Consumer Financial Education: Housing
Owning a home is a big part of the American Dream, but it can be an overwhelming process if you are not familiar with the basics. We’ve gathered some helpful tips and resources to help you get started, gather knowledge about mortgages, or apply for government assistance with your loan or rental payments if you’re having trouble.
Looking to buy a home?
The homebuying process can be daunting and confusing. We are here to help you through the basic steps from pre-approval to home ownership.
Step 1: Check your credit scores and correct any issues you may have. Take a look at our credit scores and reports page to learn more.
Step 2: Determine how much money you can afford to borrow for a home purchase. Home affordability should consider your down payment, any outstanding debts, and your monthly net income. Take a look at our budgeting page to learn more about creating a budget and where a mortgage payment might fit in to it. There are a number of online affordability calculators that may also be helpful.
Step 3: Spend some time exploring the many loan options that are available to you. There are a variety of loans that fit different situations and budgets. Selecting the loan that is best for your situation is important for your future financial wellbeing.
- Conventional Loans with private mortgage incurance (PMI)
- Active servicemembers and veterans VA loans
- Federal Housing Administration (FHA) loans
- USDA loans for rural homebuyers
Make sure to talk to multiple lenders and understand the current interest rates and how that might impact your budget.
The down payment amount (how much money you pay up front) affects your loan choices and costs. Typically mortgage loans ask for 20% down payment, but there are options to pay as little as 3%. There are also down payment assistance programs depending on your location and income level. It is important to understand that if you pay less than 20% on your loan, you will have to obtain private mortgage insurance (PMI) which will increase your monthly expenses.
- What is mortgage insurance and how does it work? https://www.consumerfinance.gov/ask-cfpb/what-is-mortgage-insurance-and-how-does-it-work-en-1953/
- Your down payment decision: https://www.consumerfinance.gov/owning-a-home/your-down-payment-decision/
Step 4: Obtain a prequalification or pre-approval letter. A pre-approval letter helps you show sellers that your are a serious buyer without having to commit to a lender yet.
Step 5: Find the right home and make an offer. This is the fun part. Shop around for the right home, in the right neighborhood, with the all right features, at the right price.
Step 6: Compare loan offers and choose the one that’s right for you. Comparing loan offers from multiple lenders helps you find the best option for your budget.
Step 7: Close on your new home. This is the part where you complete a home inspection, shop for homeowner’s and title insurance, and sign a lot of paperwork. You’re officially a homeowner!
- Know Before You Owe from the CFPB: https://www.consumerfinance.gov/know-before-you-owe
- Homebuyers loan program: https://www.calhfa.ca.gov/homebuyer/programs/index.htm
Understanding Your Mortgage Loan
If you already own a home, we’ve gathered some additional resources to help navigate the mortgage process and refinancing. Understanding as much about your mortgage as possible is critical. The CFPB provides a helpful checklist for making your monthly mortgage payment. It goes through your mortgage statement and how to ensure you never fall behind.
If you are having difficulty making your monthly payment and need to avoid foreclosure (when the mortgage provider takes possession of your property when mortgage payments are not made), it’s a good idea to be honest and up front with your loan provider, informing them that you are unable to keep up with your payments.
Your loan provider may have programs to assist you and avoid foreclosure. If they cannot help, you can look for an approved housing counselor to assist you with creating a plan. Make sure that you select an approved counselor, as fraudsters and scammers are waiting to take advantage of people who are struggling – they may offer mortgage relief, counseling services, or even loan forgiveness. If you suspect that you have been a victim of financial fraud or a scam, you should file a complaint with our Department (DFPI). You can also file a complaint if your loan provider is using unlawful, unfair, abusive, or deceptive practices.
- To file a complaint, visit https://dfpi.ca.gov/file-a-complaint/
Refinancing happens when you pay off your current mortgage with money from a new mortgage. Often homeowners refinance to try to lower the cost of their mortgage. For example, to take advantage of lower interest rates and obtain a lower monthly payment. There are usually tradeoffs, so take a look at this worksheet to help make your decision.
- How to avoid foreclosure, from the CFPB: https://files.consumerfinance.gov/f/documents/cfpb_adult-fin-ed_how-to-avoid-foreclosure.pdf
- Know your rights: https://files.consumerfinance.gov/f/documents/cfpb_know_your_rights_mortgage_provider_comply_federal_rules_handout.pdf
Mortgage and Rental Assistance
If you are struggling, there are a number of state and federal agencies who are working together to help homeowners and renters. For additional information on the programs that each of these agencies offer, visit their websites below:
- California Business, Consumer Services, and Housing Agency (BCSH)
- Consumer Financial Protection Bureau (CFPB)
- U.S. Department of Housing and Urban Development (HUD)
- U.S. Department of Veteran Affairs (VA)
- U.S. Department of Agriculture (USDA).
Where to Get Additional Help
Counselors can provide advice on buying a home, renting, foreclosures, evictions, and credit issues. The U.S. Department of Housing and Urban Development (HUD) offers a list of approved housing counselors that to help you.
If you need a lawyer, there may be resources available to assist you through a local bar association, legal aid, or if you are a servicemember, your local legal assistance office.
The content on this page provides general consumer information. It is not legal advice or regulatory guidance. The DFPI updates this information periodically. This information may include links or references to third-party resources or content. We do not endorse the third-party or guarantee the accuracy of this third-party information. There may be additional resources that also serve your needs.