FHA Loans California | How to Afford a House in CA
Buying a home is one of the most classic American Dreams that people strive for. For many, buying a home in California may seem impossible given inflated home prices and the inability to save enough for a down payment. Even if a borrower could qualify for a loan, they may struggle to keep up with the monthly payments. In the current interest rate environment, those payments are much higher than what people are used to.
Fortunately, the Federal Housing Administration (FHA) have long been supporters of helping Americans buy their first home. Today, we’ll outline a guide to what FHA loans are, what’s required, and how FHA loans in California work.
What is the FHA?
The FHA stands for the Federal Housing Administration, which is part of the larger national Department of Housing and Urban Development, or HUD. The primary goal of the FHA, is to provide lenders (banks and alike) an insurance for lending money to higher risk borrowers. What does this mean?
The FHA gives assurance to banks and lenders any loans which fall under the FHA program, are guaranteed by the FHA. What this translates to is much less risk for lenders to loan money to higher risk borrowers, which encourages and provides access to Americans and borrowers to buy a home.
What are FHA Loans?
As we discussed above, an FHA loan is a loan that is insured, or backed by, the Federal Housing Administration. The purpose of this insurance is to encourage and provide access to home loans for low and moderate-income people and families. What this means for the consumer is: the FHA loan programs provide more flexibility in credit requirements and lower down payments than traditional “conventional” loans.
Even though this article is about FHA loans in California, These loans are available nationwide, in all US states and they are not exclusive to California.
FHA Loan Requirements in California
California FHA Loan Eligibility:
Before qualifying for an FHA loan, you must have demonstrate a certain level of creditworthiness
Credit score of at least 580
Debt-to-income ratio (DTI) of less than 50%. Meaning your income / debt payments must be less than 50%. For example, if you made $50,000 a year, you must pay less than $25,000 a year in debt. This includes car payments, credit card payments, student debt payments, and other properties
Have a steady income and employment history–usually proven by a history of paystubs, W2s, tax returns.
Proof of income, employment, and residency. Proven by a combination of paystubs, W2, employment letter, IDs, utility bills, etc.
In California, FHA loans are likely administered through the CalHFA, or California Housing Finance Agency. For CalHFA (California FHA loans), additional requirements are as follows:
Property must be the borrower and/or co-borrower’s primary residence (no investment or rental properties)
Borrowers must complete a course on the homebuying process, borrowing and general credit
Borrowers must not have income above the appropriate income limits by county. For example, in LA county, that limit is $180,000
Down Payment Requirements
For most FHA programs, down payment can be as low as 3.5%. That means if you’re buying a home worth $100,000, you only need to come up with $3,500 in cash and can get a loan for the rest. At the same time, that 3.5% can be in the form of a gift from family, or other sources.
FHA Loans California Limits by County
FHA loans also have a maximum amount that can be lent out, depending on which county the property you’re buying is in. For example, in Los Angeles County, if you’re looking to buy a single family home, the maximum loan amount is $1.09M
| County Name | Single Family/Detached | 2 Units/Duplex | 3 Units/Triplex | 4 Units/Fourplex |
|---|---|---|---|---|
