FHA Loans: Rates, Limits and Purchase Requirements

 

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Refinance FHA Loans: Rates, Limits and Requirements

FHA loans are a government-backed mortgage loan that allows you to purchase a home without having to meet stricter financial requirements. An FHA loan may be available to you if your credit score is lower or you have debt. An FHA loan may be possible even if you have a bankruptcy or another financial problem.

We'll be looking at FHA loans for home, their requirements, and whether they might be the right loan for you.

The 5 Types of FHA Loan
FHA LOAN TYPE WHAT IT IS
Traditional Mortgage A mortgage that funds a primary residence.
Home Equity Conversion Mortgage A (HECM) reverse home loan that allows homeowners ages 62+ to exchange home equity for cash.
203(k) Mortgage Program A home loan that includes extra funds to cover the cost of renovations, repairs and home improvements.
Energy Efficient Mortgage Program A home loan that includes extra funds to pay for energy-efficient home improvements.
Section 245(a) Loan A Graduated Payment Mortgage (GPM) has a low initial monthly payment that increases over time. A Growing Equity Mortgage (GEM) has scheduled increases in monthly principal payments to shorten the home loan term.

 

What is an FHA loan?

FHA loans are insured by the Federal Housing Administration. This agency is under the Department of Housing and Urban Development's jurisdiction. FHA loans are protected by the FHA. This means that your lender is not at risk if you default on your loan.

FHA loans can be obtained with low down payments and lower credit scores, but you will also need to pay mortgage insurance.

  • FHA loans are attractive to first-time buyers because they offer a lower down payment and less stringent credit requirements. However, you don't need to be a first home buyer to qualify. FHA loans offer several benefits:
  • Credit score requirements for loans are lower than those for other types of loans.
  • A lower down payment may be acceptable by your lender.
  • If you have had a bankruptcy or any other financial problems in your past, an FHA loan may still be available to you.
  • FHA Closing Costs can be often rolled into your loan.

Refinance approval is possible

Refinance options that experts recommend are available and can be tailored to suit your budget.

Start my Application

FHA Loan Requirements

To be eligible for an FHA loan, there are some requirements that borrowers must fulfill.

  • An FHA-approved appraiser must appraise the home you are considering.
  • A new FHA loan can only be obtained if your home is your primary residence. This means it cannot be used as an investment property, second home or other type of property.
  • Within 60 days of closing, you must move in to the property.
  • Inspections must be conducted and must include a report on whether the property meets minimum standards.

You will need to meet additional conditions, such as a down payment amount and mortgage insurance. Credit scores, loan limits, income requirements, and credit score are also required. DACA recipients are generally eligible for the FHA requirements for mortgage approval. These factors will be discussed in greater detail below.

FHA Loan Down Payments

A down payment is a percentage or amount of the home's purchase price. It is the initial amount you pay for the home. Your credit score directly affects the minimum down payment that you can make on an FHA loan. Your credit score is a number that ranges from 300 to 850 and it's used as a measure of your creditworthiness.

For credit scores above 580, an FHA loan will require a minimum 3.5% downpayment. Your credit score can range from 500 to 579 if you are able to make a 10% downpayment. For FHA loans, My-Down Payments requires a minimum credit score 580. The mortgage calculator will help you calculate your monthly payments and show you how your down payment affects them.

Cash down payments can also be made using gift assistance for FHA loans. However, they must be documented to prove that the gift assistance is not a loan disguised.

FHA Mortgage Insurance

An FHA loan requires you to pay a premium for mortgage insurance (MIP). FHA lenders are protected by mortgage insurance if you default on your loan.

Most cases, mortgage insurance is paid for the entire life of an FHA loan. Unless you have made a downpayment of at least 10%, then MIP would be on your loan for 11 year. There are two ways FHA loan mortgage insurance can be assessed. An upfront mortgage premium, usually 1.75%, is charged.

FHA borrowers must also pay an annual premium for mortgage insurance. This premium is based on your term, length of mortgage, loan-to-value ratio (LTV), total mortgage amount, and down payment. The annual MIP payment is approximately 0.45% to 1.05% of your base loan amount.

