Hey there! Navigating the home-buying process can feel overwhelming, especially when you’re trying to figure out how to cover all the upfront costs. Fortunately, California offers a fantastic program called the Zero Interest Program (ZIP) through the California Housing Finance Agency (CalHFA) that can help ease this burden.

What is the CalHFA Zero Interest Program (ZIP)?

The CalHFA Zero Interest Program (ZIP) provides first-time homebuyers with financial assistance for closing costs, offering a loan with a 0% interest rate. Repayment is deferred until you sell, refinance, or pay off your mortgage.

Eligibility Criteria

• First-Time Homebuyer Status: You must be a first-time homebuyer, defined as someone who hasn’t owned and occupied their own home in the past three years.
• Primary Residence: The property you’re purchasing must be your primary residence.
• Income Limits: Your income must fall within CalHFA’s established limits, which vary by county. Check income limits here.
• Credit Score: A minimum credit score is required—typically 640 for FHA loans and 680 for conventional loans.
• Debt-to-Income Ratio: Your debt-to-income ratio should not exceed 45% to 50%, depending on your credit score.

Benefits

• Zero Interest: The ZIP loan carries a 0% interest rate, meaning you won’t accrue interest over time.
• Deferred Payments: Repayment of the ZIP loan is deferred; you don’t have to make payments until you sell, refinance, or pay off your first mortgage.
• Assistance with Closing Costs: The program provides assistance of 2% or 3% of the total first mortgage loan amount, which can be applied toward closing costs and prepaid items.

Potential Drawbacks

• Higher First Mortgage Interest Rate: Opting for the ZIP loan may result in a slightly higher interest rate on your first mortgage.
• Repayment Required: Although payments are deferred, the ZIP loan is not forgivable and must be repaid when you sell, refinance, or pay off your home.
• Limited Use of Funds: ZIP funds can only be used for closing costs and prepaid items; they cannot be applied to pay off existing debt or receive cash back.

How to Apply

1. Complete Homebuyer Education: Attend a homebuyer education course through an eligible counseling organization to obtain a certificate of completion. Find more details here.
2. Contact a CalHFA-Approved Lender: Work with an approved loan officer who can guide you through the application process and determine your eligibility. Search for an approved lender.
3. Prepare Documentation: Gather necessary documents such as pay stubs, bank statements, employment history, and previous tax returns.
4. Loan Application: Submit your loan application through the approved lender, who will process and underwrite your loan according to CalHFA guidelines.

Is the ZIP Program Right for You?

The CalHFA Zero Interest Program (ZIP) is a valuable resource for first-time homebuyers in California, offering financial assistance to help cover closing costs and make homeownership more accessible. While there are some drawbacks to consider, the benefits of 0% interest and deferred payments can provide significant relief for many buyers. If you’re ready to take the next step toward owning your first home, ZIP might be the perfect fit for you!

Learn More

For more details, visit the official CalHFA ZIP program page.