What is a San Diego FHA Loan?
A San Diego FHA Loan (Federal Housing Administration) is a government program that allows a borrower 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).
One great benefit of FHA Loans is that they usually allow borrowers to qualify at higher debt to income ratios than conventional loans and allow credit scores as low as 580. Conventional loans will require credit scores of 620 or better and at the lower credit scores the interest rate will be substantially higher than on a FHA loan.
Many first time homebuyers in San Diego utilize FHA loans because of the minimum down payment and its underwriting flexibility, but FHA loans are not exclusive to first time home buyers. Anyone can use an FHA Loan in San Diego to buy or refinance a primary residence.
Additional San Diego FHA Loan Benefits
There are many other benefits to FHA home loans. FHA loans allow the whole 3.5% down payment to be gifted to the buyer by relatives. This is very helpful for those clients who would like to buy a home in San Diego, but do not have enough funds saved on their own for the down payment and closing costs. With the continued increase of home values in San Diego, it can be difficult for buyers to keep up the pace with their down payment savings.
FHA loans also allow non-occupying co-borrowers. For example, if a buyer cannot qualify for the loan by themselves or if they just graduated from college and do not have their own job 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. I have helped several parents buy homes with their children using an FHA loan so that their child can start investing for their future and stop paying their landlord’s mortgage.
Another great benefit is that the sellers can pay up to 6% of the purchase price to cover the buyer’s closing costs on FHA loans. It does not have to just be traditional closing costs. It can also help cover taxes, insurance, prepaid interest, and even HOA dues if it is a condo. One thing to keep in mind, if looking for a condo, is that the condo complex must be FHA approved. If a condo complex is not approved, we do have a way to help get a complex FHA approved.
FHA loans are also assumable by future buyers and currently the FHA loan limit is up to $701,500 in San Diego County. Mortgage Rates on FHA loans are currently about .375% better than conventional loans.
What is FHA Mortgage Insurance?
FHA Loans have two separate Mortgage Insurance charges. First, there is an upfront mortgage insurance premium (MIP) equal to 1.75 percent of the loan amount due at the time of closing. Most borrowers decide to finance this upfront premium into the home loan amount.
There is also an annual mortgage insurance premium that is collected 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 .85% of the home loan amount. When the LTV is lowered to 95%, the annual mortgage insurance premium is lowered to .80%. The mortgage insurance will remain for the life of the loan as of June 1st, 2013 for loans that have a beginning LTV of 90% or more. If the LTV is below 90%, the mortgage insurance can be removed after 11 years.
For loan amounts greater than $625,500, the annual mortgage insurance is 1.05% at a LTV greater than 95% and 1.00% at an LTV less than 95%.
Conventional Loans vs. FHA Loans in San Diego
FHA Loans in San Diego are a great option, but for borrowers who have higher credit scores in the 700s and lower debt to income ratios, a conventional loan with mortgage insurance might be a better option. A buyer can get a conventional home loan with mortgage insurance up to a 97% LTV and the monthly charge for mortgage insurance will be less than an FHA loan.
Conventional MI can be removed when the original loan balance is paid down to 80% LTV or less. Conventional loans will allow appreciation to be taken into account, unlike an FHA loan. When appreciation is taken into account to lower the LTV, there are certain timeframes that the mortgage insurance must stay in place. This ranges from 2-5 years.
If you would like to learn more about FHA loans please contact me at 858-829-7186. You can also become pre-approved for an FHA loan by filling out the pre-approval application HERE receive a free interest rate quote by filling out the quote form below. Please let me know if I can be of any more help.
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