Options for Zero-Down Loans and Downpayment Grants Provide Relief in Orange County’s Housing Market

In my quest to find the best mortgage options for potential homebuyers in the tight Southern California housing market, I have stumbled upon a true gem.

Westcom Credit Union is offering an unbeatable deal. You can borrow up to $750,000 without a down payment. Now, that is truly remarkable!

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Whether you are a first-time buyer looking for your primary residence or a veteran homeowner planning your next move, this offer is open to you. Even occupying co-owners can take advantage of this opportunity, and there are no income caps!

Unlike many other housing agencies and mortgage lenders that impose income caps, this Wescom program has no such restrictions. It is not limited to first-time buyers either, so even if you have owned a home in the past three years, you can still qualify.

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However, there are a few conditions to be aware of, according to Kasey Derington, a mortgage loan officer at Wescom.

First and foremost, you must be a Wescom member. This means you need to be a resident of Southern California, a student studying in Southern California, or a member of a local place of worship. Membership can be obtained for as little as $1 to join the credit union.

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This program is exclusively available through Wescom, so mortgage brokers and bankers cannot offer it. Additionally, homebuyers must contribute a minimum of $1,000 or 1% of the sales price, whichever is greater, as specified by Wescom.
For example, on a $750,000 zero-down mortgage, you would need $7,500 in cash. Considering settlement costs and escrow impounds (such as property taxes, mortgage insurance, and fire insurance), you can expect to spend at least $7,500.

Let’s consider a scenario with a zero-down, $650,000 loan and a 720 FICO score (all borrowers must have a minimum 720). You can opt for a 30-year mortgage with an adjustable rate that remains fixed for the first seven years and adjusts every six months thereafter. It starts with a 7% rate and does not involve any points.

The monthly payment for principal and interest would be $4,325. Assuming a 1.25% property tax rate, your monthly property taxes would amount to $677. Additionally, the monthly mortgage insurance is $325, as stated by Derington. Let’s say your homeowner’s insurance costs $162. Excluding any HOA fees, your total payment would be $5,489.

Borrowers who require loan amounts exceeding $650,000 up to $750,000 will need a minimum FICO score of 740.

If you don’t meet the 720 FICO score requirement set by Wescom, there’s another interesting option called Rocket Mortgage’s One+. It allows the lowest middle FICO score down to 620.

Rocket offers 2% of the purchase price towards your minimum 3% down payment, and your down payment contribution only needs to be 1% of the sales price.

You do not have to be a first-time buyer to qualify for Rocket’s program. However, there is a catch – the loan amount is capped at $350,000.

One+ has specific income caps set at 80% of the area median income: $93,440 in San Diego County, $84,160 in Los Angeles County and Orange County, and $75,600 in Riverside and San Bernardino counties.

Admittedly, meeting these criteria might be a challenge in San Diego, Los Angeles, and Orange counties. In that case, the Inland Empire may be a more suitable option.

“We don’t have to count overtime or bonuses to avoid putting the buyer over the income limit,” said Jeremy Bednarz-Gray, division vice president of sales at Rocket Mortgage. “There are 992 active listings at $368,000 or less in Riverside County.”

Using the Rocket pricing engine, I found a Riverside County property with a $360,000 sales price and a $349,200 loan amount. Assuming a 689 FICO score, a 30-year fixed rate of 7.25% with $929 in origination points, the total loan payment (including lender-paid mortgage insurance) would be $2,847. With a monthly income of $6,000, the borrower should qualify.

Full disclosure: I am a mortgage broker at Mortgage Grader, and we are a Rocket customer.

According to ApartmentList.com, the median rent for a two-bedroom in Riverside County is $1,912. Their data suggests that rents have dropped by 4.9% in the previous 12 months (July 2022 through July 2023).

Now, the question becomes, is it better to buy a starter home for $360,000 to enter the homeownership game, or is it more advantageous to rent? Can you find a rental that meets your space requirements and is conveniently located near your work, school, and local amenities?

My colleague Jon Lansner has written numerous articles about people leaving California for other states. Let’s face it: California is not the ideal destination for lower-income individuals trying to embark on the homeownership journey. The cost of living in the Golden State is exceptionally high. Therefore, exploring other regions within the state is another viable option worth considering.

If you are searching for more affordable mortgage programs, down payment assistance, or similar resources, I highly recommend visiting downpaymentresource.com. Additionally, you can directly reach out to CalHFA, Golden State Finance Authority, Affordable Housing Clearinghouse, Pathways to Homeownership, and Neighborworks.

“We focus on government, nonprofit, and municipal programs,” said Sean Moss, EVP of Product and Operations at Down Payment Resource. “Be sure to check if grant funds are readily available.”

Freddie Mac Rate News

The 30-year fixed rate averaged 7.23%, which is 14 basis points higher than last week. Meanwhile, the 15-year fixed rate averaged 6.55%, showing a 9 basis points increase compared to last week.

According to the Mortgage Bankers Association, there has been a 4.2% decrease in mortgage applications compared to the previous week.

So, in conclusion, if a borrower takes out the average 30-year fixed rate on a conforming $726,200 loan, their payments this week would be $4,944, an increase of $798 compared to last year’s payment of $4,146.

For well-qualified borrowers in our local area, here are the following fixed-rate mortgages with 1 point: a 30-year FHA loan at 6.375%, a 15-year conventional loan at 6.375%, a 30-year conventional loan at 6.875%, a 15-year conventional high balance loan at 6.875% ($726,201 to $1,089,300), a 30-year high balance conventional loan at 7.125%, and a jumbo 30-year fixed loan at 7.125%.

Please note that the 30-year FHA conforming loan is limited to $644,000 in the Inland Empire and $726,200 in LA and Orange counties.

And here’s an eye-catching loan program of the week: a 30-year fixed rate at 6.5% with 2 points cost.

If you have any questions or inquiries, feel free to contact me, Jeff Lazerson, at 949-334-2424 or [email protected].