FHA Loan

In 1934, the Federal Housing Administration (FHA) was established to improve the housing market and protect lenders from borrower default. This is achieved by insuring home loans that are offered by FHA-approved lenders. The FHA has become the largest insurer of mortgages in the world, having insured over 34 million mortgages since its establishment. Megastar Financial offers exceptional rates and terms on FHA Loans throughout Oakdale, Modesto, Sonora, and Manteca.

FHA loans can fulfill a variety of borrower needs. Loans are available for the purchase of a new home, refinancing existing home loans, financing special renovation projects, and reverse mortgages. First-time homebuyers in particular find FHA loans to be quite advantageous but current homeowners can benefit from these programs as well. Homeowners who currently have an FHA loan will be able to utilize both cash-out refinance and streamline refinance programs. Buyers interested in taking on a fixer upper project can use an FHA 203k loan to finance both the purchase of the home and the cost of repairs in a single home loan.

Relaxed credit requirements and low down payment options are two of the primary reasons why first-time homebuyers find FHA loans attractive. With a down payment of 3.5% and a credit score as low as 580, a first-time homebuyer could potentially qualify for an FHA loan. If a buyer does not have the cash on hand to cover the down payment requirement, this money can even be gifted from family.

FHA Loan Requirements

  • Credit Score – A credit score of 580 or higher is typically required. Those with a credit score between 500 and 579 may still be able to qualify, but down payment requirements may increase up to 10%.
  • Income Requirements – A debt-to-income ratio of 43% or less is required. Ratios as high as 50% may be approved in special circumstances.
  • Down Payment – If credit score requirements are met, a down payment of 3.5% is the minimum needed. Borrowers who do not meet the minimum credit score requirements may be asked to provide a larger down payment.
  • Property Requirements – All properties must meet certain safety, security, and soundness (structural integrity) requirements.

The FHA requires each borrower to pay two different mortgage insurance premiums (MIP) with every FHA loan. The first is an up-front premium of 1.75% of the home’s purchase which will automatically be added to your loan balance. The increase in your total loan amount resulting from the addition of this premium does not affect the calculation of your loan-to-value (LTV) ratio. The second MIP required with an FHA loan is an annual premium that will fall between .70% and 1.05%. Although this MIP is calculated annually, it is paid monthly with each mortgage payment. The annual MIP will be based on a variety of factors such as the total loan amount, LTV ratio, and the length of the mortgage.

The FHA sets maximum loan limits by county which can range from $271,000 up to $636,500 in high-cost areas.

FHA Loan Limits by County.

County Single-Family Two-Family Three-Family Four-Family
San Joaquin $362,250 $463,750 $560,550 $696,650
Stanislaus $299,000 $382,750 $462,650 $575,000
Tuolumne $331,200 $424,000 $512,500 $636,900

At Megastar Financial, we are committed to helping first-time homebuyers as well as current homeowners throughout Oakdale, Modesto, Sonora, and Manteca with all of their FHA loan needs. Contact us today with any questions you may have about California FHA loans or to begin the pre-qualification process!