FHA Loans
California
Thousands of California residents buy houses every year. However, most cannot afford to pay cash for those properties, so they take out home loans instead. The most popular loan product on the market is a conventional loan, which is not always accessible to all prospective homebuyers as a financing option. This is especially true for marginalized borrowers, who may face significant hurdles such as low credit scores and little to no savings when attempting to purchase their first property.
If you have a less-than-perfect credit score or limited income, conventional loans could be beyond your means for home financing. Fortunately, there is a type of loan that is more accessible and can help you achieve your dreams of homeownership. If you cannot meet the qualifications needed for conventional loans, then your best option is an FHA loan.
What Are FHA Loans?
California FHA loans have less stringent eligibility criteria than conventional mortgages. These loans are backed by the Federal Housing Administration (FHA), a branch of the US Department of Housing and Urban Development (HUD). Through this initiative, mortgage lenders can relax some of their standards for loan qualification. With the government’s backing, lenders face less risk, enabling more borrowers to purchase homes with FHA loans.
Federally-backed mortgage products, including FHA mortgages, have been an essential way to close the homeownership gap for marginalized communities. About 30% of all FHA products go to BIPOC individuals, which is much higher than for conventional mortgages; in the last three years, a quarter of a million Black homeowners have achieved their dreams thanks to HUD.
The HUD has also been an essential ally in supporting LGBTQ+ individuals, amending the Fair Housing Act so that lenders cannot discriminate on a person based on their actual or perceived gender or sexual orientation. Their advocacy spans all the way back to 2012, before gay marriage was legalized nationwide, when they insisted that FHA lenders cannot use gender identity or sexual orientation as a reason for mortgage denial.
An FHA loan is ideal for a borrower with credit score limits, fewer funds for a down payment, or more outstanding debts. If you cannot afford the purchase price of a home because of the stricter requirements of a conventional loan, then California FHA loans are the solution.
Benefits of Federal Housing Administration Loans in California
Why pursue an FHA loan rather than a conventional loan? The answer depends on your financial situation. Conventional loans are more challenging to qualify for, but you can still purchase a home if you meet the requirements for FHA loans. Here are some of the benefits of the FHA loan program in California.
Small Down Payment Options
With a lower down payment requirement of just 3.5% for those with a score of 580 or more, the upfront cost of buying a house is significantly reduced. Buyers with a score between 500 and 579 will need to provide 10% upfront.
Given that the average home sales price in California is $784,989 and continues to rise precipitously every year, even a well-qualified borrower will need to put down about $27,500 on their home. This can feel impossible, especially for marginalized individuals who already make less than their peers; for example, LGBTQ+ workers make 89 cents on the dollar to that of their cishet peers, and the pay disparity is even higher for people of color. The average Black woman makes just 66% of what a White man does, and pay disparities begin as early as 16 years old for people of color.
Thankfully, Pride Lending is here to help you find funding that allows you to pay this significant investment. We’ll connect you to local, state, and national down payment assistance programs that offer grants and second loans for your needs.
One such example in California is the MyHome Assistance Program from the California Housing Finance Agency, which provides deferred-payment second liens up to the lesser of 3.5% of the purchase price or appraised value. This would entirely cover the down payment for a borrower with a 580 score or better, and you can always add your own funds to help secure a better interest rate and lower your monthly mortgage payment.
Competitive Interest Rates
If you are interested in an FHA loan in Texas, then you should understand the benefits of this option. Here are a few advantages Texas homebuyers will experience with FHA loans.
Flexible Underwriting Guidelines
Underwriting is the process of evaluating a borrower’s risk. Since these borrowers are in more precarious financial situations, most applications are underwritten manually. What loan officers look for during the underwriting process is usually more flexible with FHA loans, whereas a conventional product would have more strict requirements.
Assumable Mortgages (Buyer Can Take over Existing FHA Loan)
An FHA mortgage on a house in Texas may be eligible as an assumable mortgage for a new buyer. Essentially, instead of taking out a new loan to buy a house, you take over the debt and payments for an existing FHA mortgage and become the new owner of the house. This is an excellent option for people with spotty credit reports.
FHA Loan Requirements
Every lender will have their own requirements for the FHA program. However, the typical Texas FHA loan requirements are as follows.
Minimum Credit Score
To qualify for an FHA home loan, you should aim for a credit score of 580 or better, as they will allow you to access the best rates and lowest upfront expenses. Lenders approving FHA mortgages may allow for scores as low as 500 if they offer at least 10% upfront.
Down Payment Amount
As mentioned previously, the minimum down payment for an FHA mortgage is 3.5% for those with a score of 580 or greater; those with scores between 500 and 579 must make a minimum payment of 10%. Although this is a low down payment and makes homes more affordable, it also means you would pay a private mortgage insurance premium (MIP).
We understand that even 3.5% can feel like a challenge depending on your personal finances, but Pride Lending is here to assist. We’ll connect you with local, state, and nationwide down payment assistance programs that can provide you with grants or second liens.