FHA Loans and Credit Score

Credit score is affected by many factors, including:

  • What type of credit you have (credit cards, loans, etc.).
  • Credit utilization is simply the amount of credit you use
  • Paying your bills on time
  • The credit card balance you owe
  • What amount of new and recent credit have you taken on?

A higher score could allow you to qualify for a lower debt-to-income ratio (or DTI). DTI is the percentage of your monthly income that goes towards debt payments. DTI is the sum of your monthly debt payments and your monthly gross income (your income before taxes). This percentage is the amount you see.

Divide your debts (student loans and car loans) to calculate your DTI ratio. Divide your debts (student loans, car loan, etc.) by your monthly income. If your monthly gross income is $8,000 and your debts (car loan and student loans) reach $2,000 per month, your DTI will be 25%.

Your DTI is a measure of how well you are doing financially. Even if your DTI is higher, you may still be eligible for an FHA loan with a higher credit score.

FHA stipulates that your monthly mortgage payment must not exceed 31% of your monthly income. In certain cases, your DTI should not exceed 43% if you are manually underwriting your loan. You may be eligible for a loan with a lower DTI if your credit score is higher than average.

CalHFA FHA Program
CalHFA FHA Program

FHA Loan Limits

An FHA loan has a maximum amount you can borrow. The county where your potential home is located will determine how much you can borrow.

The maximum FHA loan amount for high-cost areas, such as large metropolitan areas, is $970,800 in 2022 according to the Department of Housing and Urban Development. This amount is the same limit as for Alaska and Hawaii at My Down Payment. Lender policies regarding Alaska and Hawaii differ in terms loan limits. The FHA limit may be as low as $420,680 in lower-cost regions. Based on the county property value, loan limits are established. These are the loan limits for single-unit properties. Limits may be higher if you own multiple units.

The FHA mortgage limitations page allows you to view the FHA loan limits for one or several areas. You will also find the median sale price for each area. These are the median prices used to determine loan limits, according HUD.

FHA Interest Rates

FHA interest rates are often more competitive than conventional mortgages. Because the government backing reduces your risk and allows lenders offer lower rates of return, FHA interest rates can be competitive with conventional mortgages. Rates are dependent on many factors including the current interest rates, your income, credit scores, how much you intend to borrow, down payment amount, DTI ratio, and other factors.

FHA Income Requirements

While your eligibility for an FHA loan is not dependent on your income, you must show that you have a stable employment history. You must share pay stubs and W-2s with your lender to prove that you have a steady income. Other examples of verification may be requested by your lender.

Different types of FHA home loans

There are many types of FHA loans. You can only buy a certain type of FHA loan. It also limits how much you can spend. It is important to ensure that you are getting the right loan. You might consider another type if none of these loan types meet your needs.

Let's take a look at some FHA loan types.

Purchase

If you have a median score of 580, you could get into a home with as little as 3.5% down. You will need to maintain a low DTI if your score is that low. My-Down Payment must have a ratio no higher than 38% before your mortgage payment and no greater than 45% after your payment has been included.

You may be eligible for a higher DTI if your median FICO(r), is 620 or greater. Your DTI cannot rise above 57%.

You can buy up to two units with an FHA loan through My-Down Payment

FHA Rate/Term Refinances

You may be in a position where your credit is not good enough to qualify for an FHA rate/term mortgage.

Because of its lower credit requirements, this could be a viable option. This can be used to lower your rate, or change the term. The median FICO(r), or FICO(r) Score, is as low as 580. If your median FICO(r), is 620 or above, you may be able carry more debt into the transaction.

You should be aware that, depending on how much equity you have in the rate/term refinance you may end up paying mortgage insurance premiums over the life of your loan or at least 11 years if you have 10% equity or less. This premium is not included in the upfront premium. You can save money on your rate/term transaction if you are already in an FHA loan. Let's talk about that next!

FHA Streamline

FHA Streamline is a way for FHA loan holders to refinance their loans at a lower rate and with a few additional benefits. You may be eligible to refinance at a lower rate, even if your home is worth less than you owe.

This logic is that a lower monthly payment will make it easier to keep your home and pay off the loan. FHA Streamlines will usually allow you to obtain a lower mortgage insurance rate. The MIP is 0.55% of the total loan amount each year. The upfront MIP is 0.01%.

