How To Qualify For FHA Loan in Merced California (Merced County)
Looking for an FHA Loan in Merced 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 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 score can be between 500 – 579 if a 10% down payment is made. It’s important to remember though, that the lower the credit rating, 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 increase of foreclosures and defaults that happened in 1930s; to provide mortgage companies with adequate insurance; and to help spark the housing market by making mortgages more accessible and attainable for people with not so great credit or a low down payment due to FHA mortgage limits in Merced, 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 lenders can, and do, offer FHA mortgages 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 Merced is one of the easiest types of mortgage loans to get approved 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 loan.
Consumers 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 home 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 Merced 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 make it possible for 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 adjusts annually after the initial fixed time frame. The 3/1 and 5/1 FHA Hybrid products allow 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 very little even on a worst case rate change.
About Merced California
The first Merced post office opened in 1870. Merced incorporated in 1889 and now operates under the council-manager form of government.
During World War II, the Merced County fairgrounds were the site of a temporary “assembly center” where Japanese Americans were detained after being removed from their West Coast homes under Executive Order 9066. 4,669 men, women and children from central California (with most coming from Merced County) were confined in the Merced Assembly Center from May 6 to September 15, 1942, when they were transferred to the more permanent Granada internment camp in Colorado.
Since 2005, Merced has been home to University of California, Merced. Current recreational opportunities in the city include Regal Cinemas, Oh Wow Nickel Arcade, Rollerland, The Castle Air Museum, a zoo, a skate park and basketball court in Applegate park, The Mainzer Theater which is known for its historic and architectural value, the County Courthouse Museum circa 1889, the Merced Multicultural Arts Center and the County Library. Merced has several shopping areas including the Merced Mall, anchored by Target, JCPenney and Kohl’s, a strip mall located on the city’s northwest side which includes Barnes & Noble, Lowe’s, Walmart, and a few restaurants. Merced’s Main Street contains a movie theater, a music store, a shoe cobbler and other assorted shops.
Also within a short distance from the city limits are the Castle Air Museum, Lake Yosemite, and Merced Falls. The city of Merced along with its surrounding cities are serviced by the Merced Sun-Star and the Merced County Times. The Merced Sun-Star daily newspaper has a circulation of 14,219 daily and 18,569 Saturday in the Merced area. The paper was sold to U.S. Media in 1985 and was acquired by The McClatchy Company in January 2004:Single-Copy Sales: 2,522 daily and 2,952 Saturday.
Homes at the median level in Merced had lost 62% of their value from the second quarter of 2006, when they peaked at $336,743, the biggest drop anywhere in the country, according to data provided to Forbes by Local Market Monitor, a Cary, North-Carolina-based real-estate research firm. Home prices have since rebounded, with the median sale price in April 2018 at $247,000. The current average being $358,000. Terry Ruscoe of Merced-Yosemite Realty, noted investors from outside of the Valley were helping to drive up home prices. Ruscoe said, “A tremendous amount of out-of-town buyers. Our primary client comes from the LA area or the Bay Area. We see a lot of them coming in and buying properties, even coming in now when the prices are moving up quickly because they know they can rent those.”
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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 Merced 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 provided by private lenders. Here’s a take a look at each of them.
- FHA 203( k) loans – These FHA loans assist property buyers purchase a home– and remodel it– all with a single home mortgage. House owners can also utilize the program to re-finance their existing home loan and include the cost of redesigning jobs into the brand-new loan. FHA 203( k) loans been available in two types:
- The limited 203( k) has an easier application procedure, and the repair work or improvements must total $35,000 or less.
- The basic 203( k) needs extra documentation and applies to improvements costing more than $5,000, however the total worth of the residential or commercial property must still fall within the FHA home mortgage limit for the area.
- House Equity Conversion Mortgage, or HECM – A HECM is a popular kind of reverse mortgage and is also guaranteed by the FHA. A HECM permits older property owners (aged 62 and up) with significant equity or those who own their homes outright to withdraw a part of their house’s equity. The quantity that will be readily available for withdrawal varies by customer and depends on the age of the youngest customer or eligible non-borrowing spouse, present rates of interest and the lesser of the house’s assessed worth or the HECM FHA home loan limit or sales price.
- FHA Energy Efficient Mortgage (EEM) program – Energy effective home loans backed by the FHA permit homebuyers to buy homes that are currently energy effective, such as EnergyStar-certified structures. Or they can be utilized to purchase and redesign older homes with energy-efficient, or “green,” updates and roll the costs of the upgrades into the loan without a bigger deposit.
- FHA Section 245( a) loan – Also known as the Graduated Payment Mortgage, this program is geared at borrowers whose earnings will increase over time. You begin with smaller month-to-month payments that gradually increase. Five particular strategies are available: three strategies that permit five 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 annually.
(Or call 213-474-7389 to ask a local lender anything!)
FHA Loan Limits for 2023
For 2019, the flooring limit for FHA loans in the majority 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 limits are described as “ceilings” and “floorings” that FHA will guarantee. FHA updates restrict quantities each year in response to altering home prices.
FHA is required by law to adjust its quantities based on the loan limits set by the Federal Housing Finance Agency, or FHFA, for standard home loans guaranteed or owned by Fannie Mae and Freddie Mac. Ceiling and flooring limitations vary according to the cost of living in a certain area, and can be various from one county to the next. Locations with a higher cost of living will have greater limits, and vice versa. Unique exceptions are made for housing in Alaska, Hawaii, Guam and the Virgin Islands, where house construction is more expensive.
FHA Loan Relief
Loan servicers can offer some flexibility on FHA loan requirements to those who have actually suffered a severe monetary difficulty or are struggling to make their payments.
That relief might be in the form of a momentary duration of forbearance, a loan modification that would reduce 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 Merced CA?
The FHA makes it relatively simple to qualify for a loan. Again, the government guarantees the loan, so lenders are more willing to approve mortgage loans. However, lending companies can (and do) set standards that are stricter than FHA requirements. If you’re having trouble with one FHA approved lender near Merced 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 Merced 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 lucky 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 attests good credit history and a solid track record of timely payments will likely be eligible for the mortgage.
How to Find FHA Lenders
Borrowers get their home mortgage from FHA-approved lenders in Merced instead of the FHA itself, which only guarantees the loans. FHA-approved lending institutions can have various rates and expenses, even for the exact same loan.
FHA loans are available through lots of sources– from the greatest banks and credit unions to neighborhood banks and independent home loan lenders. Costs, services and underwriting requirements differ among lending institutions or home loan brokers, so it’s important to shop around.
Discover more about how to discover low FHA home mortgage lending institution.