How To Qualify For FHA Loan in East Palo Alto California (San Mateo County)
Looking for an FHA Loan in East Palo Alto California?
An FHA loan is a home loan that’s insured by the Federal Housing Administration (FHA). They are popular especially among first time home buyers because they allow down payments of 3.5% for credit scores of 580+.
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 FICO score 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 rise of foreclosures and defaults that happened in 1930s; to provide mortgage companies with adequate insurance; and to help grow the housing market by making mortgages more accessible and attainable for people with less than perfect credit or a low down payment due to FHA mortgage limits in East Palo Alto, California. Essentially, the federal government insures loans for FHA-approved mortgage 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 mortgages at beneficial 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.
(Or call 213-474-7389 to ask a local lender anything!)
Benefits of FHA Loans: Low Down Payments and Less Strict Credit Score Requirements
Typically an FHA loan in East Palo Alto 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 loan is that it’s an assumable mortgage 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 San Mateo 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 home loan programs will permit 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 relative, 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 procedure.
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 time frame. The 3/1 and 5/1 FHA Hybrid products permit 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 East Palo Alto California
The Ohlone tribe of Native Americans inhabited this area at least by 1500 to 1000 BC. One tumulus was discovered in 1951 during development of the University Village subdivision near today’s Costaño School. After a year-long excavation of 60 graves and 3,000 artifacts, researchers concluded Native Americans had utilized the area as a cemetery and camp, rather than as a permanent settlement. In later years another mound was found near Willow Road and the railroad right-of-way.
From the 1850s through the 1940s, the area which was to become East Palo Alto went through many changes. In 1849, Isaiah Churchill Woods (1825–1880) attempted to make the area around what is now Cooley Landing in the northeast of the current city a major shipping town and named the area Ravenswood. In 1868, after Woods’ investments failed he sold the wharf to Lester Phillip Cooley (1837–1882), who leased the land to the brick factory Hunter and Schakleford. When the brick factory left the landing in 1884, the land around the landing was reverted to a ranch.
With the outbreak of World War I, the north side of East Palo Alto became a military training ground, of which only the Veterans Administration Hospital in Menlo Park still exists (now as part of the VA Sierra Pacific Network). In the 1940s, East Palo Alto was a farming community with many Japanese residents. During the war, the Japanese were forced out, many to relocation centers, and did not return after the war. In the 1950s the farms were built over with cheap housing and many African-American families moved in.
The current demographics of East Palo Alto are largely a result of redlining housing policies and events that occurred in the 1950s. In particular, in 1954 the then-president of the California Real Estate Association, Floyd Lowe, implemented a strategy that turned a neighborhood on the East side of Palo Alto from predominantly white to predominantly black in a very short amount of time. He did this by “blockbusting,” which is a strategy that was employed all over the country to similar results. Blockbusting involves instilling panic in white neighborhoods by warning of a “Negro invasion” when a black family considers purchasing a house in an area, in order to produce white flight and an ensuing drop in property values, which can then be purchased at a heavy discount and sold or rented to African Americans for a profit. In 1954, Lowe alerted the neighborhood that a “Negro invasion” was imminent, and as intended, white flight ensued. Lowe profited due to the low prices at which the white families fleeing were willing to sell their homes, and within a few years, the demographics of the area had flipped. As white-owned businesses fled the area, it became poorer and overcrowded – a legacy that has persisted. This segregationist act was never questioned by the government, and it led to many of the demographic and socioeconomic differences that exist between Palo Alto and East Palo Alto today.
These differences in demographics and wealth perversely accelerated with the introduction of the Community Reinvestment Act of 1977, which banned redlining. Home prices doubled by 1979, and many of the more educated and upwardly mobile African Americans took advantage of their newfound freedom to move into wealthier communities with more amenities, leaving the remaining community even poorer and with less access to home ownership than had been the case before the Act.
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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 home loan 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 San Mateo 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!)
