Socal FHA Home Loans

FHA Home Loans in Southern California

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Q: What are the FHA loan limits in California?
A:FHA loans in California allow for very generous loan limits even with only 3.5% down.  This allows a borrower to use the flexible FHA loan program to buy homes in even the higher cost coastal areas of California.  Below is a chart of the 2011 FHA loan limits for the more populated counties in California:

County 1 unit 2 units 3 units 4 units
Alameda $729,750 $934,200 $1,129,250 $1,403,400
Contra Costa $729,750 $934,200 $1,129,250 $1,403,400
Fresno $381,250 $488,050 $589,950 $733,150
Los Angeles $729,750 $934,200 $1,129,250 $1,403,400
Orange $729,750 $934,200 $1,129,250 $1,403,400
Riverside $500,000 $640,100 $773,700 $961,550
Sacramento $580,000 $742,500 $897,500 $1,115,400
San Bernardino $500,000 $640,100 $773,700 $961,550
San Diego $697,500 $892,950 $1,079,350 $1,341,350
San Francisco $729,750 $934,200 $1,129,250 $1,403,400
San Mateo $729,750 $934,200 $1,129,250 $1,403,400
Santa Clara $729,750 $934,200 $1,129,250 $1,403,400

simOne unit refers to a single-family home or condo/townhouse.  And 2 units a duplex, 3 units a triplex and 4 units  fourplex.  So in the highest limit counties, you could purchase a home or condo for $756,217 and only put 3.5% down.

Q: What is the minimum FHA loan down payment?

A: The minimum FHA loan down payment is 3.5% of the purchase price.  This FHA loan down payment can come from your own funds or from a gift from a relative.
Q: What documents do I need when I apply for a FHA loan?
 
A: When you apply for a FHA loan you will need the following documentation to get started:
  • Last 30 days job paycheck stubs, last two years W-2′s, last two years federal tax returns
  • Last two months bank statements for your savings
  • DD214 if you are a veteran
  • Certificate of VA eligibility
  • Loan application and credit check
Q:What is the minimum FHA loan credit score?
 
A: The minimum FHA loan credit score can change based upon the lenders appetite for risk, but right now FHA borrowers generally need a 620 credit score to get approved for a FHA home loan in California.
Q:Do I need a termite report and clearance to get a FHA loan in California?
 
A: You do not need a termite report and clearance to get a FHA loan in California as long as you do not ask for a report in your purchase contract.  If you ask for or mention a termite report anywhere in your purchase contract, the FHA underwriter will ask for a section 1 termite report and clearance.
Q: Are FHA Loans just for first time home buyers?
NO!  FHA home loans are for every one!  This is the biggest misconception about FHA loans.
Q: Can I get a FHA loan to buy an investment property?
No.  FHA loans are only for your primary residence.  You can not get a FHA loan mortgage to buy a investment property.
Q: Are FHA loan interest rates higher than conventional loan interest rates?
No!  In fact FHA rates are often lower than conventional rates and can be the lowest 30 year fixed interest rates available.
Q: When does the FHA loan monthly mortgage insurance end?
First you have to have FHA loan mortgage insurance for a minimum of five years.  After five years if your loan balance is less than 80% of the original purchase price, your FHA loan mortgage insurance will end.
Q: What is included in FHA loan closing costs?
The term “closing costs” refers to all of the costs you have in addition to your FHA loan down payment when you buy a home with a FHA home loan.  Many times buyers can get the seller to pay much if not all of their closing costs.  FHA loan closing costs average between 2.5%-3.5% of the purchase price in most cases.  FHA loan closing costs consist of:
  • Escrow Fees
  • Title insurance
  • One year paid up front homeowners insurance
  • Property tax impounds (usually about 6 months)
  • Home insurance impounds
  • Lender underwriting and processing fees
  • Recording fee
Q: Can I do anything to quickly raise my FHA loan credit score if it is too low to get approved for a FHA loan?
Yes.  If there are any mistakes on your FHA loan credit report or if you can pay off or pay down any items, we have a tool where we can have these items immediately reported to the credit bureaus.  This way we can immediately help you raise your FHA loan credit score to meet the FHA loan requirements.
Q: If my spouse is not going on my application for a FHA loan in California do you still have to check their FHA loan credit?
Yes.  California is a “community property” state.  Therefore even if a spouse is not going to be a co-borrower on the FHA loan their credit score will have to be checked.  However, their FHA loan credit score is NOT looked at.  Their score is only checked to include any debt obligations they owe into the FHA loan debt-to-income ratios for FHA loan qualification.
Q: What are the advantages of conventional vs FHA loan?
FHA loans allow the lowest down payment of 3.5%, conventional is generally 5-10%.  FHA loan guidelines also allow FHA loan applicants to have lower credit scores.  Lastly, FHA loan guidelines allow for higher debt-to-income ratios, allowing FHA borrowers to qualify for higher loan amounts.
Q: What are FHA loan requirements to get a FHA loan after a chapter 7 bankruptcy in California?
To get a FHA loan after a chapter 7 bankruptcy you have to wait two years after the bankruptcy discharge and you have to have re-established credit.  FHA loan guidelines also do not allow you to have ANY derogatory credit after the bankruptcy to qualify for a FHA loan.
Q: What are FHA loan requirements to get a FHA loan after a foreclosure in California?
To get a FHA loan after a foreclosure you have to wait three years after the date the foreclosed property deed transfers out of your name.  According to FHA loan guidelines it will also help if you do not have any derogatory items on your credit after the foreclosure.
Q: What are FHA loan requirements to get a FHA loan after a short sale in California?
To get a FHA loan after a short sale you have to wait three years after the date the short sale closes.  However according to FHA loan guidelines, if the following two factors are present, you can get a FHA loan immediately after a short sale:
  1. You cannot have missed any mortgage payments leading up to the short sale
  2. You have to have an extenuating circumstance for the reason you short sold your home such as a job relocation.  The extenuating circumstance cannot be that you were upside down, couldn’t make the payment, lost your job and other financial reasons.

