take a look at the programs that they offer, or to talk with a trusted lender, to see if they qualify for one of these loans.
Check out the other CalHFA loans
Lastly, another way to come up with funding for a down payment is to accept a gift from a relative. When buyers do not have the minimum down payment needed to lock in a property purchase, relatives and parents can help with funds for a down payment by giving loans and / or gifts. Due to tax implications, it’s important to remember the rules around gift-giving. In short, a family member or individual can give a gift of up to $14,000 per calendar year without triggering any tax issues, and a married couple can give up to $28,000 each year. To read more about accepting gifts as down payments, click here.


The new Plaza Loans ebook details the ways you can solve the Down Payment Dilemma.

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Suite 100
San Jose, CA 95125
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