FHA Loans in California
An FHA loan is a mortgage backed by the Federal Housing Administration, a government agency that helps people buy homes with smaller down payments and more flexible credit rules.
If you are a first-time buyer or you have had some credit bumps along the way, this is often the loan that gets you in the door.
Who it's a good fit for
FHA loans are a great fit if you are buying your first home, your credit score is in the 580 range, and you do not have 20 percent saved for a down payment. They are also good if you are buying with gift funds from family, since FHA allows 100 percent of your down payment to come as a gift. If you have had a bankruptcy or foreclosure in the past, FHA may be more forgiving than conventional, as long as enough time has passed.
Who it's not a fit for
FHA probably is not the right choice if you have strong credit (700 or above) and 20 percent to put down. In that case, a conventional loan will usually be cheaper because you will not pay mortgage insurance for the life of the loan. FHA also is not for investment properties or second homes. It is for primary residences only, meaning you need to live in the home.
Requirements
Minimum Credit Score
580 with 3.5% down (500 with 10% down, though most lenders require 580)
Down Payment
3.5% of the purchase price minimum
DTI Limit
Up to 57% with compensating factors, though most lenders target 50% or below
Reserves
Typically 1 to 2 months of PITI, but varies by lender and scenario
Pros and cons, stated honestly
Advantages
Things to consider
Costs involved
FHA loans come with two types of mortgage insurance. The upfront MIP is 1.75 percent of the loan amount, and it can be financed into the loan so you do not pay it out of pocket. The annual MIP is a monthly cost that varies based on your loan amount, loan-to-value ratio, and loan term. Contact me for the current MIP rates on your specific scenario. Closing costs typically run 2 to 5 percent of the loan amount and cover the appraisal, title insurance, escrow fees, and origination charges.
The process and rough timeline
Get Pre-Approved
1 to 3 daysWe pull your credit, verify your income and assets, and I issue a pre-approval letter you can shop with.
Find a Home and Make an Offer
Varies by buyerYou work with your agent to find a home. Your pre-approval shows sellers you are serious.
Open Escrow and Order Appraisal
3 to 7 daysOnce your offer is accepted, we order the FHA appraisal and start the loan process.
Underwriting and Final Approval
7 to 14 daysThe lender reviews your full file, the appraisal, and the title. I handle the back and forth.
Close and Get Your Keys
30 to 45 days totalYou sign the final documents, the loan funds, and you get the keys to your new home.