California FHA Loans Made Easy

Key Topics In This Article: What Is FHA? | FHA Benefits | FHA Requirements | Product Solutions | Mortgage Insurance | How To Qualify | Applying For An FHA loan | California FHA Loan FAQs

One of California’s best home loan programs is the FHA loan program. FHA loans offer numerous benefits, including a low down payment option and low credit score requirements.

California FHA loans are backed by the federal government, which is the specific feature that separates it from other home lending programs available in California and throughout the country. 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 offer FHA loans in California for the purpose of buying a home or refinancing a current mortgage. It’s designed to help homeowners and homebuyers who may not qualify for other loan programs obtain the financing they need.

What Is A California FHA Loan?

Federal Housing Administration (FHA) provides mortgage insurance on loans made by FHA-approved lenders. Congress created the FHA program in 1934, during a time when the real estate industry was struggling to survive. Millions of workers had lost their jobs, and it was difficult to get a home loan. At the time, most mortgage loans were limited to 50% of the home’s value.¹

A California FHA loan is a mortgage based on a specific set of underwriting requirements attached to a property in California.

California FHA Loan Benefits

FHA loans in California provide significant benefits to those looking to buy a home or refinance a current mortgage. Here are the benefits of the program.

• Easy qualification
• Low credit scores accepted
• Super fast refinance with low rates
• Industry-leading renovation loan program
• Gift funds allowed on purchase transactions
• Seller credits of 6.00% of the purchase price
• Down Payment Assistance programs allowed

FHA loans in California are easy to qualify for and don’t require a lot of documentation. Low credit scores are not an issue; someone with a 660 credit score usually gets the same rate and terms as someone with a 740 credit score.

FHA Streamline Refinance program is the best refinance program in the industry (more on this later in the article). It’s super easy to qualify for. And if you’ve thought about a home renovation, you’ve probably heard about the FHA 203(k) renovation loan program.

FHA loans allow for an incredible 6.00% seller credit towards closing costs, double the amount allowed in most other programs.

Most mortgage industry professionals agree that FHA loans in California are easy to qualify for, and the program provides enormous benefits. The program helps thousands of Californians every year achieve their long-term financial goal of homeownership.

California FHA Loan Requirements

Here are the requirements for California’s FHA loans for purchase and refinance transactions.

• Primary residence
• Stable and verifiable income
• A two-year employment history
• Mortgage Insurance is required
• 3.5% down payment (equity if it’s a refinance)
• Most lenders require a 600 or higher credit score
• Single-family residence, condominium, or multi-unit property.
• You must have two or more tradelines present on your credit report²

Compared to other loan programs, these requirements are easy to meet for most loan applicants.

Possible Exceptions

There are exceptions to these requirements, and they are as follows;

• Some loan applicants are able to put zero down
• If you have less than a two-year employment history, you still might get approved if you have a strong file in other areas (such as down payment and/or credit history).
• If your credit score is below 600, you still may qualify since, technically, FHA does not have a true credit score requirement. Very few lenders in California will go below a 600 credit score, and even fewer will go below a 580 credit score.

If you need an exception to the regular FHA loan requirements, talk with your loan officer before applying. Ensure they know your situation and see if they can offer a reasonable solution.

California FHA Loan Product Solutions

FHA loans in California can be used for purchasing, refinancing, or renovating residential property.

California FHA Loans Can Be Used To Buy A Home

FHA loans in California can be used to purchase a primary residence with as little as 3.5% down, 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 people to buy their first home.

The program can not be used for second homes or an investment property. Single-family residences (SFR), Condominiums, and even one to four multi-unit properties are eligible for the FHA loan program.

Detailed Down Payment Requirements

A borrower must have a 580 or higher credit score to put 3.5% down on a purchase. If the credit score is 579 or below, the borrower must put down 10%. This is a standard loan requirement under the program.

FHA loans in California also allow for a zero-down payment option under certain circumstances. If you are interested in this option, please be sure to ask your loan officer about the current requirements for the program.

Refinance Solutions

A homeowner can use the 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.

Streamline Refinance

The FHA Streamline Refinance 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. It’s the easiest refinance program in California.

Here are the main benefits of the California FHA Streamline Refinance 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 must 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

A Renovation Loan That Is Second To None

An FHA loan can also be used to improve the property. You can utilize 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 a refinance 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 loans in California have mortgage insurance, a requirement you can’t avoid. It’s an insurance policy you pay that will help cover a lender’s loss if you default on your loan. FHA loans in California have 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 that substantially benefits the loan applicant.

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

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

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).

How Do I Qualify For A California?

Getting qualified for an FHA loan in California starts with your credit report. You’ll need two or more tradelines with a two-year payment history. Second, determine your down payment and verify with the loan officer that your employment history meets the underwriting requirements and your income is high enough.

When picking out a property, remember that you can only buy a primary residence with a California FHA loan. Second, if you are considering a multi-unit property, it must be under four units; otherwise, your loan application will be rejected.

Applying For An FHA Loan In California

To apply for an FHA loan in California, contact me directly at 1-800-550-5538 or complete one of our Contact Us web forms. I can answer any questions you have and provide a no-cost quote before you apply. The process of applying is easy and quick;

• Complete our simple application
• Upload or email the necessary documentation

Applying for an FHA loan means you’ll have to turn in certain documentation. This includes your income and asset documentation (bank statements and this is only required on purchase loans). For a specific list of documentation, talk with your loan officer first to ensure you send in all the required documents.

California FHA Loan FAQs

Here are some commonly asked questions about FHA loans in California.

Is An FHA Loan In California A Good Program For First-Time Homebuyers?

Yes! It provides enormous benefits for California homebuyers 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 a great option for first-time homebuyers.

If I Have A Bankruptcy, Can I Still Get An FHA Loan?

Yes! 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.

If you previously filed for Chapter 7 bankruptcy, you’ll have to wait two years before obtaining an FHA loan in California.

Not all home loan lenders allow this; many have an overlay regarding bankruptcy.

Are Gift Funds Allowed For A Down Payment?

Yes. FHA loans in California allow for gift funds.

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 An FHA Loan Right For You?

FHA loans in California have helped hundreds of thousands of residents buy a home or refinance a current mortgage. Is the program 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.

Citation Sources:

1. About Us – HUD.gov
2. FHA Requirements – FHA.com