What is an FHA Loan? – San Diego
A San Diego FHA Loan (Federal Housing Administration) is a government loan that allows a client to purchase a home with as little as 3.5% down payment or obtain a refinance mortgage up to 97.75% Loan to Value (LTV). An FHA Loan in San Diego typically allows a borrower to qualify at higher debt to income ratios than a conventional loan and allows credit scores as low as 600. FHA loans are used many times by First Time Homebuyers in San Diego because of the low down payment and program flexibility, but FHA loans are not exclusive to first time homebuyers. Anyone can use an FHA Loan in San Diego to buy or refinance a primary residence.
Other San Diego FHA Loan Benefits
There are many other benefits to the San Diego FHA loan program. The entire 3.5% down payment on a purchase can be gifted to the buyer by relatives. This would allow a client to buy a home in San Diego without having to save the down payment on their own. FHA loans also allow non-occupying co-borrowers. For example, if a buyer cannot qualify to purchase a home in San Diego by themselves or they just graduated college and do not have a job of their own yet, the buyer’s parents or another relative, can become a co-borrower and use their income to help the buyer qualify even though they are not living in the house. This is a great way to help First Time Homebuyers in San Diego or Southern California get into the housing market.
FHA loans in San Diego also allow the seller to pay up to 6% of the purchase price to cover the buyer’s closing costs. This will be changing to 3% in the future, but that has not been implemented yet. FHA loans in San Diego are also assumable by future buyers and currently offer loan amounts up to $879,750 in San Diego County. As of this writing, interest rates on FHA loans in San Diego are about .125% – .25% better than conventional loans.
What is FHA Mortgage Insurance? – San Diego
FHA Loans have two Mortgage Insurance charges. First, there is an upfront mortgage insurance premium (MIP) equal to 1.00 percent of the loan amount due at the time of closing. Most clients choose to finance this upfront premium into the loan which is allowed by FHA. There is also an annual mortgage insurance premium that is charged on a monthly basis as part of your mortgage payment. On an FHA 30 Year Fixed loan at 96.5% LTV the annual mortgage insurance premium is 1.15% of the loan amount. If the borrower lowers the LTV to 95% then the annual mortgage insurance premium is lowered to 1.10%. The mortgage insurance will be removed once the borrower has paid it for at least 5 years and the LTV is down to 78% of the original loan balance.
Conventional Loans vs. FHA Loans in San Diego
FHA Loans in San Diego are a great option, but for clients who have credit scores in the 700s and have lower debt to income ratios, a conventional loan with mortgage insurance might be a better option. On a purchase loan, a buyer can get a conventional loan with MI up to a 97% LTV and the monthly charge for mortgage insurance will be less than the FHA loan in San Diego. Conventional MI can be removed at 80% LTV at any time and they do take appreciation into account, unlike an FHA loan.
If you have any questions on FHA loans in San Diego, please feel free to contact me. I have been a San Diego Mortgage Broker for 10 years and work with many FHA loans.