Types of FHA Loans
In addition to its popular FHA loan, the FHA likewise guarantees other loan programs provided by personal lending institutions. Here’s a take a look at each of them.
- FHA 203( k) loans – These FHA loans help homebuyers buy a home– and renovate it– all with a single mortgage. Property owners can also use the program to re-finance their existing mortgage and include the expense of renovating projects into the new loan. FHA 203( k) loans can be found in two types:
- The minimal 203( k) has a much easier application procedure, and the repair work or enhancements should amount to $35,000 or less.
- The standard 203( k) requires additional documentation and applies to improvements costing more than $5,000, but the overall worth of the residential or commercial property need to still fall within the FHA home loan limit for the area.
- Home Equity Conversion Mortgage, or HECM – A HECM is a popular kind of reverse home mortgage and is also insured by the FHA. A HECM enables older house owners (aged 62 and up) with considerable equity or those who own their houses outright to withdraw a part of their house’s equity. The amount that will be readily available for withdrawal differs by customer and depends on the age of the youngest borrower or eligible non-borrowing partner, current interest rates and the lower of the house’s evaluated value or the HECM FHA home loan limitation or prices.
- FHA Energy Efficient Mortgage (EEM) program – Energy effective home loans backed by the FHA allow property buyers to acquire houses that are currently energy efficient, such as EnergyStar-certified structures. Or they can be utilized to buy and remodel older homes with energy-efficient, or “green,” updates and roll the expenses of the upgrades into the loan without a bigger down payment.
- FHA Section 245( a) loan – Also known as the Graduated Payment Mortgage, this program is geared at customers whose earnings will increase gradually. You start with smaller sized regular monthly payments that gradually increase. Five particular plans are readily available: 3 strategies that permit 5 years of increasing payments at 2.5 percent, 5 percent and 7.5 percent every year. 2 other strategies set payment increases over 10 years at 2 percent and 3 percent every year.
(Or call 213-474-7389 to ask a local lender anything!)
FHA Loan Limits for 2023
For 2019, the floor limit for FHA loans in most of the country is $314,827, up from $294,515 in 2018. For high-cost areas, the ceiling is $726,525, up from $679,650 a year ago. These limitations are described as “ceilings” and “floorings” that FHA will guarantee. FHA updates limit amounts each year in response to changing home costs.
FHA is needed by law to adjust its amounts based upon the loan limits set by the Federal Housing Finance Agency, or FHFA, for standard mortgages ensured or owned by Fannie Mae and Freddie Mac. Ceiling and floor limitations vary according to the expense of living in a particular area, and can be various from one county to the next. Locations with a greater cost of living will have higher limitations, and vice versa. Unique exceptions are made for housing in Alaska, Hawaii, Guam and the Virgin Islands, where house building is more costly.
FHA Loan Relief
Loan servicers can provide some versatility on FHA loan requirements to those who have suffered a serious financial difficulty or are struggling to make their payments.
That relief might be in the form of a short-lived period of forbearance, a loan modification that would lower the rates of interest, extend the repayment duration, 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 East Palo Alto CA?
The FHA makes it relatively simple to qualify for a mortgage. 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 East Palo Alto CA, you might have better luck with looking around for another.
Note: you never know until you put in an application. Even if you think you won’t qualify after reading this page, talk with an FHA approved lender in East Palo Alto to find out for sure.
Income limits: there are none. You’ll need enough to show that you can repay the home loan 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 guidelines 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 mortgage.
How to Find FHA Lenders
Customers get their mortgage from FHA-approved lending institutions in East Palo Alto rather than the FHA itself, which only insures the loans. FHA-approved lenders can have different rates and expenses, even for the exact same loan.
FHA loans are available through numerous sources– from the most significant banks and credit unions to community banks and independent home mortgage loan providers. Costs, services and underwriting requirements vary amongst lending institutions or mortgage brokers, so it’s crucial to look around.
Find out more about how to find low FHA home mortgage lending institution.