An FHA loan is a great way for Orange County home buyers to purchase a home with minimal down payment. FHA only requires 3.5% down payment and that down payment can be a gift or come from a 401K. Because of the benefits FHA has over other types of financing, many times homebuyers are under the mistaken impression that there must be strict qualifications for an FHA loan. So what does it take to qualify for an FHA loan?
Income Requirements for an FHA Loan
Having a verifiable source of income is a good start. There are no income limitations or "maximum's", which some "First Time Home Buyer" loan programs have. Although FHA is commonly thought of as a First Time Buyer loan program, you don't need to be a First Time Buyer to use FHA financing. But you do need enough income to afford the mortgage payment. And that income needs to have a history of at least two years in most cases. The lender will also want verify that it is expected to continue. While income from a job is the most typical source, income can also come from alimony, child support, social security, investments, or rental property. FHA will even allow "non occupying" co-borrowers, who must be related to the primary home buyer, to be added to the loan for qualifying purposes.
Basic Credit Requirements for an FHA Loan
While FHA is fairly flexible with credit requirements, its not exactly a "subprime" loan program. Common sense underwriting, at least as far as credit is concerned, would be a better explanation of the credit requirements. While Fannie Mae an Freddie Mac have tightened the FICO requirements in their underwriting guides, especially on low down payment programs, FHA only recently released guidance to lenders for minimum FICO requirements. Even so, most FHA lenders in Orange County require a minimum 620 FICO score. This is very lenient, especially for a loan program that only requires 3.5% down payment.
Down Payment Requirements for FHA Loan in Orange County
As previously mentioned, the minimum down payment for an FHA loan is 3.5% of the purchase price. Unless qualified for $0 Down VA loan, FHA is a very aggressive loan program. This means that an Orange County first time home buyer purchasing a home in Irvine for $400,000 would only need $14,000 for the down payment. The down payment can come from savings, a 401K, and even a gift or even loan, as long as it comes from a family member. If the down payment is a loan, the payments will need to be factored in the "debt to income" ratios for the home buyer. If the down payment is coming from savings, make sure it has been "seasoned" in the bank for at least two months. Any large deposits appearing on the most recent two months bank statements will need to be verified.
FHA Insures the Loan | An Orange County Lender Will Fund the FHA Loan
FHA "insures" the loan, taking absorbing the risks associated with a low down payment loan. This allows Orange County FHA Approved lenders to fund the loan, as long as the loan is underwritten according to FHA guidelines. This is why it is important to work with an experienced Orange County FHA lender who understands the in's and out's of FHA underwriting guidelines. The Orange County FHA lender should be able to quickly Prequalify a home buyer and even offer an FHA PreApproval for free.
Authored by Tim Storm, an Orange County, CA FHA and VA Loan Officer – Please contact my office at Home Point Financial for more information about an Orange County, CA home loan. 949-829-1846.
Call our office today and see how we can help you and your family. Ask for your Free First Time Home Buyer Report.
949-829-1846 | tstorm (at) ochomebuyerloans.com