FHA and CalHFA Loans

FHA loans

An FHA loan is a mortgage insured by the Federal Housing Administration, a federal agency within the U.S. Department of Housing and Urban Development (HUD). The FHA does not loan money to borrowers, rather, it provides lenders protection through mortgage insurance (MIP) in case the borrower defaults on his or her loan obligations. The insurance reduces the lender's risk exposure so they are able to make the loans at lower rates. Available to all buyers, FHA loan programs were initially designed to help creditworthy low-income and moderate-income families who do not meet requirements for conventional loans.  Until recently loan limits for FHA loans, which were very low, prevented FHA loans from being practical for most areas in California, but in 2008 new

loan limits for FHA loans were released temporarily allowing for FHA loans up to $729,750* in many areas including most of the San Francisco Bay Area through the end of 2008.

FHA loan programs are particularly suited to borrowers with less available cash for down  payment for purchase or lower equity in their homes for refinances. The rates on FHA loans are generally market rates, while loan to value guidelines are higher than for conventional mortgages.  FHA mortgages also allow for the required down payment to come from gift funds provided either by a family member or close friend, or certain nonprofit down payment assistance charities which act as an intermediary to allow for the seller to donate the down payment and closing costs to the buyer of their home.  With these down payment assistance charities a borrower can buy a home using and FHA loan with essentially 103% financing!

Some of the other benefits of FHA financing:

• Only a 3 percent down payment is required. (Less with Downpayment Assistance)
• Up to 97% financing for rate and term refi's and 95%* financing on cash-out refi's
• Closing costs can be financed or credited by seller.
• Lower monthly mortgage insurance premiums than conforming mortgages.
• Non-Occupant CoBorrowers available with blended debt-to-income ratios.
• More flexible underwriting criteria than conventional loans.
• FHA limits the amount lenders can charge for some closing cost fees (e.g. the origination fee can be no more than 1% of mortgage).
• Loans are assumable to qualified buyers.

 *  HUD Guidelines Update:  In April HUD changed guidelines for loan amounts that will exceed the January 1, 2008 conforming limit of $417,000.  FHA is requiring a second appraisal for loans on properties in declining areas, and limiting the loan-to-value for cash-out refinances to 85% on loan amounts above $417,000.

Cal HFA  Loans

CalHFA (the California Housing Finance Agency) is a State agency established in 1975 which makes low-rate loans available to first-time home buyers that fit within specified income ranges with little or no down payment. CalHFA does not lend the money directly to consumers; rather they make the loans available through approved lenders using money raised by the sale of tax-exempt bonds. 

Some CalHFA details:

• CalHFA loans are only available to borrowers who have not owned a home in the last three years buying homes in California buying homes that fall within the CalHFA’s sales price limits.
• The first time home buyer requirement can be waived if the borrower is purchasing a home in certain federally designated areas.
• Cal HFA lends up to 95% of the purchase price of the home for borrowers who qualify and with qualified deferred payment down payment assistance programs up to 102% financing is available and sellers can provide up to 3% credit for closing costs.
• Mortgage insurance rates on CalHFA loans are some of the lowest available and free unemployment insurance is included with the MI premium.
• Call HFA requires full income documentation, but allows up to a 55% debt to income ratio and has very low reserve requirements.
• The borrower must occupy the residence.
• Impounds for taxes and insurance are required.

Contact Ernie DeCoite and Financial Mortgage today for more information on FHA or CalHFA financing programs.