FHA Streamlines also offers a reduced documentation benefit. Each situation is unique, but if you have an FHA loan you may be eligible for less documentation in the following areas.

  • Reductions in appraisal requirements
  • Limited employment verification
  • Documentation for assets and income is less important

You should also keep these things in mind. We require a median FICO(r), score of 640 if you do not have a mortgage with My-Down. The required median FICO(r), if your loan is with us is 580. Timing is also important. Before you can streamline, you must have made at most six payments on your existing loan. Between the first payment on your current loan and the first on the new streamline, you must wait at least 210 calendar days.

You must also be current with your loan payments. An FHA Streamline loan requires that you have not made any late payments within the last six months, and that there has been one payment that was more than 30 days late.

Cash-Out Refinance

An FHA loan is a good option if you are looking for a cash-out refinance. To be eligible for My-Down Payment, you must have a minimum credit score of at least 620. FHA requires that you have at least 15% equity in your home if you are going to convert your property into cash.

Full documentation is required if you are doing a cash out refinance. This includes verification of income, asset sharing, and employment.

FHA 203(k), Loan

My-Down Payment doesn't offer this loan but an FHA203(k) loan is available that allows you to purchase a home and do renovations with one loan. Although it is possible to make renovations using a 203(k), this loan is not the most cost-effective. You cannot borrow less than $5,000 to get an FHA 203(k). To stay within your loan terms, any home repairs or improvements must be completed within six months.

You can finance eligible projects with a loan of 203(k).

  • Replacing dangerous or old flooring
  • Improvements to your home's "modernization." This could include installing central air or automatic garage doors openers.
  • Replacing roofing, sections of gutters, or plumbing
  • Accessibility improvements made to homes for people with disabilities
  • Remodeling and structural repairs to the foundation of your home

There are two types of 203(k), loans: Limited loans and standard loans. Standard loans are easier to approve, but require more paperwork.

Refinance approval is possible

Refinance options that experts recommend are available and can be tailored to suit your budget.

Start my Application

FHA vs. Conventional Loans

An FHA loan can be replaced by a conventional loan. Conventional mortgages are more difficult to qualify for, but they often come with lower interest rates and mortgage coverage that is capped at 20% equity. This is why many borrowers consider refinancing an FHA loan to a traditional loan. Let's examine the differences between FHA and conventional loans.

  Conventional Mortgage Loan FHA Loan
Minimum Down Payment 3% 3.5%
Loan Terms Loan terms range 8 – 30 years Less options than conventional, but several between 15 – 30 years
Minimum Credit Score To Qualify 620 As low as 500 with a 10% down payment; 580 for everything else
Loan Limits $647,200 in most areas; up to $970,800 in high-cost areas for a single unit $420,680 to $970,800 depending on home location
Mortgage Insurance PMI if down payment is less than 20%; no PMI if down payment is at least 20%. MIP upfront and monthly throughout the life of the loan (or 11 years with a 10% or more down payment); MIP is usually less expensive than PMI
Relative Interest Rate Rates are comparable depending on qualifications Rates are comparable depending on qualifications
Interest Structure May be fixed or variable Fixed or adjustable rate
Who Backs The Loan? Fannie Mae or Freddie Mac might buy the loan Backed by the Federal Housing Administration

 

There is a perfect home waiting for you.

It can be found online at My-Down

Are FHA loans right for YOU?

You should be aware that conventional loans are not government-backed if you're still weighing the pros and cons between an FHA loan and a conventional mortgage loan. Fannie Mae and Freddie Mac are government-sponsored entities that offer conventional loans to lenders.

These loans have stricter requirements. To qualify, you will need to have a higher credit score and lower DTI. FHA loans are not conforming loans. They don't meet Fannie Mae and Freddie Mac's purchase requirements.

There are some additional costs that you need to know, regardless of whether you get an FHA or conventional loan. Closing costs are fees that are associated with the processing and security of your loan. These fees can vary depending on how much your house is worth and what type of mortgage you have, but they should be between 2% and 6% of the home's actual value.

Maintenance should be budgeted at 1% to 3% of the purchase price. It will depend on the age and condition of your house. You are more likely to have things fall apart if your house is older. If your house is older, you might need to save more. If you live in an area that charges homeowners association fees, you will end up paying them on a monthly, or yearly basis.