Numerous organizations in Texas offer assistance for those who can’t afford their upfront costs. For example, you may choose DPA programs from the Texas State Affordable Housing Corporation (TSAHC) or the Texas Homebuyer Program from the Texas Department of Housing and Community Affairs.
Debt-To-Income Ratio (DTI)
DTI compares your monthly debt payments to your gross monthly income. You divide your debt total by the gross income each month and then multiply by 100 to get a percentage. The typical lender will require a maximum DTI of 43%. Lenders can make an exception to a maximum DTI of 57% if the borrower has a good credit profile and provides a larger down payment.
Property Standards
Since the government is backing this mortgage, approval for the property type is needed before the loan is given. An appraisal will ensure the property is safe to occupy and up to standards for liveable conditions.
Additionally, this home must become your primary residence to qualify. However, it is possible to purchase a property with up to 4 units and rent up to 3 units, as long as one is used as your permanent residence.
Mortgage Insurance Premiums (MIP)
Everyone, no matter how much they put down, needs to pay the upfront mortgage insurance premium, which is 1.75% of the loan amount. You’ll also have to pay ongoing annual mortgage insurance premiums, though this may not be for the entire length of the loan.
If you make a 10% down payment or more, the MIP will be removed after 11 years, but if you make less than this, you’ll have MIP for the entirety of the loan. It’s also possible to refinance into a conventional loan once you have 20% equity, which would remove mortgage insurance.
California FHA Loan Limits
FHA loan limits set a maximum amount for borrowing based on each real estate market. For example, the FHA loan limit in urban counties is usually not the same as in rural areas because of the varying prices of homes. The FHA loan limits also change based on the type of home you buy, such as single or multi-family homes. Here are the loan limits for single-family homes across a few of California’s largest counties.
Los Angeles County – $1,149,825
San Diego County – $1,006,250
Orange County – $1,149,825
Riverside County – $644,000
San Bernardino County – $644,000 [2]
The FHA Loan Process
The FHA loan process involves several key actions, from determining your eligibility to closing on your new home. Here are the steps you will follow to acquire your FHA mortgage.
See if you meet the requirements
Evaluate if you have a credit score of 580 or greater, a DTI of 43% or lower, and that you meet the down payment requirement of 3.5%. You may still qualify if you have a score as low as 500 or a DTI of 57%, but this may limit your choices.
Contact Pride Lending
When you reach out to us, we’ll begin your loan consultation by reviewing your options with you. FHA-approved lenders are qualified to give out these mortgages, and finding the right loan partner is the key to a positive homebuying experience.
Apply and get pre-approved
Pre-approval will prepare you for a smoother buying experience and help you understand what you can afford. You will need many documents for your application, including tax returns, paychecks, and bank statements.
Shop for the perfect home
Once you’ve been preapproved, we’ll discuss your budget with you and send your preapproval letter to your realtor. You can then begin shopping for the right property in your area.
Submit an offer
You and your realtor will decide on a competitive bid and submit the letter to the seller.
Complete the application
The application is called the Uniform Residential Loan Application and will include many of the same details you needed for preapproval; however, it will also include property details, which the lender will use to determine whether the property meets their standards.
Offer acceptance
The seller will decide if they find your offer acceptable. If they do, then you’ll sign a purchase contract that tentatively agrees to buying the home.
Inspection
While not strictly necessary for the program, the lender will likely require you to have the property inspected, ensuring that there are no significant issues.
Conditions
If you’re happy with the inspection results, then our team at Pride Lending will walk you through the sales contract and make sure everything is correct.
Underwriting
We will submit all the details that you have provided to the lender, whose underwriting team will now take over. They will carefully investigate each facet of the loan and ensure that there are no issues with you or the home.
Appraisal
An approved appraiser will evaluate the property to determine if it is a fair value, is safe to live in, and meets the property requirements for FHA home loans.
Loan approval
Once the appraisal is complete and the details of the loan have been reviewed, the lender will proceed with the final approval of your loan so that you can close on the transaction. We will schedule the closing date with you and the title company will send the information regarding how to pay the upfront expenses.
Close on the home
All the documents will be signed, the title will be transferred to you, the closing costs will be paid, and you will become the new owner of that house with the help of an FHA home loan.
Why Choose Pride Lending for Your Texas FHA Loan?
When you need the right team on your side to navigate the Texas FHA program, a loan officer from Pride Lending is ready to help. We serve all our clients with the same care, offering excellent customer service and a streamlined application process to make homeownership affordable and accessible.
Our team is composed of allies and members of minority communities, including LGBTQ+ and BIPOC individuals. We’re here to help everyone, no matter their identity, and serve as an advocate for those who may feel underserved by the mortgage industry.
First-time homebuyers and repeat buyers alike can work with Pride Lending whether they want to buy a single-family home or learn about an FHA reverse mortgage. Call us today at 725-231-0192 to learn more about Texas FHA loans.