What is a California Federal Housing Loan (FHA Loan)?
An FHA loan is a mortgage insured by the Federal Housing Administration (FHA) and issued by an FHA-approved lender. It’s designed for low-to-moderate-income borrowers, FHA loans require a lower minimum down payments and lower credit scores than many conventional loans. You can borrow 96.5% of the value of your home, if you have a credit score of at least 580, then you will only need to make a down payment of 3.5%.
FHA Loans are a great option when you have less than 20% down payment.
To obtain mortgage insurance from the Federal Housing Administration, you are required to pay two types of mortgage insurance premiums. An upfront mortgage insurance premium (UFMIP) equal to 1.75 percent of the base loan amount at closing is required, and is normally rolled into the total loan amount by the lender and paid to FHA on the borrower’s behalf or paid at the time of closing. There is also a monthly mortgage insurance premium (MIP) which varies based on the loan-to-value ratio (LTV), loan amount and length of the loan.
How do I qualify for an FHA Loan?
- If your FICO Score is 580 or more then you only need a down payment of 3.5%
- If your FICO Score is between 500-579, then your down payment will be 10%
- Loan debt ratio is 31/43%, but may go up to 40/50%
- Your debt to income ratio should be 43% or less, meaning your debt should not exceed 43% of your monthly income, although it is possible to go up to 50%
- Your monthly housing payment (mortgage payment-to-income-ratio) should not exceed 31% of your gross monthly income, although there are exceptions to go up to 40%,with compensating factors such as no other debt, residual income, cash reserves, etc
- Must be your primary residence
- You must have proof of employment and steady income or have worked for the same employer for the past two years.
- Mortgage Insurance Premium is required
California FHA Loan Limits 2020
FHA Employment Requirements
- Lender must verify 2 years of your work history, if you do not have 2 years of history with your current employer then the lender will contact and verify your previous employer
- Employment can be from different employers and different jobs
- If you have a month or more gap of not working, then you just need to provide a letter of explanation
FHA two year history can be waived with exceptions
- If you were employed in the same link of work, but then decided to become self-employed
- Full-time student
- Active military
- Medical condition
- Staying at home to raise children
Can an FHA Loan be used for a rental or investment property?
It can’t be used to finance a property for the sole purpose to rent out. The FHA will not insure a loan if it is not owner occupied for at least a year. To establish occupancy you lust live in the property for at least one year, then you can receive rental income.
