How To Qualify For FHA Loan in Capitola California (Santa Cruz County)

How To Qualify For FHA Loan in Capitola California (Santa Cruz County)

Looking for an FHA Loan in Capitola California?

FHA loans have been a flexible home loan program that’s been around since the 1930’s and is protected by the Federal Housing Administration (FHA). Popular with first-time home-buyers, FHA home loans require flexible minimum credit scores and down payments than many conventional loans.

How Does an FHA Loan Work?

Borrowers can qualify for an FHA loan with a down payment as little as 3.5% for a credit score of 580 or higher. The borrower’s credit rating can be between 500 – 579 if a 10% down payment is made. It’s important to remember though, that the lower the credit score, the higher the interest borrowers will receive. Something also worth noting is that the FHA loan limits affect your FHA mortgage insurance – its just part of the FHA loan requirements.

The FHA program was created in response to the increase of foreclosures and defaults that happened in 1930s; to provide mortgage companies with sufficient insurance; and to help spark the housing market by making mortgages highly accessible and affordable for home-buyers with less than stellar credit or a low down payment due to FHA mortgage limits in Capitola, California. Essentially, the federal government insures loans for FHA-approved lenders in order to reduce their risk of loss if a borrower defaults on their home loan payments.

Because of that insurance, mortgage companies can, and do, offer FHA home loans at beneficial mortgage rates and with less stringent and more flexible qualification requirements. The FHA is an agency within the U.S. Department of Housing and Urban Development.


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Benefits of FHA Loans: Low Down Payments and Less Strict Credit Score Requirements

FHA Loan in Capitola

Typically an FHA loan in Capitola is one of the easiest types of mortgage loans to qualify for because it requires a low down payment and you can have less-than-perfect credit. For FHA loans, down payment of 3.5 percent is required for maximum financing. Borrowers with credit scores as low as 500 can qualify for an FHA mortgage.

Borrowers who cannot afford a 20 percent down payment, have a lower credit score, or can’t get approved for private mortgage insurance should look into whether an FHA loan is the popular option for their personal circumstances.

Another advantage of an FHA mortgage is that it’s an assumable home loan which means if you want to sell your house, the buyer can “assume” the loan you have. People who have low or bad credit, have undergone a bankruptcy or have been foreclosed upon may be able to still qualify for an FHA loan.

FHA Allows a 3.5% Down-Payment

For today’s home buyers, there are only a few mortgage options which allow for down-payments of five percent or less for residents of Santa Cruz County. The FHA is one of them.

With an FHA mortgage, you can make a down-payment as small as 3.5%. This benefits home buyers who don’t have a lot of money saved up for down-payment; and, home buyers who would rather save money for moving costs, emergency funds, or other needs.

FHA Allows 100% Gift Funds

The FHA is vigorous with respect to gifts for down-payment. Very few mortgage loan programs will allow your entire down-payment for a home to come from a gift. The FHA will.

Via the FHA, your entire 3.5% down-payment can be a gift from parents or another family member, an employer, an approved charitable group, or a government home-buyer program. If you’re using a down-payment gift, though, you’ll need to follow the process.

The FHA Hybrid provides for an initial fixed interest rate for a period of three or five years, and then readjusts annually after the initial fixed period. The 3/1 and 5/1 FHA Hybrid products make it possible for up to a 1% annual interest rate adjustment after the initial fixed interest rate period, and a 5% interest rate cap over the life of the loan. The new payment after an adjustment will be calculated on the current principal balance at the time of the adjustment. This insures that the payment adjustment will be very little even on a worst case rate change.

About Capitola California

The original settlement now known as Capitola grew out of what was then called Soquel Landing. Soquel Landing got its name from a wharf located at the mouth of Soquel Creek. This wharf, which dates back to the 1850s, served as an outlet for the produce and lumber grown in the interior. In 1865, Captain John Pope Davenport, a whaleman at Monterey, moved his operations to be near the wharf. Unable to capture any whales, he moved his operations the following year to Point Año Nuevo.

