Those in San Diego looking at their home-buying options should do a deep dive into the process of obtaining an FHA loan.
The Federal Housing Administration (FHA) offers this mortgage loan product that is incredibly popular among first-time home buyers. The advantages of a FHA loan is that borrowers can have a less than perfect credit score and put down a much lower percentage than those borrowing from traditional lending sources.
Here's a quick rundown of our list:
- Qualifying For a FHA Loan
- 6 hacks you can do to get an FHA loan in San Diego and reduce your costs in paying for it
- Hack 1 - Buy a Multi-Family Property
- Hack 2 - Talk to a FHA-Approved Inspector
- Hack 3 - Use an Interest Comparison Tool
- Hack 4 - Check to See if There are Any Tax Credits Available
- Hack 5 - Look at How Values Rise
- Hack 6 - Consider How You will Pay Your Mortgage Insurance
This make homes much more affordable to many people, especially in areas like San Diego where putting down 20 percent on a home can push many people out of the market.
Qualifying For a FHA Loan
FHA loans are designed to help lower income people achieve the dream of buying a home. There are some basic qualifications all applicants must have to get these type of loans. Potential borrowers must have at least a 580 FICO score. People with this score or higher will only need to put down 3.5 percent of the purchase price for a down payment.
Those with lower scores aren't knocked out of a loan,but will be required to put more down. For instance, if your score is between 500 and 579, you will be required to make a down payment of 10 percent of the purchase price. It is also important to remember that the amount of interest you pay increases as your FICO score decreases, so it's best to get your credit in good shape before you apply to get the best deal.
Those with bankruptcy on their records are not disqualified from an FHA loan. They must be out of bankruptcy for at least two years and have re-established credit. Likewise, those who have experienced foreclosure are not disqualified from borrowing under the FHA loan program. They must have been out of foreclosure for at least there years and have re-established credit to quality.
There are exceptions to both those experiencing bankruptcy and foreclosure if you can document that circumstances were out of your control.
Under a FHA loan, borrowers must have a steady employment history or have worked for the same employer for at least the past two years. You must have a valid Social Security number and be in the U.S. Legally. You must be of legal age to sign for a mortgage, which can vary state to state.
A key factor is the down payment. There are no options to buy a home with no money down. However, a family member can gift you the money and that won't go against you in obtaining a loan.
There are 6 hacks you can do to get an FHA loan in San Diego and reduce your costs in paying for it.
Hack 1 - Buy a Multi-Family Property so you can live in one unit and rent the other two to four units. The FHA will approve this type of purchase as long as you are living in one of the units.
FHA loans require that you live on the property and use it as your primary residence. Investing in a multi-family property will not only allow you to give your family a home, but would also generate additional income for you over the years.
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Hack 2 - Talk to a FHA-Approved Inspector before scheduling an inspection or even focusing on one property. Ask the inspector what their primary concerns are and what makes for a good inspection. Then, talk to the seller to see if they are agreeable to fix any problems the inspector may find.
Hack 3 - Use an Interest Comparison Tool available at the Consumer Financial Protection Bureau (CFBP) web site. You can plug in your specific details and find compare interest rates in your area.
For instance, in California, the interest rate for someone with a 660 to 679 credit score is 5.25 percent or lower with some as low as 4.75 percent.
Getting the lowest interest rate will save you thousands over the course of your loan. When you compare a 4.75 percent rate with a 6 percent rate, the monetary difference is $19,000 over the first five years of your loan. It would mean more than $88,000 over the 30 years of a traditional fixed rate loan.
Hack 4 - Check to See if There are Any Tax Credits Available for the areas you may want to live. The government sometimes offers tax credits for areas it wants to transition into a more thriving neighborhood. Sometimes, the neighborhoods will surprise you at how convenient and safe they are, even though they are called “distressed” or “transitional” so it is worth checking out. You can use tax credits along with a FHA loan to maximize your savings on your home purchase.
Hack 5 - Look at How Values Rise in your potential neighborhood over the course of a decade. This will help you determine how to proceed with a FHA loan. Things like school construction or a new commercial development can add quick value. It is best to get into a home before those things hit the planning and development stages or you will be paying top dollar.
Hack 6 - Consider How You will Pay Your Mortgage Insurance. A FHA loan requires mortgage insurance and there are two types of premiums it will accept. One is paid upfront at closing and the other is included every month in your loan payment. Borrowers can expect to pay 1.75 percent of their loan to mortgage insurance. For a $300,000 home, that is $5,250.
Those who choose to include it in their mortgage payment will want to find out how the additional money for mortgage insurance will affect their payments before making a decision.
People who dream of owning a home do have some significant opportunities now as long as they have a steady job and are responsible. The FHA loan program is a good way to go for your first home or to re-establish yourself after a setback. It is worth taking a look at to see if you qualify.
If you have any questions about FHA loans and how they work for home purchases, feel free to shoot me a text or call at (760) 297-4539
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