FHA Loans California

FHA loans do not have a minimum income requirement, but they look at your credit score to determine eligibility. FHA lenders, like credit unions or private mortgage lenders, typically want a minimum credit score of 580. You can have a credit score as low as 500, but you must provide a higher down payment.

Before applying, be sure to work on your credit score so that it’s as attractive as possible. The Federal Trade Commission has a helpful guide explaining how you can start to repair your credit score to be approved for better interest rates.

One of the reasons that borrowers love FHA loans is that you can provide a smaller down payment, approximately 3.5%, if you have a credit score of 580 or above. If you’re below this threshold, you will have to provide a 10% down payment, and you will also find it harder to get FHA lenders willing to work with you.

Another important thing to note is that if you use gift funds as down payment assistance, you will need to provide a letter proving that it’s not a loan.

Another crucial component is your credit history, determined by running a credit report and looking at your pay stubs. This is to check your debt-to-income (DTI), which shows how much of your gross income goes to other debt. For an FHA home loan, you can have a slightly higher debt-to-income ratio than you can for conventional loans, but you should strive to have no more than 45% of your paycheck going to monthly payments on credit cards or other loans.

As with other loans, you will need to pay closing costs, which reimburse the professionals who helped organize all of the paperwork involved in a loan. These are typically about 3% to 6% of the overall loan value.

A unique component of the FHA loan program is the upfront mortgage insurance premium (UMIP), typically about 1.75% of the loan amount. This insures the lender in case you cannot make your mortgage payments.

It is important to note that FHA loans also have some stipulations about what property type you can purchase. Generally, factory-built housing, like mobile homes, is usually excluded from FHA loans. You will have to go through an FHA appraisal to identify that the home value matches the purchase price.

Particularly critical in California is the FHA loan limit, which is below that for conventional mortgages. This limit is often lower than the median sales price for the given area — for example, San Francisco has a median price of $1,730,000, much higher than the FHA loan limit of $1,149,825. Homes in Orange County, home of Anaheim and Buena Park, have a median sales price of $1,200,000, also higher than the FHA limit.

Still, there are some pockets of affordability. Quirky little Fresno, located in the eponymous Fresno County, has a median sales price of $364,362, which is well below the FHA limit of $498,257. The cheapest area in California is Clearlake, with a median home price of $220,888. This is half of the limit for Lake County, creating endless possibilities for those who are willing to move a few hours away from major cities like San Francisco.

Other affordable areas include Bakersfield in the Central Valley, with a median price of $380,100, and Eureka in the northern area of Humboldt, where housing costs $420,736 on average.

You should work with a mortgage professional and a realtor to determine how much you can afford to borrow and where you can purchase a home within the loan limit.