FHA loans are an excellent option for borrowers who may not have the higher credit score or down payment funds needed to secure a conforming mortgage.
The Federal Housing Administration (FHA) loan program has been helping homebuyers since its implementation in the 1930s. Today, it’s one of the more popular mortgage financing options, but there are some general criteria you should be aware of when considering an FHA loan. Here’s a look at California FHA loan requirements.
California FHA Loan Requirements
California homebuyers with good credit, manageable debt, and a down payment of at least 3.5% could be eligible for an FHA-insured home loan. Let’s take a closer look at the program requirements.
FHA Credit Score Requirements
Your credit scores are an essential requirement for an FHA loan. We like to remind homebuyers too that your Consumer Credit Score and your Mortgage Credit Score are not the same, so be prepared to see a slightly lower credit score than you’re used to when your mortgage lender pulls your credit.
A higher credit score can help you secure a lower interest rate on your loan, which can effectively make your mortgage more affordable over the long run. Conversely, a lower credit score will result in a higher interest rate.
The Department of Housing and Urban Development (HUD) has specific guidelines and requirements regarding credit scores and how they apply to secure mortgage financing. According to eligibility guidelines, lenders require borrowers to have a credit score of 580 or higher to take advantage of the 3.5% down payment option for FHA.
See Related Article: Buyers Don’t Need a ‘Perfect’ Credit Score to Get a Loan in California
Are FHA Loans Only For First Time Homebuyers?
Absolutely not! The FHA loan program is available to all qualified homebuyers who meet the loan criteria and qualifications for FHA loans.
What Is The Down Payment For An FHA Loan?
The minimum down payment required for an FHA loan is 3.5%. For example, if you want to purchase a home for $400,000, your down payment would be $14,000, or 3.5% of the purchase price.
A lower down payment amount is one of the main benefits of an FHA loan, as many buyers who are unable to come up with a more sizable down payment can still buy a home. The more money you put towards your down payment, the lower your total loan amount will be. Higher down payments can help increase the odds of loan approval and can help you secure a lower interest rate too.
FHA guidelines allow homebuyers to utilize gift funds from relatives if you are short on cash for a down payment.
California FHA Loan Limits
In California, the 2022 FHA loan limits range from $420,680 to $970,800 for single-unit properties. They vary by county and are based on median home values within each county. That means pricier real estate markets, like the San Francisco Bay Area, tend to have higher allowable loan limits.
FHA Debt-to-Income Ratios
The debt-to-income (DTI) ratio is a comparison between the amount of money a homebuyer earns and the amount they spend on monthly recurring debts (such as a car payment or student loans).
HUD prefers that potential borrowers have a total or “back-end” debt-to-income ratio no higher than 43% – which means your total monthly debts (including your new mortgage payment) should account for no more than 43% of your gross monthly income. That said, in some cases, a DTI as high as 55% may be allowed.
Homebuyers with significant cash reserves and/or residual income after the mortgage payment have been made could be allowed to target these higher debt ratios. HUD refers to these items as “compensating factors.” If the total FHA loan produces only a minimal increase in housing payments, higher debt ratios might be allowed.
Requirements for FHA Loans
All mortgage programs require collecting a lot of documentation from the potential homebuyer, and FHA loans are no exception. The documentation required for FHA loans includes verifying income, assets, debts, and more.
When applying for an FHA-insured home loan in California, you will be asked to provide bank statements, pay statements, W-2 forms, and other financial documents.
Apply For An FHA Loan Online
Want to take advantage of the benefits of an FHA loan? If so, we can help you! JVM Lending offers FHA loans for homebuyers across California. We’re a local mortgage lender serving all of California, as well as Texas and Arizona.