In 1869, Frederick A. Hihn, who owned the property in the vicinity of the wharf, decided to develop it as a seaside resort. At first he leased the area to Samuel A. Hall and the area became known as Camp Capitola. Most authorities believe that it was Hihn who chose the name of Capitola, but they are unsure as to why he did so. Several possibilities have been asserted, one being that it was named for the heroine of The Hidden Hand, a novel by the popular author E.D.E.N. Southworth, favored by Hall’s daughter Lulu. Capitola is known as the oldest beach resort on the West Coast.

In the summer of 1961 hundreds of birds attacked the town. Most of the birds were sooty shearwaters, a normally non-aggressive species that rarely comes to shore. Alfred Hitchcock was a regular visitor to nearby Santa Cruz and read about this episode. He went on to direct a film—The Birds—based on the idea of hundreds of birds attacking humans. The reason for this attack remained unknown for over 25 years until it was discovered that the birds had been affected by domoic acid, a toxin produced by red algae.

The Capitola Classic was a skateboarding event held in Capitola village in the late 1970s and early 1980s. The Capitola Classic was known in skating circles for its annual downhill race, which was a head-to-head speed competition that drew top names in the sport, many local as well as international, including Santa Cruz, California local John Hutson, who held the world speed record for skateboarding at 53.45 mph and dominated the event each year.
Starting in 2009 efforts were made to revive the event.

On March 24, 2011, a drainage pipe burst following heavy rains, sending a surge of water through the historic village area.
Two days later cleanup operations were interrupted when the area was flooded again.

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Who Are FHA Loans For?

FHA loans are offered to low-income individuals who have credit scores as low as 500. Individuals with a credit score between 500-579 can obtain an FHA loan with a down payment of 10%; individuals with a credit score higher than 580 can get an FHA loan with as little as 3.5% down. The Federal Housing Administration does not lend the borrower the money to take on a mortgage or to buy the house. Rather, the borrower pays a monthly or yearly mortgage insurance premium to the FHA to insure the loan which the lending institution issues to him or her. In case of default, the lender’s financial risk is minimized since the FHA would step in to cover the payments.

Having no credit history is not a problem with an FHA loan for Santa Cruz County. Instead of your credit report, the lender may look at other payment-history records, such as utility and rent payments.

Even people who have gone through bankruptcy and foreclosure may still qualify for an FHA loan. However, the lower the credit score and the lower the down payment, the higher the interest rate.


(Or call 213-474-7389 to ask a local lender anything!)

Kinds Of FHA Mortgage Loans

In addition to its popular FHA loan, the FHA likewise insures other loan programs used by personal loan providers. Here’s a look at each of them.

  • FHA 203( k) loans – These FHA loans assist homebuyers purchase a home– and remodel it– all with a single home loan. Homeowners can likewise use the program to refinance their current mortgage and add the expense of redesigning jobs into the new loan. FHA 203( k) loans come in 2 types:
    • The limited 203( k) has a much easier application process, and the repairs or improvements should total $35,000 or less.
    • The standard 203( k) needs additional documentation and applies to enhancements costing more than $5,000, but the total value of the home need to still fall within the FHA mortgage limit for the location.
  • House Equity Conversion Mortgage, or HECM – A HECM is a popular kind of reverse home mortgage and is also guaranteed by the FHA. A HECM allows older homeowners (aged 62 and up) with substantial equity or those who own their homes outright to withdraw a part of their house’s equity. The amount that will be readily available for withdrawal differs by customer and depends upon the age of the youngest customer or eligible non-borrowing spouse, existing interest rates and the lower of the house’s appraised worth or the HECM FHA home loan limit or list prices.
  • FHA Energy Efficient Mortgage (EEM) program – Energy efficient home loans backed by the FHA enable property buyers to buy houses that are already energy efficient, such as EnergyStar-certified structures. Or they can be utilized to buy and renovate older homes with energy-efficient, or “green,” updates and roll the expenses of the upgrades into the loan without a larger down payment.
  • FHA Section 245( a) loan – Also called the Graduated Payment Mortgage, this program is geared at borrowers whose earnings will increase over time. You start out with smaller sized month-to-month payments that slowly go up. 5 specific plans are offered: three plans that allow five years of increasing payments at 2.5 percent, 5 percent and 7.5 percent yearly. Two other plans set payment boosts over 10 years at 2 percent and 3 percent each year.

