BUYING A Home?
Check out the FHA Loan option. Get answers to your questions. How much home can I afford? Can I get help with my down payment? What are my loan options?
WHAT IS AN FHA LOAN?
FHA home loans are insured by the Federal Housing Administration (FHA), and can only be provided by lenders approved by the FHA. This type of mortgage has a fixed term length of either 15 or 30 years. It’s a popular choice among first-time homebuyers as well as buyers with limited savings or lower credit scores.
When purchasing a home, you might be responsible for certain out-of-pocket expenses like appraisal costs, processing, and title fees. One of the advantages of an FHA home loan is that the seller, home builder, or lender can cover some of these closing costs on your behalf.
The minimum down payment (3.5%) and credit score requirements (at least 500) of FHA loans are lower than that of many conventional loans. And like conventional mortgages, 100% of your down payment can be a gift. This gift can come from any of the following:
- The borrower’s relative.
- An employer or labor union.
- A close friend.
- A charitable organization.
- A governmental agency or public entity that has a program providing home ownership assistance.
Mortgage Insurance Premiums
Borrowers who obtain an FHA loan must pay FHA mortgage insurance (this protects the lender from a loss if you default on the loan). You’re required to pay two types of mortgage insurance premiums—an Upfront Mortgage Insurance Premium (UFMIP) and an Annual MIP (charged monthly). This is different from government-insured loans, where you have to pay private mortgage insurance (PMI).
As of 2023, the UFMIP is equal to 1.75% of the base loan amount. It can either be rolled into the loan or paid at the time of closing. As for Annual MIP, the rate is .5% divided over a 12 month period of the base loan amount.
How to Qualify For a FHA Loan in California
- Have a debt-to-income ratio (DTI) of no more than 55%. This means that your total monthly debt payments can’t be more than 55% of your pretax income (includes debts that you aren’t actively paying).
- Pay the upfront mortgage insurance premium (UFMIP). This is usually equal to 1.75% of the base loan amount.
- Have bank statements for the last 30 days. You’ll also need to provide documentation for any deposits made during that time (usually pay stubs).
- Must have a steady job history (if self-employed, have two years of successful self-employment history; this should be documented by a current year-to-date balance sheet, tax returns, and a profit and loss statement).
- Must be at least two years out of bankruptcy, unless you can prove that the bankruptcy was due to circumstances beyond your control.
- Must be at least four years removed from any foreclosures.
- Have a valid social security number.
- Have U.S. citizenship and be of legal age.
Lenders can also add their own rules, also known as overlays on top of the minimum requirements listed above. As each lender sets their own rates and terms, comparison shopping is important in this market.
Advantages of FHA Loans
- The DTI and credit score requirements are more relaxed than those of other loan types.
- Lower down payments.
- Increased allowance for closing cost financing.
- Good for first-time homebuyers.
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Let’s get you pre-qualified, ready for a loan, and finally cleared to close.