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Benefits of Using an FHA Loan When Buying a House in California

Home buyers in California tend to have a lot of questions about the FHA loan program. We’ve addressed many of these questions in previous blog posts. Today, we will talk about the benefits and advantages of using an FHA loan to buy a home in California.

How the Program Works

The Federal Housing Administration (FHA) home loan program was created in the 1930s. It’s designed to make homeownership more affordable and attainable for home buyers with low to moderate income.

This program revolves around insurance. Mortgage lenders offer FHA loans to borrowers, while receiving insurance protection from the federal government. Because of this federal insurance, mortgage lenders can be more lenient with their requirements.

The FHA loan program is open to all sorts of borrowers. Contrary to popular belief, you don’t have to be a first-time buyer to qualify. Even those buyers who have owned homes in the past can still qualify for an FHA loan.

As for the eligibility requirements, you need to have sufficient funds for your down payment and closing costs. You’ll also need a credit score of 580 or higher to qualify for the 3.5% down payment (explained below).

The Biggest Advantages of FHA Loans

The FHA loan program offers a number of benefits for home buyers in California. It is particularly well-suited for first-time buyers with limited down-payment funds, as well as those who have had credit problems in the past.

Here are three of the biggest benefits and advantages:

1. You can make a relatively small down payment.

We already touched on one of the main benefits of using an FHA loan. This program has a relatively low down-payment requirement, when compared to other types of mortgages. Qualified borrowers can use an FHA loan to buy a house in California with as little as 3.5% down.

This is arguably the biggest benefit, especially when you consider the pricey nature of the California real estate market.

The down payment is often the biggest obstacle for home buyers in California. Because of this, borrowers often seek ways to minimize the upfront costs associated with a home purchase. And the FHA loan program is one way to do that. It allows you to make a smaller down payment, reducing (or even eliminating) one of the biggest hurdles to homeownership.

2. You could use gift funds for your down payment.

When using an FHA loan to buy a house in California, you could use the money provided by an approved third-party to put toward your down payment. For instance, a family member could contribute money to help you overcome the upfront investment associated with a home purchase.

This is another big benefit of using an FHA loan in California. While many mortgage programs allow for down payment gifts, the rules and requirements tend to be more lenient with the FHA program. It allows for a wide range of donors, including family members and close friends.

3. You don’t need to have great credit.

FHA loans tends to have more flexible credit-score requirements as well. And this ties back to the government insurance mentioned earlier.

Mortgage lenders who offer these loans receive some degree of protection from the federal government, in the form of insurance coverage. This allows lenders to be more flexible when qualifying borrowers. It’s another big benefit of using an FHA loan to buy a house in California.

The official minimum credit score for an FHA loan is 500. But you’ll need a score of 580 or higher to qualify for the 3.5% down payment we just talked about above. Those are the official requirements imposed by the Department of Housing and Urban Development (HUD).

4. Financing is available for a variety of property types.

Another benefit of the FHA loan program is that you can use it to buy many different types of properties. You can purchase a “regular” single-family home, a condo, a townhouse, etc. As long as the property meets the minimum requirements for safety and habitability (as defined by HUD), you should be able to use an FHA loan to purchase it.

Is It the Right Mortgage Option for You?

FHA loans are well-suited for some California home buyers, for the reasons stated above. But they’re not right for every scenario.

Every borrower has their own unique circumstances and financing goals. So you have to choose the type of mortgage loan that works best for your particular situation. That might mean using an FHA or a conventional loan to buy a house in California. It depends.

And that’s where we come in to the picture.

Bridgepoint Funding has been helping home buyers in California for nearly 20 years. We offer a wide range of home loan options, including FHA, VA and conventional.

More importantly, we can help you choose the best financing method based on your unique situation. So please contact us with your mortgage-related questions, or to apply for a loan.

Mike Trejo

Mike Trejo is a Bay Area mortgage broker with 20+ years of knowledge and experience.

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