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  • Writer's pictureNathan Zarcaro

First Time Buyers May Consider FHA Loans in California


California has long been regarded as one of the hardest states to become a homeowner, in large part due to the really expensive real estate statewide. In fact, California currently ranks as the #7 most expensive state in the country to buy a house.


This makes things like saving up a substantial down payment feel almost impossible.


Thankfully, prospective home buyers in the Golden State, particularly first time buyers, have a number of unique financing options available to help buy houses as soon as possible. Arguably none are more popular than the FHA loan program.


The sunset over the Los Angeles, California skyline


What are FHA loans?


FHA loans are a type of mortgage loan that are insured by the United States Federal Housing Administration (FHA), part of the Department of Housing and Urban Development (HUD). FHA loans are most oftentimes used by first time home buyers due to their flexible down payment requirements.


Many borrowers will find it easier to get approved for an FHA loan than a conventional mortgage through a traditional bank or lender. Because these loans are oftentimes used by riskier Americans, they may carry slightly higher interest rates. Regardless, they can be a great option to help you get into your dream home sooner.


Created by Congress during the Great Depression, FHA loans are offered by participating lenders nationwide.


Also, in exchange for the higher risk that FHA borrowers sometimes present to lenders, you will be assessed two separate mortgage insurance fees:


  1. An upfront mortgage insurance premium equal to 1.75% of your loan amount

  2. An annual and ongoing insurance premium (similar to PMI on Conventional mortgages)


These fees are non-negotiable, and will apply whether you select a fixed 15 or 30 year mortgage.



CA FHA loan requirements


While the FHA loan program is well known to be one of the most flexible home mortgage programs out there, there are still minimum eligibility criteria that you must meet.


To be eligible for an FHA loan in the state of California, you'll need to meet the following requirements:


  • Have a credit score of at least 580. It is possible to get FHA loan approval in California with a lower credit score but it will require you to make a larger down payment.


  • Have a down payment of at least 3.5% of your homes purchase price. With a credit score below 580 you will likely need a 10% down payment.


  • Demonstrate a minimum of two years of steady income and employment. This will be verified via tax returns and bank statements.


  • Be compliant with FHA loan limits in California. More on this in a minute.


  • Your home must also meet FHA minimum property standards, which will be verified via a home appraisal.


Additionally, you'll need to have a debt-to-income ratio below 43%, and the home you are buying must be used as your primary residence. That said, much like the credit score requirement, you may still be approved if you have enough cash savings and liquid assets.


FHA loans in California do not carry a cash reserve requirement, meaning that you don't need to have a lot of cash savings in the bank in order to qualify for your mortgage loan. Those that fail to qualify for an FHA mortgage will likely do so because of a lack of credit history, or recent bankruptcy or foreclosure.



2022 California FHA loan limits


Each state and county has different FHA loan limits based on the prevailing real estate market conditions in the area. These limits are actually established for four different types of properties: single-family, duplexes, tri-plexes, and four-plexes.


In CA, you'll find the following ranges for 2022 (again, these vary by county):


  1. Single-family - $420,680 - $970,800

  2. Duplex - $538,650 - $1,243,050

  3. Tri-plex - $651,050 - $1,502,475

  4. Four-plex - $809,150 - $1,867,275


Next, let's look at the limits for some of CA's most populous counties.



Los Angeles County


Los Angeles County, home to 10 million people, is one of the most expensive counties in the entire United States, has established the following loan limits in 2022:


  1. Single-family - $970,800

  2. Duplex - $1,243,050

  3. Tri-plex - $1,502,475

  4. Four-plex - $1,867,275



San Diego County


  1. Single-family - $879,750

  2. Duplex - $1,126,250

  3. Tri-plex - $1,361,350

  4. Four-plex - $1,691,850



San Francisco County


  1. Single-family - $970,800

  2. Duplex - $1,243,050

  3. Tri-plex - $1,502,475

  4. Four-plex - $1,867,275



California FHA lenders


Remember - you’ll need to use an approved lender in order to take part in the program.


Some of the most popular FHA lenders in California at this time are:


  1. Fremont Bank

  2. Quicken Loans

  3. Trilogy Mortgage


The California Housing Finance Agency (CHFA) compiles a whole list of approved lenders as well.



Applying for an FHA loan in California


Applying for an FHA loan is quite easy to do. If you decide to pursue the program, you'll want to follow these steps to complete your application and closing process.



1. Find a lender that works for you


Use our list above or navigate to the CHFA website in order to find a participating lender. It's important to find a lender and loan officer that you are comfortable working with throughout the mortgage application process.



2. Prepare and complete your application


Once you select a lender to work with, whether it is one listed above or a local lender, your next step will be to complete the application process. As part of the process, you'll likely be asked for lots of financial paperwork, information, and documentation.


Consider this list of documentation as a starting point:


  • Your social security number

  • A minimum two-year track record of stable income and employment

  • Employment verification and W-2 history

  • A number of recent paystubs

  • Housing information about your current home or rental

  • Financial statements for accounts you are using to fund a down payment


After you've fulfilled all of your lender's requirements, your loan officer will be able to verify that you have completed your application. From here, your loan will go through the underwriting process.


If you stay on track, you likely will be ready to close within 30 to 45 days.



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About Nathan Zarcaro

Nathan Zarcaro is the founder of The Student Debt Destroyer and is passionate about personal finance related causes.  A 2018 graduate of Providence College's Liberal Arts Honors Program, Nathan studied Finance, and has worked for industry leaders in both finance and healthcare.  In his free time, Nathan enjoys playing golf and traveling with his wife Brigid.

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