It's tough to be a first-time homebuyer in the Sacramento region these days.
Prices and interest rates are going up. The supply of homes for sale at entry-level prices is extremely low. And competition remains strong among would-be homeowners and rental investors.
One area that’s changed, however, is the availability — and acceptability — of low down payment mortgages for those who can’t pony up the traditional 20 percent or even 10 percent.
The government-backed programs mainly are offered through private lenders. They include old standbys such as Federal Housing Administration mortgages that require 3. 5 percent down and newer zero-interest loans and grant programs that can greatly increase a buyer's down payment – in one case tripling it for free. Sellers seem to be more accepting of the programs nowadays than they were five or six years ago when all-cash offers were more prevalent.
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A traditional 20 percent down payment works out to about $66,000 on a median priced Sacramento County home of $330,000. Many new buyers, including millennials burdened with student loans, don’t have remotely that much in the bank. Often only those selling houses with substantial equity can afford such hefty down payments.
"It is an incredibly challenging market for first-time buyers," said Eric Johnson, a spokesman for the California Housing Finance Agency, one of the state’s main sources of financial assistance for first-time and moderate-income buyers.
"There are lots of people who have good credit scores," he said. “They can make the mortgage payments. They have good incomes. But they don't have a lot of cash saved up."
The agency has a number of programs for people in such circumstances.
CalHFA's MyHome Assistance Program, for example, offers moderate-income buyers a low-interest loan of up to 3.5 percent of a home’s value to be used toward a down payment or closing costs. (The loan amount is the same as a down payment required for an FHA mortgage.) The loan's payments are deferred for 30 years, meaning most buyers won't have to worry about repayment until they pay off their first mortgage or sell or refinance their house.
The state agency has other programs that combine a 30-year fixed-rate mortgage with a zero-interest-loan program, or ZIP, that lends buyers up to 4 percent for closing costs.
"The amount you borrow is the amount you pay back," Johnson said. The 30-year first mortgage, however, may have a higher interest than a market-rate loan.
Such programs aren’t new; some have been around for years. After the housing collapse, however, government-assisted mortgages became more difficult to use as rental investors scooped up houses by the handful, paying entirely in cash and shutting out those with loans backed by federal or state agencies.
Each of the current programs has its own criteria that can include income limits, minimum credit scores and restrictions on where a home can be purchased.
CalHFA programs are processed through approved lenders. In Sacramento County, that includes several offices of national lender Guild Mortgage.
Guild’s Monty Maxwell, one of the state agency’s "preferred loan officers," met Michelle Schroeder, an art teacher, at a high school in Natomas where they were both mentoring students. Maxwell and his team members, including Enalynn Ortega, helped Schroeder buy her first house.
After examining Schroeder’s options, including a CalHFA program that assists teachers and school employees, they ended up going with one of Guild’s own down-payment assistance programs, the Guild 1% Down Loan. It gives buyers who qualify an extra 2 percent grant that doesn’t need to be repaid. That means for example, that a couple buying a $300,000 house who put $3,000 down would actually have $9,000, or 3 percent, to put down.
The program requires a fairly high credit score of 680 to qualify and has income limits for many areas, but it isn’t limited to first-time buyers. Guild provides the down-payment assistance in collaboration with Fannie Mae, the federally sponsored enterprise that helps provide money for mortgages to lenders. (The nickname Fannie Mae is short for the Federal National Mortgage Association.)
Schroeder, who is in her early 30s, said she’d been looking for a house for some time, but most of the homes she looked at in her price range needed a lot of work – a common experience for entry-level buyers.
"I had looked at a bunch of houses in Woodland and West Sacramento, and they were terrible," Schroeder said. "I had kind of given up."
Then a 1,250-square-foot, three-bedroom home in Woodland came on the market late last year.
She offered the asking price of $325,000, which was near the top end of her budget. The seller accepted, and the deal closed in January. Schroeder said her 30-year mortgage rate is 4.25 percent. That's more than the sub-4 percent loans of recent years but still extremely low by historical standards.
"The payment’s a little high ... but it’s doable,” Schroeder said. Like many people her age, she's still paying down her student loans from college, which limits her housing budget.
Other low- or no-down payment programs include Federal Housing Administration (FHA) loans, loans for veterans and mortgages backed by the U.S. Department of Agriculture for rural properties.
Dan Starelli heads the Guild Mortgage office in Sacramento. He said today’s low-down-payment programs are much different from those of the housing boom, when virtually anyone could qualify for a home loan, regardless of employment or income, with little money down. Some of those subprime mortgages were known as "NINJA," short for "no income, no job, no assets."
The current programs tend to require rigorous vetting, homebuyer education and a high level of assurance that buyers can repay their mortgages.
"We're making sure that people are able to make these payments, or they just don't qualify," Starelli said.
It can take a lot of preparation for low- and moderate-income buyers to meet the requirements.
The NeighborWorks HomeOwnership Center for the Sacramento region, based in the capital's Oak Park neighborhood, helps people become “mortgage ready,” said Kara Thomson, the group’s homeownership development manager. Often that involves getting household budgets under control, establishing good credit and raising credit scores above 700.
"It's tricky," Thomson said. "It’s hard."
Stacey Gershon, 53, is among those whom NeighborWorks is helping to get ready to buy a home. After a divorce, Gershon returned to college, found a steady job, paid off her debts and opened a credit-building account, in which a borrower pays off a loan to establish good credit history. The proceeds of the loan are locked away in a savings account until the loan is paid off.
Now renting, Gershon’s goal is to qualify for a mortgage and down-payment assistance.
"I’ve had to make some sacrifices – $5 discount movie nights and $1 taco Tuesdays," she said. "I’m looking for something where I can live out my dreams in a little two-bedroom somewhere."
"By next year I should be in a position to qualify for a mortgage," she said.