FHA Loans in California
FHA loans are government-backed loans designed to provide a safe and affordable option for Americans to buy homes. FHA loans are popular because they require lower down payments, have lower credit score requirements, and have more flexible lending guidelines compared to traditional loans.
FHA loans are particularly appealing to first-time homebuyers, but you don't have to be a first-timer to qualify.
Here's what you should know about FHA loans:
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What is an FHA loan?
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Benefits of an FHA loan
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Requirements to qualify for an FHA loan
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Is an FHA loan right for you?
What is an FHA loan?
The FHA loan is designed to help low-to-modern income families attain homeownership. FHA loans are insured by the Federal Housing Administration (FHA), a branch of the US Department of Housing and Urban Development. Since they are backed by the government, FHA-approved lenders will require a lower minimum down payment than many conventional loans, and allow for lower credit scores.
What are the benefits of an FHA loan?
FHA loans have several advantages:
1. Easier to Qualify For
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FHA makes it easier for borrowers to qualify for their loans, as opposed to a conforming loan. You can still qualify for this loan even if you have lower credit or a higher debt-to-income ratio. Possible qualification even if you've had a bankruptcy or other financial issues in the past.
2. Lower Interest Rates
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FHA loans come with lower interest rates than conventional loans.
3. FHA Looks At All Types of Credit History
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FHA does not only focus on your credit card. It also looks at student loans, utility bills, rent, etc. If you have been reliable in paying your rent or utility bills, the Federal Housing Administration may consider you for a loan.
4. Assumability
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Most FHA loans are assumable, allowing a buyer to take over the current owner’s mortgage while the loan’s terms — including the repayment period and interest rate — remain the same.
What is needed to qualify for an FHA loan?
To qualify for an FHA loan, you'll need a:
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580+ credit score if putting 3.5% down
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500+ credit score if putting 10% down or more
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<57% debt-to-income (DTI) *this can vary per lender
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Stable record of employment and income going back at least 2 years
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Loan amount below FHA loan limit
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Must be your primary residence
Requirements of an FHA Loan
Mortgage Insurance
All FHA loans have mortgage insurance, regardless of down payment amount. They require two forms of mortgage insurance:
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Upfront premium, or fee, of 1.75% of the loan amount. You can:
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Include that premium in your FHA closing costs, if you have the cash.
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Or you can roll it into your loan amount, which increases your monthly payments slightly because you're borrowing more.
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Monthly mortgage insurance premium, or MIP, that is added to your mortgage payments. The annual premium ranges from 0.15% to 0.75% of the average outstanding loan balance. Most homebuyers pay 0.55% for their annual MIP. The fee varies depending on:
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The loan amount.
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The size of your FHA down payment.
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The term (the number of years for which the loan is financed).
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Credit Score & Down Payment
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Credit score of 580 or higher: Minimum 3.5% down payment.
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Credit score in the 500 - 579 range: Minimum 10% down payment.
Debt-to-Income
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<57% debt-to-income (DTI) *this can vary per lender
Occupancy
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The home must be your primary residence, meaning you can't use an FHA loan for investment properties or second homes.
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You must move into the property within 60 days of closing.
Appraisal
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The home you want to buy must be appraised by an FHA-approved appraiser
Is an FHA loan right for you?
The housing market can be tough for first-time homebuyers, young families, and others who don't have the resources to meet the strict requirements of a conventional loan. An FHA loan is a good option in these cases because it can help you buy the home you want with lower credit score requirements, a lower down payment, and more flexible lending guidelines. Additionally, FHA loans offer competitive interest rates and are assumable, making them a smart choice for those who want to stay in their homes for the long-term. With these benefits, an FHA loan is an excellent option for first-time homebuyers and anyone who wants to make homeownership a reality.