How To Qualify For FHA Loan in Morgan Hill California (Santa Clara County)

How To Qualify For FHA Loan in Morgan Hill California (Santa Clara County)

Looking for an FHA Loan in Morgan Hill California?

FHA loans have been a flexible mortgage 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 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 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 increase of foreclosures and defaults that happened in 1930s; to provide lending companies with adequate insurance; and to help spark the housing market by making mortgages highly accessible and attainable for home-buyers with less than perfect credit or a low down payment due to FHA mortgage limits in Morgan Hill, 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 lenders can, and do, offer FHA mortgages at really attractive 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 Morgan Hill

Typically an FHA loan in Morgan Hill 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 loan is that it’s an assumable mortgage loan 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 Santa Clara 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 process.

The FHA Hybrid provides for an initial fixed interest rate for a period of three or five years, and then changes 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 Morgan Hill California

Prior to the arrival of Spanish colonists, the area of the Santa Clara Valley had been inhabited by the Tamyen nation of Ohlone people for more than 6,000 years. In the area of what is now Morgan Hill, the Matalan tribe lived in a hunter-gatherer society.

Before the area was colonized as part of the Alta California province of the Viceroyalty of New Spain, the 1772 Spanish expedition, led by Pedro Fages and Father Juan Crespí, camped in what is now Morgan Hill, alongside Llagas Creek. The location of their camp subsequently became a popular campsite for Spanish soldiers on their way from New Spain to Alta California. With the founding of Mission Santa Clara de Asís, in 1777, the lands of present-day Morgan Hill were granted to the Roman Catholic Church.

Following Mexico’s independence from Spain, land was redistributed to Mexican citizens across California and the land encompassing modern-day Morgan Hill was granted to Juan Maria Hernandez, in 1835. In 1845, Martin Murphy, Sr., an Irish-born Mexican citizen, acquired the area and named it Rancho Ojo del Agua de la Coche.

In 1850, Martin Murphy Sr.’s youngest son, Daniel Murphy, married Maria Fisher, heiress of the neighboring 19,000-acre (7,700 ha) Rancho Laguna Seca, thus combining the two estates. In 1853, Martin Murphy, Sr.’s father, Bernard Murphy, died leaving the majority of the estate to Martin Murphy, Sr., but a substantial portion to a Martin Murphy, Sr.’s mother, Catherine, who then married James Dunne. By 1870, the Murphy family had acquired around 70,000 acres (28,000 ha) of the Morgan Hill area. In the history of Morgan Hill, the Murphy, Dunne, and Hill families are of the most prominent significance.

By the late 1850’s, Californio ranchero José María Malaguerra began cultivating vineyards in Madrone, then an independent township just north of Morgan Hill. In 1869, he founded the Malaguerra Winery, the oldest extant winery in Santa Clara Valley, which is listed on the National Register of Historic Places.

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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 Santa Clara 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.


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Kinds Of FHA Loans

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

  • FHA 203( k) loans – These FHA loans help homebuyers acquire a home– and remodel it– all with a single home mortgage. House owners can also use the program to re-finance their existing home mortgage and include the cost of remodeling 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 repairs or enhancements must amount to $35,000 or less.
    • The basic 203( k) needs additional paperwork and applies to improvements costing more than $5,000, but the overall value of the property need to still fall within the FHA home mortgage limit for the location.
  • House Equity Conversion Mortgage, or HECM – A HECM is a popular kind of reverse home loan and is likewise insured by the FHA. A HECM permits older homeowners (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 available for withdrawal differs by customer and depends on the age of the youngest debtor or qualified non-borrowing partner, existing interest rates and the lower of the house’s appraised worth or the HECM FHA home mortgage limitation or list prices.
  • FHA Energy Efficient Mortgage (EEM) program – Energy efficient home mortgages backed by the FHA enable property buyers to acquire homes that are already energy effective, such as EnergyStar-certified structures. Or they can be used to buy and redesign older houses with energy-efficient, or “green,” updates and roll the costs 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 tailored at customers whose earnings will increase with time. You start out with smaller sized month-to-month payments that slowly increase. 5 specific strategies are available: three plans that enable 5 years of increasing payments at 2.5 percent, 5 percent and 7.5 percent annually. Two other strategies set payment boosts over 10 years at 2 percent and 3 percent each year.

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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 locations, the ceiling is $726,525, up from $679,650 a year earlier. These limitations are described as “ceilings” and “floors” that FHA will insure. FHA updates limit quantities each year in reaction to altering house rates.

FHA is required by law to adjust its quantities based upon the loan limits set by the Federal Housing Finance Agency, or FHFA, for traditional mortgages guaranteed or owned by Fannie Mae and Freddie Mac. Ceiling and flooring limitations vary according to the cost of living in a particular location, and can be different from one county to the next. Areas with a higher expense of living will have higher limits, and vice versa. Special exceptions are produced housing in Alaska, Hawaii, Guam and the Virgin Islands, where house building and construction is more expensive.

FHA Loan Relief

Loan servicers can provide some versatility on FHA loan requirements to those who have actually suffered a serious monetary hardship or are struggling to make their payments.

That relief might be in the form of a momentary period of forbearance, a loan adjustment that would decrease the rates of interest, extend the payback period, or defer 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 Morgan Hill CA?

The FHA makes it relatively simple to qualify for a mortgage loan. Again, the government guarantees the loan, so lending companies are more willing to approve home loans. However, mortgage companies can (and do) set standards that are stricter than FHA requirements. If you’re having trouble with one FHA approved lender near Morgan Hill 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 Morgan Hill 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 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

Borrowers get their home mortgage from FHA-approved lenders in Morgan Hill instead of the FHA itself, which only insures the loans. FHA-approved lenders can have different rates and costs, even for the exact same loan.

FHA loans are offered through lots of sources– from the greatest banks and credit unions to community banks and independent home loan loan providers. Costs, services and underwriting standards vary among lenders or mortgage brokers, so it’s important to look around.

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


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