In Orange county, the FHA loan program is extremely popular amongst first time homebuyers compared to other mortgage programs. What many Orange County home buyers don’t always realize is that the FHA program can be the best home financing option for move up home buyers as well. Reasons for this include flexibility in underwriting guidelines, credit, and down payment.
When is FHA Better Than Conventional Financing?
FHA allows for approved lenders to provide loans with very low down payments to borrowers with less than perfect credit scores. The minimum down payment required is 3.5% of the loan amount and can be provided to borrowers with a credit score as low as 580. The FHA loan limit in Orange County in 2016 is $625,500. This means an Orange County home buyer can use FHA financing to buy a home up to $648,000 with only 3.5% down, which is better than any other Conventional loan program. The only program better than that is VA. (You would need to be a qualified active or retired military Veteran).
The FHA program also has many other beneficial aspects for potential borrowers. Interest rates with an FHA loan are much lower than a majority of other programs. FHA also allows the down payment to be a gift from a source like a family member or charity. Because interest rates and loan pricing tends to be better with FHA than Conventional loans, it is easier for Orange County FHA lenders to cover the closing costs using a lender credit (which involves increasing the interest rate). If a borrower were to experience an extreme financial hardship, FHA allows for potential relief in the form of a loan modification or a period of forbearance.
FHA is extremely attractive for first time homebuyers particularly due to the low down payments and low interest rates, but it is also very beneficial for borrowers with a rough credit history, or even just less than perfect credit. (For a borrower with a FICO score less than 740, FHA may be a good option). Many borrowers with low credit scores are able to qualify for FHA loans whereas with other programs they would face significantly higher costs or even be flat out ineligible. FHA only requires a two year wait period after a bankruptcy and three years after a foreclosures. This is very short when compared to Fannie Mae/Freddie Mac Conventional loan programs which requires four years after a bankruptcy and 7 years after a foreclosure.
FHA Loan PreApproval
Getting PreApproved for an FHA loan is a critical step in the home buying process. Buying a home, especially in Orange County, will most likely be one of the biggest investments you will ever make. Knowing the maximum purchase price you are qualified for before making an offer will save a lot of time and frustration. Knowing all of the numbers, including the full payment breakdown and it that will fit into your budget, is very important. Working with an Orange County Loan Officer who can prepare custom FHA loan scenarios based on your goals and qualifications should always be the first step in the home buying process.
Authored by Tim Storm, an Orange County Loan Officer specializing in FHA & VA Loan programs. MLO 223456. – Please contact my office at the Home Point Financial. My direct line is 949-640-3102. www.OCHomeBuyerloans.com. I will prepare custom loan scenarios which will be matched up to your financial goals, both long and short term. I also prepare a Video Explanation of the your scenarios so that you are able to fully understand the numbers BEFORE you have started the loan process.