Get Rid of FHA Mortgage Insurance With Refinance to Conventional

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n the past 18 months real estate prices have risen in California enough in many cases for borrowers to refinance out of FHA loans with high monthly mortgage insurance to conventional loans at 80% or less loan-to-value with NO mortgage insurance.  If you have a FHA loan in California, don’t hesitate to contact me to and I can evaluate if this is worth while.

Refinancing from an FHA loan to a conventional could be a big money saver for you.  There is no reason to continue to pay the monthly mortgage insurance on a FHA loan if you property value has increased to where you FHA loan balance is no 80% or less than your current home value.

FHA loans originated before April 2013 will not allow you to get rid of your mortgage insurance until at least five years has passed since you originated your FHA loan AND until the loan balance is paid down to 78% of the original purchase price.  Even if five years has passed, you may be a long way from paying your loan balance down to 78% of the original purchase price.   FHA does not go off the current value when eliminating FHA mortgage insurance, they go off the original purchase price.  This is where a refinance to conventional loans comes into the picture.

Mortgage With No Credit Score in California

There are many people out there that want to get a mortgage to buy a home but for some reason they have no credit scores that report to the credit bureaus.  The main reason for this is these borrowers do not have any lines of credit that report to the credit bureaus.  They do not have any credit cards, student loans, car payments, etc… that would report payment history to the credit bureaus to give them a credit score.  But the great news is these borrowers without credit lines or credit score can still get 3.5% down FHA home loans in California.

Here’s how it works.  For a borrower to get a FHA home loan in California without credit scores, we would build what is called a “non-traditional” credit report for that borrower.  We would just require a minimum of three credit references each for 12 months.  This could be a utility bill, car insurance, cell phone bill, cable TV bill, rent, and other bills like this.  We would just need documentation that you paid three bills like this on time for 12 months and we can get you approved for a FHA home loan up to $729,750 with minimum of 3.5% down.  Some other factors to keep in mind about this loan:

  • No major adverse public records filed the last 12 months
  • No late payments on rent the last 12 months
  • Maximum debt-to-income ratio 43% (add link)
  • Two months of the housing payment in reserves required
  • Full income verification required (two years tax returns, pay check stubs, w-2’s)

FHA Loan Credit Score Requirements In California

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FHA home loans have more lenient credit quality requirements than conventional loans.  FHA will often allow a applicant to be approved for a FHA home loan even if their FHA loan credit score is not perfect.  Below are some facts about FHA loan credit requirements:

  • You can get a FHA loan two years after a bankruptcy (conventional requires a four year wait)
  • FHA home loans require a three year wait after foreclosure (conventional loans require a seven year wait)
  • You can apply for a FHA loan three years after a short sale
  • Your FHA credit score does not have to be perfect, you can still get excellent FHA interest rates with a 620 or above score.  If you score is below 620 we can review your score with your and help you strategize to quickly raise your score

Also, below are the two most common fixes you can make to your credit score to quickly raise it:

1. Make sure your credit card balances are below 30% of your total credit limits with that creditor

2. Read through your credit report thoroughly and check for mistakes.  If you find mistakes have them removed.

Changing these above two items can help quickly raise your score substantially.

