First Time Home Buyer Program

The City of Watsonville offers a First Time Home Buyer Program (FTHB) to help people buy their first home. For detailed information, please see the Program Guidelines. Some of the basic information about the Program is provided below.

Who is eligible?

Lower-income, first time homebuyers are eligible for the FTHB Program. See the Program Guidelines for definitions and more detail.

Your total gross (pre-tax) annual household income may not be higher than the amount listed in Table A.

Eligible Homes

The home proposed for purchase with FTHB assistance must, at least, meet all the following requirements:

  • Located within the Watsonville City Limits
  • Must be a single family home, townhouse or condominium
  • Must have been vacant or owner-occupied for 3 months prior to offer to purchase
  • Must pass Housing Quality Standards and, if built prior to 1978, lead-based paint, inspections.
  • For new homes: foundation must be poured prior to offer to purchase.

First Time Home Buyer Loan Terms

FTHB loans are sometimes called “silent second” loans because the payments are deferred for up to 30 years. The loan must be repaid in full when the first of any of the following events occurs:

  • The home, or any partial interest in the home, is sold or transferred;
  • The home is refinanced;
  • The borrower no longer lives in the home as their principal residence;
  • The first mortgage loan becomes due; or
  • 30 years from the purchase date.

Interest Rate

The program loan’s interest rate is currently 3% simple annual interest.

Other Program Requirements

Minimum Downpayment

The minimum downpayment required by the FTHB Program is at least 3% of the purchase price of the home. This amount must come from the homebuyer’s own funds or verified gift funds. Your first mortgage lender may require a larger down payment.

First Mortgage Requirements

The first mortgage must be a 30-year, fully amortized, fixed interest rate loan. No balloons, interest-only, stated income, or other such loan options may be used. Loan terms longer than 30 years are only allowable from certain USDA or VA mortgage loans. Maximum debt ratios are 45% front, 50% back. See Program Guidelines for further detail.

FTHB Loan Limits

Purchase of Market-Rate Homes

For purchase of market-rate homes, the loan amounts are limited to the buyer’s “affordability gap”. This is the difference between the home’s purchase price, and the sum of the first mortgage and buyer’s downpayment. For instance, if you have been prequalified for a first mortgage for $250,000, and you have a downpayment of $20,000, and you would like to buy home that costs $300,000, your “gap” is $30,000. The City will determine your gap based on your downpayment amount, your first mortgage amount (provided that it meets the FTHB requirements), and the proposed home price. The gap is generally in the range of 10% to 25% of the home’s purchase price. In addition, the loan amount may not exceed the HOME Program Subsidy limits and the amount of Program funds available to the City at the time your application is completed. Please see the Table D. for the current Subsidy limits.

How to Apply

First, review the Program Guidelines. Then, look for a mortgage lender who is familiar with the FTHB Program, or who is willing to learn about the Program and complete the FTHB application for you. You may refer your lender to this website for more information. If your lender has not previously provided loans with the Watsonville FTHB Program, we encourage them to review the Guidelines, and then call the Housing Division for more information and application materials. All lenders are encouraged to call to confirm current funding availability prior to underwriting a loan in conjunction with a FTHB application.

Once you have been pre-qualified for a first mortgage that meets the Program requirements, start looking for properties within the price range your lender has recommended and that do not exceed the FTHB purchase price limit above. This price range should be based on your first mortgage amount plus your downpayment amount, and with the FTHB loan limits in mind, should you require additional funds toward your purchase. Once you have found a home within the appropriate range and are ready to make an offer, have your lender contact the Housing Division to begin the FTHB application process. You must submit a purchase contract signed by buyer and seller as part of your complete application.

For more information about Housing programs, call 768-3080, or visit our Contact Us page.

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