Federal Housing Administration (FHA) loans are an excellent option for California first-time homebuyers looking to buy in the competitive California market. FHA loans in California have low down-payment financing options with flexible underwriting guidelines that are great for homebuyers with liquidity or credit issues.
FHA loans are growing increasingly popular among the California first-time homebuyer demographic. The Urban Institute found in an August 2018 study that nearly 83% of buyers in the housing market are first-time homebuyers.
Less Money Down and Flexible Credit Standards
FHA loans have one of the lowest down-payment requirements. FHA loans only require a 3.5% down payment from California homebuyers. If homebuyers are unable to put down 3.5% of their own funds, FHA also allows for the down payment to be comprised 100% of gift funds.
They also have much more flexible criteria for credit. With FHA loans, California homebuyers can have credit scores as low as 580 and use “alternative credit.” Alternative credit allows homebuyers to use their cell phone, electric bills, etc. if they don’t have enough existing accounts on their credit report.
FHA Loans & Mortgage Insurance
FHA loans have a required Mortgage Insurance Premium of 1.75% of the loan amount which is added to the borrower’s total loan amount. FHA loans also have required mortgage monthly insurance of 0.85% of the total loan amount for most loans with less than a 5% down payment. These monthly mortgage insurance premiums are divided by 12 months and are a permanently fixed amount in most cases.
Mortgage insurance gives California homebuyers the opportunity to purchase a house with an FHA loan and get into the market sooner, with less money down. Many first-time homebuyers wouldn’t otherwise have the funds to buy in California. Homebuyers with FHA will see an increase in their loan payments due to the added cost of mortgage insurance. However, the chance to get into the market and begin building equity will outweigh the cost of those extra payments.
Questions? While this article covers the very basics of mortgage insurance in California, we can provide additional information to those who request it. You can reach us here, or at (925) 855-4491 or [email protected].