How To Qualify For FHA Loan in San Luis Obispo California (San Luis Obispo County)
Looking for an FHA Loan in San Luis Obispo California?
FHA loans have been a flexible mortgage 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 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 crucial 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 lenders with adequate insurance; and to help spark the housing market by making mortgages more accessible and affordable for home-buyers with not so great credit or a low down payment due to FHA mortgage limits in San Luis Obispo, 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, mortgage companies can, and do, offer FHA mortgages 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.
(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 Luis Obispo is one of the easiest types of mortgage loans to qualify 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 home loan.
Borrowers 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 circumstances.
Another advantage of an FHA loan is that it’s an assumable mortgage 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 San Luis Obispo 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 mortgage loan programs will enable 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 relative, 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 permit 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 San Luis Obispo California
The earliest human inhabitants of the local area were the Chumash people. One of the earliest villages lies south of San Luis Obispo and reflects the landscape of the early Holocene when estuaries came farther inland. The Chumash people used marine resources of the inlets and bays along the Central Coast and inhabited a network of villages, including sites at Los Osos and Morro Creek. The tribal site on present-day San Luis Obispo was named tiłhini, Obispeño for “Place of the full moon”.
During the Spanish Empire expansion throughout the world, specifically in 1769, Franciscan Junípero Serra received orders from Spain to bring the Catholic faith to the natives of Alta California; the idea was to unify the empire under the same religion and language. Mission San Diego was the first Spanish mission founded in Alta California that same year.
On September 7, 1769, an expedition led by Gaspar de Portolá entered the San Luis Obispo area from coastal areas around today’s Pismo Beach. One of the expedition’s three diarists, padre Juan Crespí, recorded the name given to this area by the soldiers as Cañada de Los Osos (“cañada” translates as “valley” or “canyon”). The party traveled north along San Luis Obispo Creek, turned west through Los Osos Valley, and reached Morro Bay on September 9.
In 1770, Portola established the Presidio of Monterey and Junípero Serra founded the second mission, San Carlos Borromeo, in Monterey. The mission was moved to Carmel the following year.
In 1772, as the people of Presidio of Monterey and San Carlos Borromeo faced starvation, owing to a lack of supplies, Commander Pedro Fages (a member of the Portolà expedition) led a hunting expedition to the Cañada de Los Osos to bring back food. Over twenty-five mule loads of dried bear meat and seed were sent north to relieve the missionaries, soldiers, and neophytes (baptized natives). It was after this that Junípero Serra decided that La Cañada de Los Osos would be an ideal place for the fifth mission.
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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 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 San Luis Obispo 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 Loans
In addition to its popular FHA loan, the FHA also insures 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 buy a home– and remodel it– all with a single home mortgage. Homeowners can likewise utilize the program to refinance their current mortgage and add the cost of renovating jobs into the brand-new loan. FHA 203( k) loans can be found in two types:
- The limited 203( k) has a simpler application procedure, and the repair work or enhancements must total $35,000 or less.
- The basic 203( k) requires additional documentation and applies to improvements costing more than $5,000, however the total worth of the residential or commercial property should still fall within the FHA home mortgage limitation for the location.
- House Equity Conversion Mortgage, or HECM – A HECM is a popular type of reverse home mortgage and is also insured by the FHA. A HECM permits older house owners (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 available for withdrawal differs by customer and depends upon the age of the youngest borrower or eligible non-borrowing partner, current interest rates and the lesser of the house’s appraised value or the HECM FHA home loan limit or sales price.
- FHA Energy Efficient Mortgage (EEM) program – Energy efficient home loans backed by the FHA enable homebuyers to purchase homes that are currently energy efficient, such as EnergyStar-certified structures. Or they can be used to buy and renovate 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 called the Graduated Payment Mortgage, this program is tailored at borrowers whose incomes will increase gradually. You start with smaller month-to-month payments that gradually increase. Five specific strategies are readily available: 3 strategies that permit 5 years of increasing payments at 2.5 percent, 5 percent and 7.5 percent every year. 2 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 flooring limitation for FHA loans in most 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 limitations are referred to as “ceilings” and “floors” that FHA will guarantee. FHA updates limit quantities each year in action to altering house costs.
FHA is required by law to adjust its amounts based on the loan limits set by the Federal Housing Finance Agency, or FHFA, for conventional home mortgages ensured or owned by Fannie Mae and Freddie Mac. Ceiling and floor limitations differ according to the expense of living in a specific area, and can be various from one county to the next. Locations with a greater cost of living will have greater limitations, and vice versa. Unique exceptions are made for real estate in Alaska, Hawaii, Guam and the Virgin Islands, where house building is more pricey.
FHA Loan Relief
Loan servicers can provide some flexibility on FHA loan requirements to those who have suffered a serious monetary hardship or are struggling to make their payments.
That relief might be in the form of a short-term duration of forbearance, a loan modification that would reduce 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 San Luis Obispo 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 mortgage 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 Luis Obispo CA, you might have better luck with another.
Note: you never know until you submit an app. Even if you think you won’t qualify after reading this page, talk with an FHA approved lender in San Luis Obispo 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 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
Borrowers get their mortgage from FHA-approved lenders in San Luis Obispo rather than the FHA itself, which just guarantees the loans. FHA-approved lending institutions 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 neighborhood banks and independent home mortgage lenders. Expenses, services and underwriting requirements vary among lenders or home mortgage brokers, so it’s crucial to search.
Discover more about how to find low FHA home mortgage lender.