How To Qualify For FHA Loan in El Cerrito California (Contra Costa County)
Looking for an FHA Loan in El Cerrito California?
An FHA loan is a mortgage that’s insured by the Federal Housing Administration (FHA). Popular with first-time home-buyers, FHA home loans require lower minimum credit scores and down payments than many commonplace 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 significant to remember though, that the lower the credit worthiness, the higher the interest borrowers will pay. Something also worth noting is that the FHA loan limits affect your FHA mortgage insurance – its just part of the FHA loan qualifications.
The FHA program was created in response to the rise of foreclosures and defaults that happened in 1930s; to provide lenders with adequate insurance; and to help spark the housing market by making mortgages highly accessible and attainable for consumers with not so great credit or a low down payment due to FHA mortgage limits in El Cerrito, 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 mortgage payments.
Because of that insurance, mortgage companies can, and do, offer FHA home loans at beneficial mortgage loan interest 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 El Cerrito 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 qualified for private mortgage insurance should look into whether an FHA loan is the popular option for their personal scenario.
Another advantage of an FHA loan is that it’s an assumable mortgage which means if you want to sell your home, 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 Contra Costa 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 aggressive with respect to gifts for down-payment. Very few 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 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 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 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 modification. This insures that the payment adjustment will be minimal even on a worst case rate change.
About El Cerrito California
El Cerrito was founded by refugees from the 1906 San Francisco earthquake. They settled in what was then Don Víctor Castro’s Rancho San Pablo, and adjacent to the ranch owned by the family of Luís María Peralta, the Rancho San Antonio. A post office opened at the settlement in 1909 and the refugee camp became known as Rust, after Wilhelm F. Rust, its first postmaster. The village’s residents did not care for the name and changed it to El Cerrito (meaning “little hill” or “knoll”) in 1916, in reference to the many individual hills in the village. A year later, El Cerrito was incorporated as a village with 1,500 residents.
El Cerrito was incorporated in August 1917. The communities of Stege Junction, Rust, Schmidtville, and Schindler, were all included in the new city. The 1920 census shows that the Schmidtville community had many Italian immigrants. A post office operated at Schmidtville from 1900 to 1901.
According to the United States Census Bureau, the city has a total area of 3.7 square miles (9.6 km), all of it land. The city ranges in elevation from 20 to 934 feet, with an average elevation of 69 feet (21 m).
El Cerrito is located on the eastern shore of San Francisco Bay in the extreme south-west corner of Contra Costa County. The hilly areas of El Cerrito provide views of its neighboring city, and of the Golden Gate Bridge. El Cerrito is located along Interstate 80, and nearby Interstate 580. El Cerrito is bordered by Albany and Kensington to the south, the Richmond annex to the west, East Richmond Heights to the north, and Wildcat Canyon Regional Park to the east. Local landmark Albany Hill is in Albany, just across the border with El Cerrito. (El Cerrito—Spanish, “the little hill”—takes its name from Albany Hill.) The Hayward Fault runs through El Cerrito. In addition, El Cerrito is within 490 feet (150 meters) of Berkeley to the southeast, and approximately 5 miles (8.0 km) from the University of California Berkeley campus.
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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 property. 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 Contra Costa 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 Home Loans
In addition to its popular FHA loan, the FHA also guarantees other loan programs used by personal lenders. Here’s a take a look at each of them.
- FHA 203( k) loans – These FHA loans help homebuyers buy a house– and refurbish it– all with a single mortgage. Property owners can also use the program to re-finance their current home loan and add the cost of remodeling tasks into the brand-new loan. FHA 203( k) loans come in two types:
- The restricted 203( k) has a simpler application process, and the repairs or improvements must amount to $35,000 or less.
- The standard 203( k) requires additional documents and applies to improvements costing more than $5,000, however the total value of the home must still fall within the FHA home loan limitation 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 allows older house owners (aged 62 and up) with substantial equity or those who own their houses outright to withdraw a part of their home’s equity. The quantity that will be offered for withdrawal differs by customer and depends upon the age of the youngest customer or eligible non-borrowing spouse, present interest rates and the lower of the house’s evaluated worth or the HECM FHA mortgage limit or sales price.
- FHA Energy Efficient Mortgage (EEM) program – Energy effective home loans backed by the FHA enable homebuyers to purchase houses that are currently energy efficient, such as EnergyStar-certified structures. Or they can be used to buy and remodel older homes with energy-efficient, or “green,” updates and roll the costs of the upgrades into the loan without a bigger down payment.
- FHA Section 245( a) loan – Also called the Graduated Payment Mortgage, this program is geared at debtors whose earnings will increase in time. You start with smaller regular monthly payments that gradually increase. Five particular plans are offered: three plans that enable 5 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 every year.
(Or call 213-474-7389 to ask a local lender anything!)
FHA Loan Limits for 2023
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 areas, the ceiling is $726,525, up from $679,650 a year back. These limits are referred to as “ceilings” and “floorings” that FHA will guarantee. FHA updates restrict amounts each year in action to changing house prices.
FHA is needed by law to change its quantities based on the loan limits set by the Federal Housing Finance Agency, or FHFA, for standard home mortgages guaranteed or owned by Fannie Mae and Freddie Mac. Ceiling and floor limits vary according to the expense of living in a particular location, and can be various from one county to the next. Locations with a greater cost of living will have higher limits, and vice versa. Unique exceptions are made for housing in Alaska, Hawaii, Guam and the Virgin Islands, where house building is more pricey.
FHA Loan Relief
Loan servicers can use some versatility on FHA loan requirements to those who have actually suffered a severe monetary hardship or are struggling to make their payments.
That relief might be in the form of a temporary period of forbearance, a loan modification that would reduce the rate 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 El Cerrito CA?
The FHA makes it relatively easy to qualify for a mortgage. Again, the government guarantees the loan, so mortgage companies are more willing to approve home loans. However, mortgage lenders can (and do) set standards that may be stricter than FHA requirements. If you’re having trouble with one FHA approved lender near El Cerrito CA, you might have better luck with choosing 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 El Cerrito 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 borrowers. 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 qualifications 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 mortgage from FHA-approved lending institutions in El Cerrito instead of the FHA itself, which only insures the loans. FHA-approved loan providers can have various rates and costs, even for the same loan.
FHA loans are offered through lots of sources– from the most significant banks and cooperative credit union to neighborhood banks and independent home loan loan providers. Costs, services and underwriting standards differ amongst loan providers or home mortgage brokers, so it’s important to shop around.
Learn more about how to find low FHA mortgage loan provider.