California FHA Loan
What is a California FHA Loan?
Homeownership is a large part of the American dream life for many people. If you dream of owning your own home in California but are worried that you are limited by your credit score, an FHA loan may be right for you. FHA loans were created in 1934 by the Federal Housing Administration. They are a valuable resource designed to help borrowers with less-than-perfect credit purchase a home. Since 1934, FHA loans have helped over 40 million people become homeowners.
The FHA is governed by the U.S. Department of Housing and Urban Development (HUD). This means FHA loans are guaranteed by the United States government. This makes FHA loans attractive to mortgage lenders because there is less risk of the lender losing its money. The FHA insures the loan and does not lend money directly to the borrower.
FHA loans are one of the best options available for first-time homebuyers. They are more accessible than Conventional loans. This makes them popular with a wide range of borrowers.
With lower down payments, lower credit requirements, and the option for financial assistance, homebuyers from all financial backgrounds may be able to qualify.
Get answers to your questions about Conventional loans vs FHA loans here.
California FHA Loan Benefits
FHA loans are popular with homebuyers because of their many benefits. They are designed to help people who have no credit history and less-than-perfect credit get a mortgage. FHA loans can also help people who have experienced foreclosure or bankruptcy.
Here are some of the benefits of FHA loans.
- Low Down Payments: Having a low down payment option is one of the main reasons FHA loans appeal to first-time homebuyers. In some cases, borrowers can qualify for a down payment as low as 3.5%.
- Down Payment Assistance Programs: California has multiple financial assistance programs for homebuyers. The California Housing Finance Agency (CalHFA) offers multiple homebuyer programs. These include down payment assistance and closing cost assistance. The California Department of Housing and Community Development also provides resources for California homebuyers.
There are many different homebuyer assistance programs in California. Each program has its own requirements for eligibility. It is up to the borrower to research these programs and organize with them independently of their lender.
- Gift funds can be used for down payment: You can use financial gifts from friends and family to pay for the down payment on your home.
- Higher Debt-To-Income Ratio: FHA loans can have a DTI of as much as 57%. This makes FHA loans easier to qualify for than Conventional loans where the DTI can only be up to 45%.
- No Monthly Minimum Income Requirement: Income must be verifiable and consistent for the last two years. However, there is no minimum amount a borrower must make in order to qualify for an FHA loan.
- A Variety of Loan Types to Choose From: There are several FHA loan options for homebuyers. Streamline Refinance and the FHA 203(k) are two of the more popular FHA loans available. Check out all FHA loans offered by New American Funding.
- Some or All Closing Costs Can be Covered by the Seller: FHA loans allow the seller to contribute up to 6% of the sales price to cover the buyer’s closing costs. Closing costs are usually somewhere between 2% and 5% of the purchase price. They can include appraisal and inspection fees, a loan origination fee, and service fees.
- Assumable Loans: The borrower can assume an existing mortgage. The mortgage will be transferred to the buyer from the seller. The homebuyer will be subject to the terms, conditions, and rates of the original FHA loan.
- A Variety of Eligible Properties: They are available for single-family detached homes, 2-4 unit homes, condos, townhomes, and manufactured homes.
California FHA Loan Requirements
There are many different types of FHA loans available in California. Requirements are different for each loan. Some of them can be stricter than those of Conventional loans. Contact your lender to discuss loan specific requirements. Here are some general FHA loan requirements for California.
- A credit score of 580 or higher: A lender may accept credit scores of 500-579 under certain conditions. A credit score lower than 580 will require a larger down payment.
- The ability to pay a 3.5%-10% down payment: The percentage you will pay will be calculated according to your credit score. The borrower’s credit score must be 580 or higher to have a down payment of 3.5%
- Minimum of two years employment: Must have verifiable, steady, and consistent income. You will need documentation. It can include tax returns, pay stubs, or W-2s. This requirement is the same for borrowers who are employees and those who are self-employed.
- Mortgage insurance: The ability to pay the mortgage insurance premium (MIP) is required. The dollar amount of MIP will be calculated based on the amount of the loan. However, all FHA loans will require borrowers to pay an upfront MIP of 1.75%. This is in addition to monthly mortgage insurance, which is required for the life of the loan.
- Higher home inspection standards: Property must pass an FHA-specific appraisal.
- Loan must be for a principal residential property: FHA loans cannot be used for rentals, investing in properties, or vacation homes. They are also not available for business properties.