| ALAMEDA | $1,089,300 | $1,394,775 | $1,685,850 | $2,095,200 |
| ALPINE | $497,950 | $637,450 | $770,550 | $957,600 |
| AMADOR | $472,030 | $604,400 | $730,525 | $907,900 |
| BUTTE | $472,030 | $604,400 | $730,525 | $907,900 |
| CALAVERAS | $472,030 | $604,400 | $730,525 | $907,900 |
| COLUSA | $472,030 | $604,400 | $730,525 | $907,900 |
| CONTRA COSTA | $1,089,300 | $1,394,775 | $1,685,850 | $2,095,200 |
| DEL NORTE | $472,030 | $604,400 | $730,525 | $907,900 |
| EL DORADO | $763,600 | $977,550 | $1,181,650 | $1,468,500 |
| FRESNO | $472,030 | $604,400 | $730,525 | $907,900 |
| GLENN | $472,030 | $604,400 | $730,525 | $907,900 |
| HUMBOLDT | $472,030 | $604,400 | $730,525 | $907,900 |
| IMPERIAL | $472,030 | $604,400 | $730,525 | $907,900 |
| INYO | $508,300 | $650,700 | $786,550 | $977,500 |
| KERN | $472,030 | $604,400 | $730,525 | $907,900 |
| KINGS | $472,030 | $604,400 | $730,525 | $907,900 |
| LAKE | $472,030 | $604,400 | $730,525 | $907,900 |
| LASSEN | $472,030 | $604,400 | $730,525 | $907,900 |
| LOS ANGELES | $1,089,300 | $1,394,775 | $1,685,850 | $2,095,200 |
| MADERA | $472,030 | $604,400 | $730,525 | $907,900 |
| MARIN | $1,089,300 | $1,394,775 | $1,685,850 | $2,095,200 |
| MARIPOSA | $472,030 | $604,400 | $730,525 | $907,900 |
| MENDOCINO | $546,250 | $699,300 | $845,300 | $1,050,500 |
| MERCED | $472,030 | $604,400 | $730,525 | $907,900 |
| MODOC | $472,030 | $604,400 | $730,525 | $907,900 |
| MONO | $693,450 | $887,750 | $1,073,100 | $1,333,600 |
| MONTEREY | $915,400 | $1,171,900 | $1,416,550 | $1,760,400 |
| NAPA | $1,017,750 | $1,302,900 | $1,574,900 | $1,957,250 |
| NEVADA | $644,000 | $824,450 | $996,550 | $1,238,500 |
| ORANGE | $1,089,300 | $1,394,775 | $1,685,850 | $2,095,200 |
| PLACER | $763,600 | $977,550 | $1,181,650 | $1,468,500 |
| PLUMAS | $472,030 | $604,400 | $730,525 | $907,900 |
| RIVERSIDE | $644,000 | $824,450 | $996,550 | $1,238,500 |
| SACRAMENTO | $763,600 | $977,550 | $1,181,650 | $1,468,500 |
| SAN BENITO | $1,089,300 | $1,394,775 | $1,685,850 | $2,095,200 |
| SAN BERNARDINO | $644,000 | $824,450 | $996,550 | $1,238,500 |
| SAN DIEGO | $977,500 | $1,251,400 | $1,512,650 | $1,879,850 |
| SAN FRANCISCO | $1,089,300 | $1,394,775 | $1,685,850 | $2,095,200 |
| SAN JOAQUIN | $656,650 | $840,650 | $1,016,150 | $1,262,800 |
| SAN LUIS OBISPO | $911,950 | $1,167,450 | $1,411,200 | $1,753,800 |
| SAN MATEO | $1,089,300 | $1,394,775 | $1,685,850 | $2,095,200 |
| SANTA BARBARA | $805,000 | $1,030,550 | $1,245,700 | $1,548,100 |
| SANTA CLARA | $1,089,300 | $1,394,775 | $1,685,850 | $2,095,200 |
| SANTA CRUZ | $1,089,300 | $1,394,775 | $1,685,850 | $2,095,200 |
| SHASTA | $472,030 | $604,400 | $730,525 | $907,900 |
| SIERRA | $472,030 | $604,400 | $730,525 | $907,900 |
| SISKIYOU | $472,030 | $604,400 | $730,525 | $907,900 |
| SOLANO | $685,400 | $877,450 | $1,060,600 | $1,318,100 |
| SONOMA | $861,350 | $1,102,700 | $1,332,900 | $1,656,450 |
| STANISLAUS | $517,500 | $662,500 | $800,800 | $995,200 |
| SUTTER | $488,750 | $625,700 | $756,300 | $939,900 |
| TEHAMA | $472,030 | $604,400 | $730,525 | $907,900 |
| TRINITY | $472,030 | $604,400 | $730,525 | $907,900 |
| TULARE | $472,030 | $604,400 | $730,525 | $907,900 |
| TUOLUMNE | $472,030 | $604,400 | $730,525 | $907,900 |
| VENTURA | $948,750 | $1,214,600 | $1,468,150 | $1,824,550 |
| YOLO | $763,600 | $977,550 | $1,181,650 | $1,468,500 |
| YUBA | $488,750 | $625,700 | $756,300 | $939,900 |
How to Apply for an FHA Loan in California
Applying for an FHA loan in California is not too different than applying for a regular mortgage. Here are the steps:
Find an FHA-approved lender in California and get pre-approved for an FHA loan. Many lenders are FHA-approved, this won’t be difficult to find. The preapproval process involves providing proof of income and a general overview of your credit worthiness.