The bottom line

An FHA loan may be the right loan for you if you are looking for a loan that has lenient credit requirements, lower down payments, and low-to moderate income requirements. My-Down Payment allows you to compare your options online

Make the first step towards obtaining the right mortgage.

  1. Get expert advice online with real interest rates.
  2. I Want To Buy A Home with Jason Whigham - 916-413-3967
  3. I Would Like to Refinance with Jason Whigham - 916-413-3967

Jason Whigham

Jason Whigham, a licensed independent mortgage broker, is licensed. His experience in the mortgage industry for over 10 years will ensure that you have a memorable buying experience. All the top California down payment assistance programs are available to you.

This is a second look at the FHA vs. Conventional Loans breakdown. Call California mortgage broker Jason Whigham 916-413-3967 if you have any questions regarding which program will work best for your family. These are powerful programs when you understand how to apply them. 

 

  Conventional Mortgage Loan FHA Loan
Minimum Down Payment 3% 3.5%
Loan Terms Loan terms range 8 – 30 years Less options than conventional, but several between 15 – 30 years
Minimum Credit Score To Qualify 620 As low as 500 with a 10% down payment; 580 for everything else
Loan Limits $647,200 in most areas; up to $970,800 in high-cost areas for a single unit $420,680 to $970,800 depending on home location
Mortgage Insurance PMI if down payment is less than 20%; no PMI if down payment is at least 20%. MIP upfront and monthly throughout the life of the loan (or 11 years with a 10% or more down payment); MIP is usually less expensive than PMI
Relative Interest Rate Rates are comparable depending on qualifications Rates are comparable depending on qualifications
Interest Structure May be fixed or variable Fixed or adjustable rate
Who Backs The Loan? Fannie Mae or Freddie Mac might buy the loan Backed by the Federal Housing Administration

California FHA Loan | Requirements | 2022 FHA Loan Limits

 
FHA loans provide a great opportunity to buy a home in California.  The FHA (Federal Housing Administration) was created to help the average American have a chance at owning their own home.  One of the reasons that FHA loans are so popular is because of the low down payment option.  FHA loans allow you to purchase a home with only a 3.5% down payment.  There are also less strict requirements to get an FHA loan (compared to conventional loans), such as being able to qualify with a credit score as low as 500.

California FHA Loan Requirements

 

Below are some of the basic requirements to get an FHA loan in California.  If you would like to find out if you are eligible for an FHA loan, we can help match you with a lender.  To have an FHA lender contact you, request a free consultation.

 
  • Credit Score – To qualify for the 3.5% down payment, you must have a 580 credit score or higher. If your credit score is between a 500-579, you still may qualify for an FHA loan, but will be required to put 10% down.
  • Job History – Proof of employment for 2 years is required. It is ok if you have changed jobs, but you need to show consistent employment/income.
  • Financial Statements – You should expect to be required to provide your 2 most recent bank statements, pay stubs, and tax returns.
  • Debt-to-Income – You can not have a debt-to-income ratio higher than 43%.  However, if you have “compensating factors” you might be able to get approved with higher debt levels (a compensating factor could be more money in savings, longer job history, or great credit).
  • Primary Residence – You must occupy the home that you intend to purchase and have it be your primary residence. FHA loans are not available to purchase an investment property, second home, or vacation home.
  • Mortgage Insurance – All FHA loans, regardless of the lender, require two types of mortgage insurance.  This includes the UPMIP (Upfront Mortgage Insurance Premium) and the regular MIP (Mortgage Insurance Premium).  FHA MIP acts similarly to how PMI (Private Mortgage Insurance) on a conventional loan acts.  You can use this FHA loan calculator to estimate your monthly payment and mortgage insurance costs.
  • FHA Loan Limits – FHA loans have maximum lending limits, which are set at the county level. You can view the 2022 FHA loan limits for all counties in California below.

Would you like to see if you qualify for an FHA loan?  We can help match you with a mortgage lender that offers FHA loans in California.  To have an FHA lender contact you, request a free consultation.

