How To Qualify For FHA Loan in Soquel California (Santa Cruz County)

How To Qualify For FHA Loan in Soquel California (Santa Cruz County)

Looking for an FHA Loan in Soquel California?

An FHA loan is a home loan that’s insured by the Federal Housing Administration (FHA). They are popular especially among first time home buyers because they allow down payments of 3.5% for credit scores of 580+.

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 significant to remember though, that the lower the credit score, the higher the interest borrowers will pay. 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 rise of foreclosures and defaults that happened in 1930s; to provide lending companies with adequate insurance; and to help spark the housing market by making home loans much more accessible and attainable for people with not so great credit or a low down payment due to FHA mortgage limits in Soquel, California. Essentially, the federal government insures loans for FHA-approved mortgage companies 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.


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Benefits of FHA Loans: Low Down Payments and Less Strict Credit Score Requirements

Typically an FHA loan in Soquel 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 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 Cruz 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 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 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 adjusts annually after the initial fixed period. The 3/1 and 5/1 FHA Hybrid products enable 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 Soquel California

Osocalis was the Spanish phonetic rendering for the name of the creek which runs through the area, as transcribed from the local Native American Indian language of the Ohlone peoples. The later name “Soquel,” which was subsequently derived from the name of that creek, is first known to have appeared in 1833 as the name of the Mexican land grant which included this creek and adjacent lands.

The first European land exploration of Alta California, the Spanish Portolà expedition, passed through the area on its way north, camping at one of the creeks on October 16, 1769. The expedition diaries don’t provide enough information to be sure which creek it was, but the direction of travel was northwest, parallel to the coast. Franciscan missionary Juan Crespi, traveling with the expedition, noted in his diary that, “We stopped on the bank of a small stream, which has about four varas of deep running water. It has on its banks a good growth of cottonwoods and alders; on account of the depth at which it runs it may be that it cannot be utilized to water some plains through which it runs.” Translator Herbert Bolton speculated that the location was Soquel Creek.

Martina Castro was granted Rancho Soquel by Alta California governor José Figueroa in 1833. Martina was one of the daughters of Santa Cruz fundadore José Joaquín Castro, who came as a boy with his family to Alta California from Mexico with the second De Anza expedition in 1775. Several of Martina’s Californio brothers and sisters also became rancheros.

The town of Soquel is notorious for its flooding. The lowlands in and around the Soquel Creek have flooded many times. The most recent flood was in January 1982, and it nearly topped its banks in 1986. Uncleared log jams downstream in the city of Capitola have been blamed for the flooding. Capitola City Planner Richard Steele implemented a debris removal program after the near flooding in 1986.

In 1965, Soquel was the location of the first “Acid Test” party.

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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 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 Cruz 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 likewise guarantees other loan programs offered by personal loan providers. Here’s a take a look at each of them.

  • FHA 203( k) loans – These FHA loans assist property buyers buy a home– and refurbish it– all with a single home mortgage. Property owners can likewise utilize the program to re-finance their current mortgage and add the cost of renovating jobs into the new loan. FHA 203( k) loans can be found in 2 types:
    • The restricted 203( k) has a simpler application procedure, and the repairs or enhancements must amount to $35,000 or less.
    • The basic 203( k) needs extra paperwork and applies to enhancements costing more than $5,000, but the total value of the home must still fall within the FHA home mortgage limit for the location.
  • House Equity Conversion Mortgage, or HECM – A HECM is a popular type of reverse home mortgage and is also guaranteed by the FHA. A HECM enables older property owners (aged 62 and up) with substantial equity or those who own their houses outright to withdraw a portion of their home’s equity. The quantity that will be readily available for withdrawal varies by debtor and depends upon the age of the youngest customer or eligible non-borrowing spouse, existing rate of interest and the lesser of the home’s assessed value or the HECM FHA home mortgage limitation or sales price.
  • FHA Energy Efficient Mortgage (EEM) program – Energy effective mortgages backed by the FHA enable homebuyers to purchase houses that are currently energy efficient, such as EnergyStar-certified structures. Or they can be used to purchase and remodel 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 known as the Graduated Payment Mortgage, this program is tailored at borrowers whose incomes will increase with time. You start out with smaller sized month-to-month payments that slowly increase. 5 particular strategies are readily available: three strategies that enable five years of increasing payments at 2.5 percent, 5 percent and 7.5 percent every year. Two other plans set payment boosts over 10 years at 2 percent and 3 percent each year.

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FHA Loan Limits for 2022

For 2019, the flooring limit for FHA loans in most of the nation is $314,827, up from $294,515 in 2018. For high-cost areas, the ceiling is $726,525, up from $679,650 a year earlier. These limitations are described as “ceilings” and “floors” that FHA will guarantee. FHA updates restrict quantities each year in action to altering home prices.

FHA is needed by law to adjust its quantities based on the loan limitations set by the Federal Housing Finance Agency, or FHFA, for traditional home mortgages guaranteed or owned by Fannie Mae and Freddie Mac. Ceiling and floor limits vary according to the cost of living in a certain area, and can be various from one county to the next. Areas with a greater expense of living will have greater limits, and vice versa. Unique exceptions are made for real estate 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 serious monetary hardship or are struggling to make their payments.

That relief might be in the form of a temporary duration of forbearance, a loan modification that would decrease 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 Soquel CA?

The FHA makes it relatively simple to qualify for a mortgage loan. Again, the government guarantees the loan, so mortgage companies are more willing to approve mortgage loans. However, lenders can (and do) set standards that may be stricter than FHA requirements. If you’re having trouble with one FHA approved lender near Soquel CA, you might have better luck with 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 Soquel to find out for sure.

Income limits: there are none. You’ll need enough to show that you can repay the loan but these loans are geared towards lower income borrowers. If you’re fortunate 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

Debtors get their home loans from FHA-approved loan providers in Soquel rather than the FHA itself, which only insures the loans. FHA-approved loan providers can have various rates and expenses, even for the same loan.

FHA loans are available through numerous sources– from the biggest banks and cooperative credit union to neighborhood banks and independent home mortgage lending institutions. Expenses, services and underwriting standards vary amongst lenders or home mortgage brokers, so it’s important to search.

Discover more about how to discover low FHA mortgage loan provider.


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