One of the best home loan programs is the California FHA loan. The benefits of the popular program include a low down payment option and a low credit score requirement.
A California FHA loan is a home loan backed by the federal government, which is the specific feature that separates it from other home lending programs available in California. The Federal Housing Administration (FHA) is the government agency that oversees the loan program.
FHA does not lend money directly to consumers; only non-government mortgage companies provide funding under the FHA loan program. The FHA loan program is offered through different types of lenders, including mortgage brokers like us, JB Mortgage Capital, Inc. It’s designed to help homeowners and homebuyers who may not qualify for other loan programs obtain the financing they need.
FHA Loan Pre-Approval
A quick pre-approval with exceptional service and low rates.
What Can An FHA Loan In California Be Used For?
FHA loans in California can be used for purchasing, refinancing, or renovating residential property.
FHA Home Purchase Loan
A homebuyer can use the California FHA loan to purchase a primary residence with as little as 3.5% down (3.5% of the purchase price), even with a low credit score. This is why it’s one of the best loan programs for first-time homebuyers. The benefit of putting down only 3.5% enables more to buy their first home.
The program allows you to purchase a primary residence, no second homes or investment properties. Single Family Residences, Condominiums, and even one to four multi-unit properties are eligible for the FHA loan program.
California FHA Loan Down Payment Requirements
To put 3.5% down on a purchase, a borrower must have a 580 or higher credit score. If the credit score is 579 or below, the borrower must put down 10%. This is a standard FHA loan requirement.
FHA Refinance
A homeowner can use the FHA loan program to do a cash-out refinance; a refinance to lower their interest rate, or a refinance to reduce the loan term from a 30-year fixed to a 15-year fixed. A special FHA refinance program called the “FHA Streamline Refinance” is also available.
FHA Streamline Refinance
The FHA Streamline program is one of the best refinance programs out there. If you have a California FHA loan and plan on refinancing into a new one, this loan program is definitely for you.
Here are the main benefits of the FHA Streamline program
- No Credit Check
- No Income Verification
- No home Appraisal
- No LTV limitations since you don’t need an appraisal
- Lower your interest rate
There are some requirements you meet before you are eligible for the program.
- You must currently have an FHA loan
- It must be at least 201 days since you last closed your current FHA mortgage
- Your new interest rates must be lower
- You must be current on your mortgage payments
- You need a 620 or higher credit score
FHA Renovation
The California FHA loan can also be used to improve the property. This means you can use the FHA home repair program to buy a home and receive extra money to help improve the house, or if you already own the property, there is an option for you as well.
The FHA Renovation loan offers many benefits to those looking to renovate their home. The requirements can overwhelm anyone new to the program, so be sure to discuss this with your loan officer.
FHA Mortgage Insurance Premium
FHA loan mortgage insurance is a requirement for all FHA loans. It’s an insurance policy you pay that will help cover a lender’s loss if you default on your FHA loan. FHA has two mortgage insurance premiums. Below is a basic overview of the upfront mortgage insurance premium and the monthly mortgage insurance.
- Upfront Mortgage Insurance Premium (UFMIP): FHA charges an upfront fee of 1.75% on all FHA home loans. You either pay the fee at closing (along with other closing costs), or it’s built into your interest rate. Building into your interest rate means your rate will be increased to cover the cost of not charging you the mortgage insurance premium upfront.
- Monthly Mortgage Insurance Premium: The FHA loan Mortgage Insurance (MI) fee is added to your monthly mortgage payment.
Important Fact – UFMIP does not count toward your FHA loan limit or against your Loan-To-Value ratio. This is a great feature, especially when buying a new home.
Calculating The Cost Of FHA Mortgage Insurance
Here is the formula an underwriter will use to figure out your monthly FHA MI cost.
Cost Of FHA Mortgage Insurance For Loan Amounts Below $726,200
| LTV Ratio | Mortgage Insurance | Number of Years Paid |
|---|---|---|
| Up to 90% | 0.50% | 11 years |
| 90% to 95% | 0.50% | Life of the loan |
| Above 95% | 0.55% | Life of the loan |
For a $300,000 loan amount, 30-year fixed term, and an LTV ratio below 90%, your monthly FHA mortgage insurance cost is $133.34 per month (300,000 x 0.0050 = 1,500/12 (for 12 months) = $125.00 per month).
Cost Of FHA Mortgage Insurance For Loan Amounts Above $726,200
| LTV Ratio | Mortgage Insurance | Number of Years Paid |
|---|---|---|
| Up to 90% | 0.70% | 11 years |
| 90% to 95% | 0.70% | Life of the loan |
| Above 95% | 0.75% | Life of the loan |
For an $800,000 loan amount, 30-year fixed term, and an LTV ratio below 90%, your monthly FHA mortgage insurance cost is $133.34 per month (800,000 x 0.0070 = 5,600/12 (for 12 months) = $466.67 per month).
FHA Loan Pre-Approval
A quick pre-approval with exceptional service and low rates.
California FHA Loan FAQs
Here are some commonly asked questions about California FHA loans.
1. What Are The California FHA Loan Requirements?
The FHA loan program has simple, straightforward requirements.
- Residential Property Only: The FHA loan program only allows for residential property. Land, commercial and industrial property are not allowed under the FHA residential loan guidelines.
- Primary Residence: If you are buying a home, the home needs to be your primary residence. It can not be a non-owner occupied property. But guess what; there is a way around this requirement. If you buy a multi-unit property and live in one of the units, you can have a renter(s) in the other unit(s).
- Credit Score: FHA does not have a credit score requirement; however, most lenders want to see a credit score above 580, and some want to see a credit score of 620 or above.
- Debt To Income Ratio: FHA has a soft DTI requirement set at 43%; however, it can go as high as 50%.
- Employment and Income: You must be currently employed or self-employed and able to document two years of W-2 income or two years of self-employment income (with tax returns).
2. Is The California FHA Loan A Good Program For First-Time Homebuyers?
Yes! It provides enormous benefits for home buyers with a small down payment and/or a credit score below 700, which is usually what I see for first-time homebuyers. Easy approvals and an easy loan process make the FHA home loan for first-time homebuyers a great option.
3. If I Have A Bankruptcy, Can I Still Get An FHA Loan?
Yes! If you previously filed for bankruptcy, you’ll have to wait two years (if it was a Chapter 7 Bankruptcy) before obtaining an FHA loan in California.
If you filed a Chapter 13 bankruptcy, there is no waiting period after the bankruptcy has been settled. And if you are currently in the middle of a Chapter 13 bankruptcy, you may still be able to do an FHA loan if both the court and lender approve the loan.
Not all home loan lenders allow this; many have an overlay regarding bankruptcy.
4. Are Gift Funds Allowed For A Down Payment?
Yes. You can receive a gift from a relative, friend, or even your employer for your down payment. These funds must be documented, and the donor must sign the gift letter. The letter needs to clearly state that the funds donated are a gift and do not need to be paid back. This benefit allows you to purchase a home if you don’t have a down payment (or need a larger one).
Is A California FHA Loan Right For You?
The answer is yes for first-time homebuyers with a low credit score and/or a small down payment. The benefits of an FHA loan are significant, and the program has helped millions of Americans buy their first home.
The FHA loan program is also a good fit for those looking to refinance their current mortgage. The FHA Streamline refinance program is one of the best refinance programs in the industry. And if you are looking to renovate or remodel your home, the FHA 203k should be at the top of your list of programs to consider.