2022 California FHA Loan Limits

Get the 2022 FHA loan limits for every county in California:

County Single Family 2 Family 3 Family 4 Family
ALAMEDA $970,800 $1,243,050 $1,502,475 $1,867,275
ALPINE $463,450 $593,300 $717,150 $891,250
AMADOR $420,680 $538,650 $651,050 $809,150
BUTTE $420,680 $538,650 $651,050 $809,150
CALAVERAS $420,680 $538,650 $651,050 $809,150
COLUSA $420,680 $538,650 $651,050 $809,150
CONTRA COSTA $970,800 $1,243,050 $1,502,475 $1,867,275
DEL NORTE $420,680 $538,650 $651,050 $809,150
EL DORADO $675,050 $864,200 $1,044,600 $1,298,200
FRESNO $420,680 $538,650 $651,050 $809,150
GLENN $420,680 $538,650 $651,050 $809,150
HUMBOLDT $420,680 $538,650 $651,050 $809,150
IMPERIAL $420,680 $538,650 $651,050 $809,150
INYO $431,250 $552,050 $667,350 $829,350
KERN $420,680 $538,650 $651,050 $809,150
KINGS $420,680 $538,650 $651,050 $809,150
LAKE $420,680 $538,650 $651,050 $809,150
LASSEN $420,680 $538,650 $651,050 $809,150
LOS ANGELES $970,800 $1,243,050 $1,502,475 $1,867,275
MADERA $420,680 $538,650 $651,050 $809,150
MARIN $970,800 $1,243,050 $1,502,475 $1,867,275
MARIPOSA $420,680 $538,650 $651,050 $809,150
MENDOCINO $506,000 $647,750 $783,000 $973,100
MERCED $420,680 $538,650 $651,050 $809,150
MODOC $420,680 $538,650 $651,050 $809,150
MONO $563,500 $721,400 $872,000 $1,083,650
MONTEREY $854,450 $1,093,850 $1,322,200 $1,643,200
NAPA $897,000 $1,148,350 $1,388,050 $1,725,050
NEVADA $609,500 $780,250 $943,150 $1,172,150
ORANGE $970,800 $1,243,050 $1,502,475 $1,867,275
PLACER $675,050 $864,200 $1,044,600 $1,298,200
PLUMAS $420,680 $538,650 $651,050 $809,150
RIVERSIDE $562,350 $719,900 $870,200 $1,081,450
SACRAMENTO $675,050 $864,200 $1,044,600 $1,298,200
SAN BENITO $970,800 $1,243,050 $1,502,475 $1,867,275
SAN BERNARDINO $562,350 $719,900 $870,200 $1,081,450
SAN DIEGO $879,750 $1,126,250 $1,361,350 $1,691,850
SAN FRANCISCO $970,800 $1,243,050 $1,502,475 $1,867,275
SAN JOAQUIN $563,500 $721,400 $872,000 $1,083,650
SAN LUIS OBISPO $805,000 $1,030,550 $1,245,700 $1,548,100
SAN MATEO $970,800 $1,243,050 $1,502,475 $1,867,275
SANTA BARBARA $783,150 $1,002,600 $1,211,900 $1,506,100
SANTA CLARA $970,800 $1,243,050 $1,502,475 $1,867,275
SANTA CRUZ $970,800 $1,243,050 $1,502,475 $1,867,275
SHASTA $420,680 $538,650 $651,050 $809,150
SIERRA $420,680 $538,650 $651,050 $809,150
SISKIYOU $420,680 $538,650 $651,050 $809,150
SOLANO $614,100 $786,150 $950,300 $1,181,000
SONOMA $764,750 $979,000 $1,183,400 $1,470,700
STANISLAUS $460,000 $588,850 $711,800 $884,600
SUTTER $420,900 $538,800 $651,300 $809,450
TEHAMA $420,680 $538,650 $651,050 $809,150
TRINITY $420,680 $538,650 $651,050 $809,150
TULARE $420,680 $538,650 $651,050 $809,150
TUOLUMNE $420,680 $538,650 $651,050 $809,150
VENTURA $851,000 $1,089,450 $1,316,900 $1,636,550
YOLO $675,050 $864,200 $1,044,600 $1,298,200
YUBA $420,900 $538,800 $651,300 $809,450


 

 

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