Mortgage With Bad Credit in San Diego

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In the last six months or so, home loan lenders have been getting less restrictive in terms of credit requirements for home loans.  You may be able to qualify for a mortgage with “bad credit” in San Diego.  When your credit score is below 620, FHA is generally the best option.  We have options where we can get borrowers financed with a FHA home loan with as low as a 560 credit score.

But the first step for a borrower that wants to qualify for a mortgage with so called “bad credit” is to have a mortgage lender run their credit report and then go over the report in detail with the borrower.  We are happy to do this with clients just give us a call or email.  There are often many mistakes on a credit report that can be quickly fixed and other things that can be done to quickly bump up your credit report.  Below are the main factors that affect your credit score:

  • Late payments: Anything you are late on that reports to your credit has a significant negative effect on the score.  The more recent, the more negative impact.
  • Credit card ratios of credit balance to credit limit.  The credit bureaus like it if you total debt is 30% or less than your credit limit.  For example if you have a credit card limit of $10,000 you want to keep your total debt to $3,000 or less.
  • Mistakes. Often there are mistakes on your credit report that should not be there.  Many times you can call the creditor that is improperly reporting the item and have them remove the item.  This will have a very positive effect on your credit score.

Calculating Your Debt-To-Income Ratio For a FHA Loan

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Debt-to-income ratio (DTI) calculation is a very important part of the loan qualification process.  FHA home loans happen to allow the highest DTI of any home loan available today.  For example, FHA home loans will generally allow a borrower to go up to a 55% DTI with only 3.5% down payment.  Conventional home loans with anything less than 20% down with have a max DTI of 45%.

Here is how you calculation your debt-to-income ratio:

  • First add up all of your debt.  This only includes debt that will show up on your credit such as car payments, student loan payments, and credit cards.  Let’s say you have a $300/mo car payment, $200/mo in student loans and $250/mo in credit cards.  That is $750/mo total in monthly debt obligation.
  • Second calculate your total proposed housing payment.  This includes mortgage + property taxes + home insurance + mortgage insurance + hoa dues (if you have them).  Let’s say for this example all of this adds up to $2,750/mo.
  • Take you total other debt of $750 + your total housing payment of $2,750 and you get $3,500/mo total debt.
  • Next calculate the total monthly income of all borrowers on the loan.  Let’s just say this is $120,000 for purposes of this loan.  That would be $10,000 a month.
  • Lastly, take your total debt of $3,500 and divide by your monthly income of $10,000 and you get a 35% debt-to-income ratio.  This is well below the FHA limit of 55%.

So I hope this makes it easy for you to calculate your debt-to-income ratio.  Don’t hesitate to call us or email if you have questions about calculating yours.

Many times borrowers will find when applying for a home loan that they are above the required debt-to-income ratio.  A common way to bring your debt-to-income ratios down are to pay off credit or loans that you may have to qualify for the loan or to by a lower priced house.  Another option with a FHA loan is you can get a non-occupant co-borrower.  This is often a relative that has good income and credit to be a co-borrower but does not have to live in the property.

Getting a Conventional Loan After a Short Sale In California

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What many former California homeowners don't realize is that conventional loan guidelines only require a two year wait after a short sale to apply for a conventional loan.   That means homeowners that had short sales in 2009 and earlier are now eligible to get back into the market and buy. Conventional guidelines do require buyers to put 20% down to qualify for a loan two years after a short sale.  For 10% down you would have to wait four years after a short sale.  FHA loans are available three years after a short sale and VA loans (only for veterans and active military) two years after a short sale.  Here is a recap:

Loan Type Number of years after short sale needed to qualify
Conventional loan 20% down payment Two years
VA loan zero down (veterans and active military) Two years
FHA Loan 3.5% down payment Three years
Conventional loan 10% down payment Four years

  So the wait is not that long to get back into the market after a short sale.  Here are some compelling reasons to get back into the market:

  • Home prices are now 50% less than their peak 4-5 years ago in many areas of California Interest rates are at sixty year lows The two above bullet points make for a record affordability where a house payment is often lower than rent

  Below are some other highlights of conventional loans in California:

  • Homepath mortgage available on Fannie Mae owned properties offer as low as 3% down payment with no mortgage insurance or appraisal
  • 5% down payment available on conventional loans with no up front mortgage insurance and less monthly mortgage insurance than FHA loans
  • 10% down available to $796,000 in San Diego, and to $875,000 in Los Angeles, Orange County, San Francisco, San Jose and Oakland