How To Qualify For FHA Loan in San Jose California (Santa Clara County)
Looking for an FHA Loan in San Jose California?
FHA loans have been a flexible home loan program that’s been around since the 1930’s and is 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 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 rating, 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 increase of foreclosures and defaults that happened in 1930s; to provide lenders with sufficient insurance; and to help grow the housing market by making home loans much more accessible and attainable for consumers with less than stellar credit or a low down payment due to FHA mortgage limits in San Jose, 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 San Jose 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.
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 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 vigorous 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 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 modification. This insures that the payment adjustment will be minimal even on a worst case rate change.
About San Jose California
San Jose, along with most of the Santa Clara Valley, has been home to the Tamien group (also spelled as Tamyen, Thamien) of the Ohlone people since around 4,000 BC. The Tamien spoke Tamyen language of the Ohlone language family.
During the era of Spanish colonization and the subsequent building of Spanish missions in California, the Tamien people’s lives changed dramatically. From 1777 onward, most of the Tamien people moved into Mission Santa Clara de Asís or Mission San José where they were baptized and educated to be Catholic neophytes, also known as Mission Indians. This continued until the mission was secularized by the Mexican Government in 1833. A large majority of the Tamien died either from disease in the missions, or as a result of the state sponsored genocide. Some surviving families remained intact, migrating to Santa Cruz after their ancestral lands were granted to Spanish and Mexican Immigrants.
California was claimed as part of the Spanish Empire in 1542, when explorer Juan Rodríguez Cabrillo charted the Californian coast. During this time, California and Baja California were administered together as Province of the California (Spanish: Provincia de las California). For nearly 200 years, the Californias were sparsely populated and largely ignored by the government of the Viceroyalty of New Spain in Mexico City. Only in 1769 was Northern California finally surveyed by Spanish authorities, with the Portolá Expedition.
In 1776, the Californias were included as part of the Captaincy General of the Provincias Internas, a large administrative division created by José de Gálvez, Spanish Minister of the Indies, in order to provide greater autonomy for the Spanish Empire’s lightly populated and largely ungoverned borderlands. That year, King Carlos III of Spain approved an expedition by Juan Bautista de Anza to survey the San Francisco Bay Area, in order to choose the sites for two future settlements and their accompanying mission. Bautista initially chose the site for a military settlement in San Francisco, for the Royal Presidio of San Francisco, and Mission San Francisco de Asís. On his way back to Mexico from San Francisco, de Anza chose the sites in Santa Clara Valley for a civilian settlement, San Jose, on the eastern bank of the Guadalupe River, and a mission on its western bank, Mission Santa Clara de Asís.
San Jose was officially founded as California’s first civilian settlement on November 29, 1777, as the Pueblo de San José de Guadalupe by José Joaquín Moraga, under orders of Antonio María de Bucareli y Ursúa, Viceroy of New Spain. San Jose served as a strategic settlement along El Camino Real, connecting the military fortifications at the Monterey Presidio and the San Francisco Presidio, as well as the California mission network. In 1791, due to the severe flooding which characterized the pueblo, San Jose’s settlement was moved approximately a mile south, centered on the Pueblo Plaza (modern-day Plaza de César Chávez).
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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 annual 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.
(Or call 213-474-7389 to ask a local lender anything!)
Kinds Of FHA Mortgage Loans
In addition to its popular FHA loan, the FHA likewise insures other loan programs provided by personal loan providers. Here’s a look at each of them.
- FHA 203( k) loans – These FHA loans assist homebuyers buy a home– and renovate it– all with a single mortgage. Property owners can also use the program to re-finance their existing home mortgage and include the expense of remodeling tasks into the new loan. FHA 203( k) loans can be found in 2 types:
- The limited 203( k) has a simpler application procedure, and the repair work or enhancements must amount to $35,000 or less.
- The standard 203( k) requires additional documentation and applies to enhancements costing more than $5,000, however the total value of the home must still fall within the FHA home loan limit for the location.
- Home 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 homeowners (aged 62 and up) with significant 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 varies by debtor and depends on the age of the youngest debtor or qualified non-borrowing partner, current interest rates and the lower of the home’s evaluated value or the HECM FHA home loan limitation or prices.
- FHA Energy Efficient Mortgage (EEM) program – Energy efficient home loans backed by the FHA allow homebuyers to acquire houses that are currently energy effective, such as EnergyStar-certified buildings. Or they can be utilized to buy and remodel older houses 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 referred to as the Graduated Payment Mortgage, this program is geared at customers whose incomes will increase in time. You start out with smaller sized monthly payments that slowly increase. Five specific plans are readily available: three strategies 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 annually.
(Or call 213-474-7389 to ask a local lender anything!)
FHA Loan Limits for 2022
For 2019, the floor 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 back. These limits are referred to as “ceilings” and “floors” that FHA will guarantee. FHA updates restrict amounts each year in action to altering house costs.
FHA is needed by law to change its quantities based upon the loan limitations set by the Federal Housing Finance Agency, or FHFA, for traditional home loans ensured or owned by Fannie Mae and Freddie Mac. Ceiling and flooring limitations differ according to the cost of living in a certain location, and can be various from one county to the next. Locations with a higher expense of living will have greater limits, and vice versa. Unique exceptions are made for housing in Alaska, Hawaii, Guam and the Virgin Islands, where home building is more costly.
FHA Loan Relief
Loan servicers can provide some flexibility 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 temporary period of forbearance, a loan modification that would lower the interest rate, extend the repayment duration, 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 San Jose 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 home loans. However, mortgage companies can (and do) set standards that may be stricter than FHA requirements. If you’re having trouble with one FHA approved lender near San Jose 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 San Jose 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 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 requirements 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 demonstrates 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 home loans from FHA-approved lending institutions in San Jose instead of the FHA itself, which only insures the loans. FHA-approved lending institutions can have various rates and costs, even for the exact same loan.
FHA loans are available through lots of sources– from the most significant banks and credit unions to community banks and independent mortgage lenders. Expenses, services and underwriting standards differ amongst lenders or home loan brokers, so it’s important to look around.
Discover more about how to discover low FHA mortgage lender.