Find a home that meets FHA property standards and your personal needs. Most homes do not have restrictions against FHA loans, but you need to make sure that the property you’re interested in is FHA-approved.
Make an offer on the home and have it inspected by an FHA-approved appraiser. After your preapproval, you’re ready to submit an offer with the preapproval. If it’s accepted, you will go through inspection and also have the lender send out an appraiser to appraise the home for its value. This is to protect the lender against any discrepancies between market value and loan amount (since they are using the property as collateral)
Complete the loan application and provide all necessary documentation, including proof of income, employment, and residency. Once your offer has been accepted and you are in escrow, you will go through the full underwriting process and provide more documentation and answer questions from the lender.
Close the loan and move into your new home. If everything works out, you will be able to close the transaction and the seller receives the disbursed funds and you will be able to move in to your new home.
Now that you know how the FHA loan process works, let’s talk about some pros and cons of FHA loans in California.
FHA loans Pros and Cons
Pros
Lower down payment requirements than traditional mortgages. Most traditional mortgages require 20% or more in down payment. In California, this could easily be upwards of $100k+!
More flexible credit score requirements. Many lenders want you to have 620+ for conventional mortgages, versus around 580 for FHA mortgages.
Lower closing costs. When getting a loan, there are certain upfront costs that a borrower has to pay, like an origination fee, underwriting fee, etc. In an FHA loan, those closing costs can be lower than traditional mortgages.
Ability to roll closing costs into the loan amount. As we discussed above, closing costs are unavoidable, but in an FHA loan, these costs can be “rolled” into your loan.
Streamlined refinancing options. With an FHA loan, you may have more options to refinance down the road, even into a conventional loan.
Cons
Mortgage insurance premiums (MIP) are required. This is an additional monthly premium you have to pay, on top of your loan payments, in order to compensate the lender for the additional risk.
Compared to Private Mortgage Insurance (PMI), which you have to pay in a conventional loan with <20% down payment, the mortgage insurance premiums on FHA loans can be higher. This means you will pay more monthly for the insurance premiums.
Loan limits may be restrictive and be insufficient to cover the property you want to buy
Property standards are more strict, so you may not have the option to buy every home, some properties are not approved under FHA standards.
FHA Loans in California: Conclusion
FHA loans in California provide a viable option for many low to moderate-income families looking to buy a home. With lower down payment requirements, more flexible credit requirements, and lower closing costs, an FHA loan may be the perfect solution for those struggling to save for a down payment.
However, borrowers should also be aware of the cons, such as mortgage insurance premiums and more stringent property standards.
FAQs:
What do you need to qualify for an FHA loan in California?
Borrowers who want to use the FHA loan programs need to have:
Proof of enough income
A modest credit score of 580 or above
Down payment of at least 3.5%
Debt-to-income ratio of around 50%
How much is a downpayment on a FHA loan in California?
3.5%
The lowest down payment available is 3.5% with a credit score of 580 or higher. Under an FHA loan, your 3.5% down payment can be in the form of a gift from family, or other source. If your credit score is lower, you may still qualify for an FHA program under 10% down payment with a credit score as low as 500.
Is it a good idea to get a FHA loan?
The main advantage of an FHA loan is the minimal down payment required. If you can’t save up 20% down payment for a conventional loan, then having just a 3.5% down payment requirement under the FHA program can be a good way to get into a home. Similarly, if you have a moderate to low credit score, FHA loan programs tend to be more lenient.
If you are a high-income earner, have good credit and don’t have any trouble putting 20% down, a conventional loan may be a better option, depending on how you intend on using your cash.
