How To Qualify For FHA Loan in San Jose California (Santa Clara County)
Looking for an FHA Loan in San Jose California?
An FHA loan is a home loan that’s insured 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 rating 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 rise of foreclosures and defaults that happened in 1930s; to provide mortgage lenders with sufficient insurance; and to help stimulate the housing market by making home loans more accessible and attainable for people with not so great credit or a low down payment due to FHA mortgage limits in San Jose, California. Essentially, the federal government insures loans for FHA-approved 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 home loans at beneficial 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.
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 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 best option for their personal circumstances.
Another advantage of an FHA mortgage is that it’s an assumable loan which means if you want to sell your house, 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 home 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 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 adjustment. This insures that the payment adjustment will be minimal even on a worst case rate change.
About San Jose California
The Santa Clara Valley has been house to the Tamyen bureau of the Ohlone people since roughly speaking 4,000 BCE. The Tamyen spoke Tamyen language of the Ohlone language family. With the Spanish colonization of California, the majority of the Tamyen came to inhabit Mission Santa Clara de Asís and Mission San José.
California was claimed as allowance 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 paperwork 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 portion 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 allow greater autonomy for the Spanish Empire’s lightly populated and largely ungoverned borderlands. That year, King Carlos III of Spain certified an expedition by Juan Bautista de Anza to survey the San Francisco Bay Area, in order to pick the sites for two highly developed settlements and their accompanying mission. First he chose the site for a military treaty in San Francisco, for the Royal Presidio of San Francisco, and Mission San Francisco de Asís. On his way support 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 treaty along El Camino Real, connecting the military fortifications at the Monterey Presidio and the San Francisco Presidio, as without difficulty as the California mission network. In 1791, due to the rude flooding which characterized the pueblo, San Jose’s agreement was moved nearly a mile south, centered upon the Pueblo Plaza (modern-day Plaza de César Chávez).
In 1800, due to the growing population in the northern allocation of the Californias, Diego de Borica, Governor of the Californias, officially split the province into two parts: Alta California (Upper California), which would eventually become a U.S. state, and Baja California (Lower California), which would eventually become two Mexican states.
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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 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.
Types of FHA Home Loans
In addition to its popular FHA loan, the FHA also guarantees other loan programs offered by personal loan providers. Here’s a look at each of them.
- FHA 203( k) loans – These FHA loans help homebuyers acquire a house– and refurbish it– all with a single home mortgage. Property owners can also utilize the program to refinance their current mortgage and add the cost of remodeling jobs into the new loan. FHA 203( k) loans can be found in 2 types:
- The restricted 203( k) has a much easier application procedure, and the repair work or improvements must total $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 residential or commercial property should still fall within the FHA mortgage limitation for the area.
- Home Equity Conversion Mortgage, or HECM – A HECM is the most popular kind of reverse home loan and is likewise insured by the FHA. A HECM enables older homeowners (aged 62 and up) with considerable equity or those who own their houses outright to withdraw a part of their house’s equity. The quantity that will be offered for withdrawal differs by debtor and depends upon the age of the youngest borrower or qualified non-borrowing partner, present interest rates and the lower of the house’s appraised worth or the HECM FHA home mortgage limit or sales price.
- FHA Energy Efficient Mortgage (EEM) program – Energy efficient home mortgages backed by the FHA permit property buyers to purchase 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 monthly payments that gradually go up. Five specific strategies are offered: 3 plans that enable 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 yearly.
FHA Loan Limits for 2019
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 locations, the ceiling is $726,525, up from $679,650 a year ago. These limitations are described as “ceilings” and “floorings” that FHA will guarantee. FHA updates limit amounts each year in action to altering home prices.
FHA is required by law to change its amounts based upon the loan limitations set by the Federal Housing Finance Agency, or FHFA, for standard mortgages ensured or owned by Fannie Mae and Freddie Mac. Ceiling and floor limitations vary according to the cost of living in a specific area, and can be different from one county to the next. Areas with a greater expense of living will have greater limits, and vice versa. Special exceptions are produced housing in Alaska, Hawaii, Guam and the Virgin Islands, where house building and construction is more pricey.
FHA Loan Relief
Loan servicers can provide some flexibility on FHA loan requirements to those who have suffered a serious monetary challenge 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 lower the interest rate, extend the repayment 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 San Jose CA?
The FHA makes it relatively simple to qualify for a mortgage loan. Again, the government guarantees the loan, so mortgage lenders are more willing to approve loans. However, lending 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 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 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 demonstrates good credit history and a solid track record of timely payments will likely be eligible for the mortgage.
How to Find FHA Lenders
Customers get their home loans from FHA-approved lending institutions in San Jose instead of the FHA itself, which just insures the loans. FHA-approved lending institutions can have various rates and costs, even for the very same loan.
FHA loans are readily available through many sources– from the most significant banks and credit unions to neighborhood banks and independent mortgage lenders. Expenses, services and underwriting requirements differ among lenders or home mortgage brokers, so it’s crucial to look around.
Discover more about how to find the best FHA home loan loan provider.