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

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

Looking for an FHA Loan in Watsonville California?

FHA loans have been a flexible mortgage program that’s been around since the 1930’s and is protected 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 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 highly accessible and attainable for home-buyers with less than perfect credit or a low down payment due to FHA mortgage limits in Watsonville, 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 mortgages at really attractive 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.


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

Typically an FHA loan in Watsonville 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 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 scenario.

Another advantage of an FHA loan is that it’s an assumable mortgage which means if you want to sell your property, 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 home loan programs will make it possible for 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 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 very little even on a worst case rate change.

About Watsonville California

Watsonville’s land was first inhabited by an Ohlone country of Aboriginal Californians. This tribe cleared up along the Pajaro Dunes since the land was abundant as well as useful for the growing of their plants and also pets.

In 1769, the Portolá exploration – very first European explorers of the area – came to the location southern, where soldiers explained a huge bird they saw near a big river. The tale made it through in the river’s name, Rio del Pajaro (River of the Bird).

The Portolá exploration continued with the area on its way north, camping at one of the lakes north of community for 5 evenings, on October 10– 14, 1769. On the 5th day, Franciscan missionary Juan Crespi, taking a trip with the expedition, kept in mind in his journal that, “This afternoon the explorers returned.

During the October 10 march, the travelers initially saw the Coast redwood tree (Spanish: palo colorado). A bronze plaque at Pinto Lake (now a city park) memorializes the event. On October 15, the expedition remained to the northwest previous today’s community of Freedom, outdoor camping that evening at Corralitos Lagoon.

The area became component of the Spanish colonial district of Las Californias, as well as in 1804 the northern part was split off to create Alta California. The location’s field lands were assigned to the Spanish objective to the south, in Carmel.

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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 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 Mortgage Loans

In addition to its popular FHA loan, the FHA also guarantees other loan programs used by private lending institutions. Here’s a look at each of them.

  • FHA 203( k) loans – These FHA loans assist homebuyers acquire a house– and renovate it– all with a single mortgage. House owners can also utilize the program to re-finance their current home mortgage and include the cost of remodeling projects into the new loan. FHA 203( k) loans come in 2 types:
    • The limited 203( k) has an easier application procedure, and the repairs or enhancements must total $35,000 or less.
    • The standard 203( k) needs additional documentation and applies to improvements costing more than $5,000, but the overall value of the home should still fall within the FHA home loan limitation for the area.
  • House Equity Conversion Mortgage, or HECM – A HECM is a popular kind of reverse mortgage and is likewise insured by the FHA. A HECM permits older house owners (aged 62 and up) with considerable equity or those who own their homes outright to withdraw a portion of their home’s equity. The quantity that will be offered for withdrawal differs by customer and depends on the age of the youngest debtor or qualified non-borrowing partner, present rate of interest and the lesser of the home’s assessed value or the HECM FHA home loan limit or list prices.
  • FHA Energy Efficient Mortgage (EEM) program – Energy effective mortgages backed by the FHA allow homebuyers to buy homes that are currently energy effective, such as EnergyStar-certified buildings. Or they can be used to buy and redesign older homes 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 customers whose earnings will increase in time. You start out with smaller sized month-to-month payments that slowly increase. 5 particular plans are available: 3 strategies that allow 5 years of increasing payments at 2.5 percent, 5 percent and 7.5 percent yearly. 2 other strategies set payment increases over 10 years at 2 percent and 3 percent annually.

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FHA Loan Limits for 2023

For 2019, the flooring limitation 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 earlier. These limits are referred to as “ceilings” and “floorings” that FHA will insure. FHA updates restrict amounts each year in reaction to altering home rates.

FHA is required by law to change its amounts based upon 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 flooring limitations differ according to the cost of living in a particular location, and can be different from one county to the next. Areas with a higher cost of living will have higher limits, and vice versa. Unique exceptions are made for housing in Alaska, Hawaii, Guam and the Virgin Islands, where home building is more pricey.

FHA Loan Relief

Loan servicers can provide some versatility on FHA loan requirements to those who have suffered a serious monetary difficulty or are having a hard time to make their payments.

That relief might be in the form of a short-lived period of forbearance, a loan modification that would decrease the rates of interest, 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 Watsonville CA?

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

Debtors get their home mortgage from FHA-approved loan providers in Watsonville instead of the FHA itself, which only insures the loans. FHA-approved loan providers can have different rates and expenses, even for the very same loan.

FHA loans are available through numerous sources– from the greatest banks and credit unions to neighborhood banks and independent mortgage lending institutions. Expenses, services and underwriting requirements vary among lenders or home loan brokers, so it’s crucial to shop around.

Learn more about how to find low FHA home loan loan provider.


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