Homebuyers have several mortgage choices when it comes to financing their home. One of the most popular mortgages today is FHA loans. The FHA loans came into being with the goal of increasing homeownership by providing buyers with a cheaper and more convenient alternative to most traditional mortgage loans and by simplifying the purchasing process.
First, it should be noted that FHA does not actually lend homebuyers money directly. FHA only insures the loan with approved lenders and banks against loss. FHA loans are made to homebuyers through FHA approved lenders. FHA loans are meant to help people by offering lower mandatory down payments. This is great for first time home owners that have minimum savings.
The FHA loan program was initially developed in the 1930s as a way to help the housing market gain traction and it has helped millions of buyers purchase a home that would have otherwise not qualified for traditional conventional financing.
Here are some just some of the benefits of choosing a government-backed FHA loan:
- Low Down Payment: The main advantage of an FHA loan is the low down payment. The down payment for FHA loans starts at 3.5%, which works out to be a very cost-effective option for first-time homeowners. The especially true considering most conventional loans require 5-10% down payment. The loan is also very flexible because the down payment can come in the form of a gift from family.
- No Hidden Fees: Just like all government-backed mortgages, FHA loans are a very transparent option for homeowners. Unlike subprime home loans which led to numerous issues in the year past, the FHA loan does not have any hidden charges, excess fees or sudden spikes in interest rate. Interest rates for FHA loans remain some of the lowest available today.
- No Saving Or Reserves Required: At the time of closing, most traditional mortgage loans require the applicant to show that they have adequate cash reserves on hand. This usually is a deterrent for most middle-class homeowners, as they are required to show thousands in savings in addition to the money that is required for closing costs and down payment. However, the FHA loan has no such requirement.
- Credit Flexibility: FHA permits lower credit scores when compared to standard conventional loans. Many borrowers can get approved with credit scores as low as 580, sometimes even lower with larger down payment amounts.
- Greater Borrowing Potential: The FHA loan is very liberal as it provides the applicant with a greater flexibility in regards to debt-to-income ratios. Using this benefit to your advantage, some buyers can qualify with spending nearly half their gross income on all your monthly obligations.
- Readily Available: FHA loans are readily available to qualified buyers nationwide. The program is not exclusive for just first time home buyers, any qualified buyer can obtain an FHA loan.
- Approved Properties: Nearly all single-family homes, townhomes and many condos are eligible for FHA financing.
- Great Refinance Options: FHA also offers rate & term reduction refinance along with cash out refinance programs.
FHA loans do have limits depending on the location of the property. Some counties are classified as “high cost” therefore the loan limits are greater. Example for California: Riverside County FHA loan limit is currently set to $431,250. However, more expensive locations like Sonoma County have limits up to $704,950.
Note: these limits apply to one-unit properties, multi-unit properties are higher, please find the complete list of California FHA Loan Limits Here.
Buyers in California can also learn more about select down payment assistance programs in the video below. Please contact us today by calling the number above, or just submit the Quick Form on this page. The Modern Lending Team is ready to assist you 7 days a week.
Modern Lending is proud to serve multiple states including California: Temecula, Riverside, Sacramento, Orange County, Los Angeles, San Diego, San Francisco.