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FHA Loan Limits for 2022

For 2019, the flooring limitation for FHA loans in most of the country is $314,827, up from $294,515 in 2018. For high-cost locations, the ceiling is $726,525, up from $679,650 a year earlier. These limits are referred to as “ceilings” and “floorings” that FHA will insure. FHA updates restrict quantities each year in action to changing house rates.

FHA is needed by law to adjust its amounts based upon the loan limitations set by the Federal Housing Finance Agency, or FHFA, for traditional mortgages guaranteed or owned by Fannie Mae and Freddie Mac. Ceiling and floor limitations differ according to the cost of living in a particular location, and can be different from one county to the next. Locations with a greater expense of living will have higher limits, and vice versa. Unique exceptions are made for real estate in Alaska, Hawaii, Guam and the Virgin Islands, where house building is more pricey.

FHA Loan Relief

Loan servicers can provide some flexibility on FHA loan requirements to those who have suffered a severe financial difficulty or are having a hard time to make their payments.

That relief might be in the form of a short-lived duration of forbearance, a loan adjustment that would lower the interest rate, extend the payback period, or postpone part of the loan balance at no interest.

The FHA Hybrid Adjustable Rate

FHA administers a number of programs, based on Section 203(b), that have special features. One of these programs, Section 251, insures adjustable rate mortgages (ARMs) which, particularly during periods when interest rates are low, enable borrowers to obtain mortgage financing that is more affordable by virtue of its lower initial interest rate. This interest rate is adjusted annually, based on market indices approved by FHA, and thus may increase or decrease over the term of the loan. In 2006 FHA received approval to allow hybrid ARMs, in which the interest is fixed for the first 3 or 5 years, and is then adjusted annually according to market conditions and indices.

How do you Qualify for an FHA Loan in Capitola CA?

The FHA makes it relatively easy to qualify for a mortgage loan. Again, the government guarantees the loan, so mortgage companies are more willing to approve mortgage loans. However, mortgage lenders can (and do) set standards that can be stricter than FHA requirements. If you’re having trouble with one FHA approved lender near Capitola CA, you might have better luck with choosing another.

Note: you never know until you submit an app. Even if you think you won’t qualify after reading this page, talk with an FHA approved lender in Capitola to find out for sure.

Income limits: there are none. You’ll need enough to show that you can repay the mortgage but these loans are geared towards lower income applicants. If you’re fortunate enough to have a high income, you aren’t disqualified like you might be with certain first-time home buyer programs.

FHA Closing Costs

While FHA defines which closing costs are allowable as charges to the borrower, the specific costs and amounts that are deemed reasonable and customary are determined by each local FHA office.

FHA Debt Ratios

In order to prevent home-buyers from getting into a home they cannot afford, FHA requirements have been set in place requiring borrowers and/or their spouse to qualify according to set debt to income ratios.

FHA Credit Issues

An FHA loan applicant’s past credit performance that proves good credit history and a solid track record of timely payments will likely be eligible for the home loan.

How to Find FHA Lenders

Customers get their home loans from FHA-approved lenders in Capitola instead of the FHA itself, which just guarantees the loans. FHA-approved lenders can have various rates and costs, even for the same loan.

FHA loans are readily available through numerous sources– from the greatest banks and cooperative credit union to community banks and independent home mortgage loan providers. Costs, services and underwriting standards differ amongst lending institutions or home loan brokers, so it’s essential to shop around.

Discover more about how to find low FHA home mortgage lender.


(Or call 213-474-7389 to ask a local lender anything!)