- A debt-to-income ratio of less than 57%: A person’s debt-to-income (DTI) ratio is the percentage of their gross monthly income they spend to cover debts. Debts can include student loans, credit cards, and any type of federal debt.
To qualify for an FHA loan, you cannot spend more than half of your gross income on debt. There are some exceptions. In general, however, many lenders in California will want to see your debt-to-income ratio be no greater than 43%.
How Do I Qualify for An FHA Loan in California?
To qualify for an FHA loan in California you must meet the above requirements. You must have a credit score of at least 500. Your DTI must be less than 57%. You must be able to put down a 3.5%-10% down payment.
There is no minimum income requirement, but you must be able to prove consistent income. You will be asked to provide paperwork like your personal ID and tax returns for approval.
The property must be your primary residence. The loan amount you want must adhere to the FHA loan limits for your county.
Mortgage lenders will have their own individual qualification standards and requirements.
How to apply for FHA loan in California
Each individual loan is different. To apply for an FHA loan in California, contact one of the New American Funding branches in California. The company’s loan officers will be happy to answer your questions and help you through the process of applying for an FHA loan.
You should already have a budget in mind when you contact your mortgage lender. Once you’ve found a lender, you can begin to collect the documents you need to apply for an FHA loan. You will need to provide your specific mortgage lender with certain information for approval.
This includes personal identifying information and proof of income. Examples include signed tax returns from the last two years, W-2’s or 1099’s also from the last two years, and a copy of your social security card. You will also want to gather any information regarding your current debts as well as extra income you receive.
You can use New American Funding's California Mortgage Calculator to estimate your mortgage costs.
California FHA Loan Limits
The maximum loan amount for FHA loans varies by county. They also change year-to-year based on the rise and fall of property values. Most counties in California have a loan limit of $472,030 for a single-family home. Some counties have higher than average limits because housing there is more expensive.
These are the top five counties with the highest loan limits.
Los Angeles: $1,089,300
San Francisco: $1,089,300
Contra Costa: $1,089,300
FHA Streamline Refinance in California
Refinancing your FHA loan can be a great idea if you can use it to get a lower interest rate. FHA Streamline Refinance is designed to let you lower your monthly mortgage payments. It switches your original interest rate to a new one calculated using current market rates.
Refinancing your FHA loan is simple.
- Requires less documentation
- No appraisal required
- No need to document income
- No employment requirement
- No credit check
They can also be used to change an FHA Adjustable-Rate Mortgage to a fixed-rate mortgage.
FHA 203(k) Loans
FHA 203(k) loans help borrowers who want to purchase a house that needs repairs. Investing in upgrades and renovations can be costly. FHA 203(k) loans, also known as a rehab loan, are designed to finance the costs of house renovations and repairs. They are not limited to the purchase of a new home. They can also be used by a homeowner to upgrade their current property.
FHA 203(k) Limited Loan
- Good for homes that need renovations (not major structural repairs)
- Can finance mortgage payments during home repairs
- Accepts lower credit scores
- Can be used for energy efficient upgrades
FHA 203(k) Standard Loan
- Can cover more costly renovations like structural repairs
- Can be used by a homeowner to increase accessibility for persons with disabilities
- Can also cover mortgage payments during home repairs
- Can be used to add value to your existing home
California FHA Loan FAQs
How does a California FHA loan work?
California FHA loans work the same way as national FHA loans. They follow guidelines set out by HUD. The difference in California specific FHA loans is the loan limit. Loan limits are based on the home values in each county. They can be different from county to county and state to state.
What credit score do you need for an FHA loan in California?
To qualify for an FHA loan in California borrowers need to have a minimum mortgage specific credit score of 580. A credit score of 580 can qualify you for a 3.5% down payment.
Some lenders may accept a credit score of 500-579 with a 10% down payment.
What is the max FHA loan in California?
FHA loans have maximum loan limits based on county. Most counties in California have a limit of $472,030. However, there are some counties where that limit is higher because the value of property is higher. San Diego County has a loan limit of $977,500. The FHA loan limit in Los Angeles County is $1,089,300 for a single-family home. $1,089,300 is the highest loan limit for a single-family home in California.
What qualifies as a first-time homebuyer in California?
If a homebuyer in California has not owned a home in the last three years or more, they qualify as a first-time homebuyer. There are some exceptions to this, so make sure to check with your individual lender.
Does California have a first-time homebuyer program?
California does have programs available for first-time homebuyers. These can include educational programs, resources, and financial assistance programs. It is important to research these programs individually as they will have requirements and qualifications that are separate from your lender.