California FHA Loan
If you are looking to buy a home and have a limited down payment or a “not so perfect” credit score, FHA may be your best option. If you are a first time home buyer, a repeat buyer, or even looking to refinance, you might want to check out FHA loans in California.
Understanding California FHA Loans
California FHA loans are home loans insured by the Federal Housing Administration. FHA loans require lower closing costs, smaller down payments and relaxed standards of lending to make sure homeowners who do not qualify for the conventional mortgages can still buy a home.
With FHA loans, the down payment can be as low as 3.5%.This is what makes it possible for people who do not qualify for conventional mortgages and those with a lower income or lower credit score to own a home. Most of the mortgages in the market have strict borrowing requirements and require a high down payment.
The responsibility of FHA is insurance of the loan issued by private lenders. FHA will back the loan financially in cases where the borrower does not honor the terms of the loan or when they default. For a lender to offer an FHA-insured loan, they have to be approved by the FHA.
FHA Loan Vs. Conventional Mortgage in California
FHA loans have competitive interest rates, lower closing costs, and a lower down payment when compared to conventional loans. Another benefit is that a financial gift from a charitable organization, employer or family member can be considered as 100% of the down payment.
Though FHA loans have advantages over conventional mortgages, they also have drawbacks. For instance, in a conventional loan, the mortgage insurance fee may be canceled once you have reached a certain percentage of the homes equity. For FHA loan the insurance fee sticks the entire life of your loan.
California FHA Credit Score Requirements
To qualify for an FHA loan, you will need a credit score of at least 580 to enjoy the 3.5% down payment benefit. Though this is the case, a lower credit score will not disqualify you automatically. The requirements related to the credit score will vary with the lender. This is a good reason to shop around before you settle on the ideal lender. Look at what different lenders are offering and compare them to the general market offers.
The limits of the amount of money you can get through FHA loan will differ depending on where the home is located and will be calculated as 115% of the county median home price. There are different tools online that can help you find the limits according to your area. To view the county limits, click here.
If you want an FHA loan, it requires mortgage insurance. This means that you will pay a one-time up front mortgage insurance premium that is equal to 1.75% of your loan amount to close. The loan will also require you to pay a monthly mortgage insurance of 0.85% of your loan amount annually.
You can pay the mortgage insurance premium upfront at closing with the California FHA loan. You can also choose to have it included in the borrowed amount. The premium you pay annually is determined by the loan amount, loan-to-value ratio and the mortgage term.
Other Important Requirements
In addition to the required 3.5% of the purchase price as down payment, there are other requirements of the California FHA loan.
- The borrower need a valid Social security number
- The borrower needs to provide proof that they are US citizens, legal permanent residents or have eligibility to work in the US.
- You should be old enough to sign a mortgage under California borrowing laws.
- You should be buying a one-to-four-unit property for primary residence purposes.
What Else Can FHA Loans Cover?
If you are interested in fixed-uppers, which mean you are buying a home that needs renovations, you can use the 203(k) FHA loan option. This will roll your renovation and mortgage cost into one loan. If are interested in renovating or making changes to your current home, the mortgage balance can be refinanced and the cost of the changes or renovations added to the loan.
If you want to go green, there is an FHA Energy Efficient Mortgage that will allow you to add the expenses you incur to the loan as long as they are related to energy efficient features. If you are 62 years old and over, and own your home outright, or your loan balance is low, it is possible to use Reverse Mortgage by FHA to turn your equity into cash.
Finding An FHA-approved Lender
As you look for an FHA loan lender, keep in mind that not all lenders are approved. Also, those who are approved might have their own requirements which are additional to the FHA requirements. For this, and many other reasons, you need to do your homework before you start the loan application process. Most lenders will assist you when you are applying. They will take you through a step-by-step guide on the application process and help you all the way through the process.
If you have a low credit score or a low down payment for a home in California, FHA loans can help you make your dream of owning a home come true.