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

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

Looking for an FHA Loan in Saratoga California?

FHA loans have been a flexible home loan 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 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 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 qualifications.

The FHA program was created in response to the increase of foreclosures and defaults that happened in 1930s; to provide lenders with adequate insurance; and to help spark the housing market by making home loans more accessible and attainable for people with less than stellar credit or a low down payment due to FHA mortgage limits in Saratoga, 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 mortgage payments.

Because of that insurance, 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

Typically an FHA loan in Saratoga 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 mortgage loan.

Borrowers 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 mortgage loan 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 vigorous with respect to gifts for down-payment. Very few mortgage loan programs will allow 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 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 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 minimal even on a worst case rate change.

About Saratoga California

The area comprising Saratoga was earlier inhabited by the Ohlone Native Americans. European settlers imposed a displacement and created a settlement of what is now Saratoga in 1847, when William Campbell (father of Benjamin Campbell, the founder of nearby Campbell, California), constructed a sawmill about 2.5 miles (4.0 km) southeast of the present downtown area. An early map noted the area as Campbell’s Gap.

In 1851, Martin McCarthy, who had leased the mill, built a toll road down to the Santa Clara Valley, and founded what is now Saratoga as McCarthysville. The toll gate was located at the present-day intersection of Big Basin Way and 3rd St., giving the town its first widely used name: Toll Gate. In 1867 the town received a post office under the name of McCarthysville.

Early residents, who moved to Saratoga in 1881, were Mary Brown (1816–1884), widow of John Brown the abolitionist, her daughters Sarah and Ellen, and the husband of the latter, James Fablinger. All are buried in Madronia Cemetery.

Industry soon sprang up and at its pinnacle, the town had a furniture factory, grist mill, tannery, and a paper factory. To commemorate this newfound productivity, the town was renamed again in 1863 as Bank Mills. In the 1850s, Jud Caldwell discovered springs which were called Pacific Congress Springs because the water had a mineral content similar to Congress Springs in Saratoga Springs, New York. In 1865 the town received its final name, Saratoga, after the city in New York. At the same time a resort hotel called Congress Hall was constructed at the springs, named after the famous resort Congress Hall at Saratoga Springs, New York. California’s Congress Hall attracted tourists to the area until it burned down in 1903. These events would eventually lead to Saratoga being listed as a California Historical Landmark in 1950.

Saratoga became agricultural, as did much of the rest of the valley; a few vineyards and orchards from this period remain today. After World War II the town quickly became urbanized, and it incorporated in 1956 mostly to avoid being annexed to San Jose. A slogan during the campaign to incorporate the city of Saratoga was “Keep it rural,” according to historian Willys I. Peck. Today the city serves as a bedroom community for upper-middle class and upper class Silicon Valley tech workers and executives.

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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 likewise insures other loan programs used by private loan providers. Here’s a take a look at each of them.

  • FHA 203( k) loans – These FHA loans help homebuyers purchase a house– and remodel it– all with a single home loan. Property owners can likewise use the program to re-finance their existing home loan and include the cost of renovating jobs into the brand-new loan. FHA 203( k) loans come in two types:
    • The limited 203( k) has a much easier application procedure, and the repair work or enhancements should total $35,000 or less.
    • The standard 203( k) requires additional documentation and applies to enhancements costing more than $5,000, but the overall value of the residential or commercial property should still fall within the FHA mortgage limitation for the area.
  • House Equity Conversion Mortgage, or HECM – A HECM is a popular type of reverse mortgage and is likewise insured by the FHA. A HECM enables older property owners (aged 62 and up) with substantial equity or those who own their homes outright to withdraw a part of their house’s equity. The quantity that will be offered for withdrawal varies by customer and depends on the age of the youngest borrower or eligible non-borrowing partner, present rates of interest and the lesser of the home’s evaluated value or the HECM FHA mortgage limitation or list prices.
  • FHA Energy Efficient Mortgage (EEM) program – Energy efficient home loans backed by the FHA enable property buyers to buy houses that are currently energy effective, such as EnergyStar-certified structures. Or they can be used to purchase and remodel older homes 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 gradually. You start out with smaller regular monthly payments that gradually go up. Five particular plans are available: three strategies that allow 5 years of increasing payments at 2.5 percent, 5 percent and 7.5 percent each year. Two other strategies set payment increases over 10 years at 2 percent and 3 percent annually.

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FHA Loan Limits for 2022

For 2019, the flooring limitation for FHA loans in most of the nation is $314,827, up from $294,515 in 2018. For high-cost locations, the ceiling is $726,525, up from $679,650 a year back. These limitations are referred to as “ceilings” and “floorings” that FHA will insure. FHA updates limit quantities each year in reaction to altering house prices.

FHA is needed by law to change 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 floor limits vary according to the cost of living in a specific location, and can be various from one county to the next. Areas with a higher expense of living will have greater limits, and vice versa. Special exceptions are made for housing in Alaska, Hawaii, Guam and the Virgin Islands, where home building and construction is more expensive.

FHA Loan Relief

Loan servicers can use some flexibility on FHA loan requirements to those who have actually suffered a major financial difficulty or are having a hard time to make their payments.

That relief might be in the form of a short-term duration of forbearance, a loan adjustment that would lower the interest rate, extend the repayment 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 Saratoga CA?

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

Income limits: there are none. You’ll need enough to show that you can repay the mortgage 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 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

Customers get their mortgage from FHA-approved loan providers in Saratoga instead of the FHA itself, which just insures the loans. FHA-approved lending institutions can have various rates and expenses, even for the same loan.

FHA loans are readily available through numerous sources– from the most significant banks and cooperative credit union to neighborhood banks and independent mortgage loan providers. Costs, services and underwriting standards differ among lenders or home loan brokers, so it’s essential to shop around.

Discover more about how to discover low FHA home mortgage lending institution.


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