Walnut Creek FHA Loans: 2016 Program Overview

FHA loans are a popular financing tool among Walnut Creek home buyers. They are especially popular among first-time buyers who have limited funds for a down payment. Our Walnut Creek FHA loan guide explains how this program works, and how it might benefit you as a borrower.

What Is an FHA Loan?

An FHA loan is a home mortgage loan that is insured by the federal government. The program is managed by the Federal Housing Administration, which falls under the Department of Housing and Urban Development (HUD).

The FHA does not lend money directly to home buyers. Instead, it insures mortgage lenders against losses relating to borrower default. This insurance encourages lenders to offer such loans in the first place. The government’s backing can also result in more flexible qualification guidelines, as explained below.

Potential Benefits for Borrowers

As a Walnut Creek home buyer and mortgage shopper, you have several options as to how you want to finance your purchase. One of your first choices will be whether to use a government-backed FHA loan, or a “regular” conventional loan that’s not insured by the government.

One of the benefits of using an FHA loan is the low down payment. Eligible borrowers who use this mortgage program can put down as little as 3.5% of the purchase price or appraised value (whichever is less). Some conventional mortgages offer down payments that low, while others require more money down. But with a Walnut Creek FHA loan, your out-of-pocket investment could be as low as 3.5%.

It’s also worth noting that FHA-insured mortgages are available with fixed and adjustable rates. You have options here as well. So whether you’re interested in a 30-year fixed loan, or a 5/1 ARM loan, this program can accommodate you.

Other potential benefits to using FHA:

• Flexible Debt Ratios — Excessive debt can be an obstacle when it comes to mortgage approval. Mortgage lenders will review your debt-to-income (DTI) ratio to determine if you’re eligible for a loan. The FHA has more lenient DTI restrictions than some other loan programs. Additionally, they allow lenders to qualify borrowers who are outside these guidelines, as long as there are “compensating factors” that show the borrower is a good candidate for a loan.
• Flexible Credit Requirements — Generally speaking, the credit qualifications for FHA loans are less stringent than those used for conventional (non-government-backed) mortgage loans. This is partly due to the government insurance backing mentioned above. Eligible borrowers with credit scores of 580 or higher could qualify for the 3.5% down payment option.
• Streamline Refinance — Homeowners with FHA loans may be eligible to refinance into a new government-backed mortgage down the road, with minimal hassle and paperwork. According to HUD, the streamline refinance program requires “limited borrower credit documentation and underwriting.”

Current Loan Limits in the County: $625,500

If you use an FHA loan to buy a home in Walnut Creek, you’ll be limited to a certain amount. That’s because the Federal Housing Administration places limits or “caps” on the amount of liability they are willing to assume, with regard to insurance. By extension, these limits can affect the amount you are able to borrow when using a Walnut Creek FHA loan.

The current (2016) limit for Contra Costa County is $625,500, for a single-family home. The caps go higher for multi-family properties, as shown below:

• One-family: $625,500
• Two-family: $800,775
• Three-family: $967,950
• Four-family: $1,202,925

In this context, a “one-family” property is a regular single-family home. “Two-family” refers to a duplex-style property with two separate residents, and so on. If you’re in the market for a single-family home in Walnut Creek, $625,500 is the magic number for you.

Limits vs. Local Home Prices

So, how do these limits compare to home prices in the area? Can you actually buy a home in Walnut Creek without exceeding the FHA limits shown above? The answer is yes.

According to Zillow and Trulia, the median home price for Walnut Creek was around $785,000 in August 2016 (when this article was published). That’s well above the FHA loan limit for Contra Costa County. But that’s just the midpoint for the local real estate market. There are plenty of homes for sale under the $625,500 FHA cap.

For instance, Realtor.com showed a total of 339 homes for sale in Walnut Creek, as of August 2016. By adjusting the maximum price to $625,500 (the current FHA loan limit), the total inventory was reduced to 141 houses. That’s still plenty of homes to choose from. In other words, there are many homes for sale in Walnut Creek that fall within FHA loan limits.

Related: Recent home price trends

Your Walnut Creek FHA Mortgage Lender

Bridgepoint Funding offers FHA loans to Walnut Creek home buyers. Our team has decades of combined experience and can help you decide if this program is right for you. In addition to government-backed loans, we offer conventional mortgage financing as well. Please contact us if you have questions about this program, or if you’d like to receive a personalized rate quote. We look forward to helping you!