How To Qualify For FHA Loan in Montecito California (Santa Barbara County)
Looking for an FHA Loan in Montecito California?
An FHA loan is a mortgage 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 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 receive. 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 mortgage companies with adequate insurance; and to help grow the housing market by making mortgages more accessible and affordable for consumers with less than perfect credit or a low down payment due to FHA mortgage limits in Montecito, 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, lenders 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 Montecito 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 mortgage loan.
Consumers 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 scenario.
Another advantage of an FHA home loan is that it’s an assumable mortgage loan which means if you want to sell your property, 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 Barbara 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 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 process.
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 period. 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 Montecito California
The site of present-day Montecito, along with the entire south coast of Santa Barbara County, was inhabited for over 10,000 years by the Chumash Indians. The Spanish arrived in the 18th century but left the region largely unsettled while they built the Presidio and Mission Santa Barbara farther west.
In the middle of the 19th century, the area was known as a haven for bandits and highway robbers, who hid in the oak groves and canyons, preying on traffic on the coastal route between the towns that developed around the missions. By the end of the 1860s, the bandit gangs were gone, and Italian settlers arrived. Finding an area reminiscent of Italy, they built farms and gardens similar to those they had left behind.
Around the end of the 19th century, wealthy tourists from the eastern and midwestern United States began to buy land in the area. It was near enough to Santa Barbara for essential services while still being secluded. Desirable weather and several nearby hot springs offered the promise of comfortable, healthy living, in addition to the availability of affordable land.
The Montecito Hot Springs Hotel was built near the largest of the springs, in a canyon north of the town center and directly south of Montecito Peak, in Hot Springs Canyon. The hotel burned down in 1920; it was replaced a few years later by the smaller Hot Springs Club.
The architect George Washington Smith is noted particularly for his residences around Montecito, and for popularizing the Spanish Colonial Revival style in early 20th century America, as is Lutah Maria Riggs, who started as a draftsman in Smith’s firm, rose to partner, and later started her own firm.
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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 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 Santa Barbara 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 offered by personal loan providers. Here’s a look at each of them.
- FHA 203( k) loans – These FHA loans assist property buyers acquire a home– and remodel it– all with a single home loan. Property owners can likewise utilize the program to re-finance their existing mortgage and add the cost of renovating jobs into the new loan. FHA 203( k) loans been available in two types:
- The limited 203( k) has a much easier application procedure, and the repairs or enhancements should total $35,000 or less.
- The standard 203( k) needs extra paperwork and applies to improvements costing more than $5,000, but the overall worth of the property should 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 house owners (aged 62 and up) with substantial equity or those who own their homes outright to withdraw a part of their home’s equity. The amount that will be available for withdrawal varies by customer and depends on the age of the youngest debtor or qualified non-borrowing spouse, current rate of interest and the lesser of the house’s evaluated value or the HECM FHA home mortgage limitation or sales price.
- FHA Energy Efficient Mortgage (EEM) program – Energy effective mortgages backed by the FHA permit homebuyers to acquire homes that are currently energy efficient, such as EnergyStar-certified buildings. Or they can be utilized to purchase and renovate older houses with energy-efficient, or “green,” updates and roll the expenses of the upgrades into the loan without a larger deposit.
- FHA Section 245( a) loan – Also referred to as the Graduated Payment Mortgage, this program is tailored at debtors whose incomes will increase gradually. You begin with smaller sized monthly payments that slowly increase. 5 specific plans are available: 3 plans that allow five years of increasing payments at 2.5 percent, 5 percent and 7.5 percent yearly. Two other plans set payment increases over 10 years at 2 percent and 3 percent each year.
(Or call 213-474-7389 to ask a local lender anything!)
FHA Loan Limits for 2023
For 2019, the floor limitation 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 limitations are referred to as “ceilings” and “floorings” that FHA will guarantee. FHA updates restrict amounts each year in reaction to changing home prices.
FHA is needed by law to adjust its amounts based on the loan limitations set by the Federal Housing Finance Agency, or FHFA, for conventional home mortgages ensured or owned by Fannie Mae and Freddie Mac. Ceiling and flooring limits vary according to the expense of living in a specific area, and can be different from one county to the next. Locations with a higher cost of living will have higher limitations, and vice versa. Special exceptions are made for real estate in Alaska, Hawaii, Guam and the Virgin Islands, where home construction is more pricey.
FHA Loan Relief
Loan servicers can offer some flexibility on FHA loan requirements to those who have actually suffered a serious monetary challenge 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 rates of interest, extend the payback 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 Montecito CA?
The FHA makes it relatively simple to qualify for a mortgage. Again, the government guarantees the loan, so lenders are more willing to approve home 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 Montecito CA, you might have better luck with choosing another.
Note: you never know until you apply. Even if you think you won’t qualify after reading this page, talk with an FHA approved lender in Montecito 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 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 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 shows good credit history and a solid track record of timely payments will likely be eligible for the home loan.
How to Find FHA Lenders
Borrowers get their mortgage from FHA-approved loan providers in Montecito rather than the FHA itself, which just guarantees the loans. FHA-approved lending institutions can have different rates and costs, even for the same loan.
FHA loans are readily available through lots of sources– from the biggest banks and credit unions to community banks and independent mortgage loan providers. Costs, services and underwriting standards vary amongst lending institutions or home mortgage brokers, so it’s crucial to look around.
Find out more about how to find low FHA home mortgage lender.