The Federal Housing Administration (FHA) loan program is one of the most popular mortgage options for home buyers in California, particularly among first-time buyers. But there are some requirements you should know about, if you’re thinking of using this program. Here’s an updated look at California FHA requirements.
A Look at California FHA Loan Requirements
If you have a good credit score, a manageable level of debt, and a down payment of 3.5%, you could be eligible for an FHA-insured home loan. Let’s take a closer look at these and other requirements.
Down Payment Requirements
The minimum required down payment for an FHA loan in California is 3.5%. It has been at this level for several years now, and we do not expect it to change anytime soon. This means the loan can account for 96.5% of the home value. Here’s the good news for cash-strapped home buyers. The Department of Housing and Urban Development (HUD) allows borrowers to obtain down-payment funds from a family member or other approved donor, in the form of a gift. Learn more about FHA down payments.
Credit Score Requirements
Credit scores are another important requirement for California FHA loans. Mortgage lenders use credit scores to determine how you have borrowed and repaid money in the past. In short, a higher score will increase your chances of getting approved for an FHA loan in California. HUD has specific requirements for minimum credit scores. According to their latest guidelines, borrowers must have a credit score of 580 or higher to take advantage of the 3.5% down payment option mentioned above.
There are California FHA requirements for the size of the loan as well. HUD limits the size of loans they are willing to insure, which in turn affects the amount you can borrow. These limits vary by county. In the state of California, FHA limits range from $271,050 to $625,500 and are based on median home prices. The more expensive real estate markets in California, like the Bay Area, tend to have higher loan limits. You’ll find a list of all California loan limit requirements, by county, on this page of our website.
Debt Ratio Requirements
Generally speaking, HUD prefers FHA borrowers to have a total debt-to-income ratio no higher than 43%. This means that your total monthly debts (including the mortgage payment) should use up no more than 43% of your gross monthly income. But there are exceptions to this rule, especially for borrowers with significant cash reserves and/or residual income after the mortgage payment has been made. Also, if the loan will produce only a minimal increase in the borrower’s housing payments, higher debt ratios might be allowed. So there is some leeway with this California FHA requirement.
Document / Paperwork Requirements
Verifying income, debts and assets is an important part of the mortgage lending process. Lenders use these documents to ensure that the loan is sound, and that it meets all government guidelines and requirements. When applying for a home loan, you will be asked to provide a variety of financial documents including bank statements, tax returns, W-2 forms and the like.
Minimum Property Requirements
This article primarily focuses on California FHA eligibility requirements for borrowers — not properties. But there are requirements for the property being purchased as well. The home must be appraised to determine its market value. The appraiser will also examine the home to ensure that it meets HUD’s minimum guidelines for safety and habitability. He is primarily concerned with the health and safety of the home buyer / future occupant. For a detailed list of FHA property requirements, refer to HUD Handbook 4000.1, available online.
Home Buyers and Borrowers: We Can Help You
Are you thinking of using an FHA home loan to buy a home in California in 2017? If so, you probably have a lot of questions about the program. And you’ve come to the right place! We can answer any questions you have about California FHA loan requirements, and can even provide you with a rate quote.
Bridgepoint Funding has been serving borrowers in the Golden State for more than 15 years. We offer a variety of mortgage products and programs with flexible guidelines and competitive rates. Please contact our friendly, knowledgeable staff today with any questions you have.