Basics of an FHA Home Loan
And how to use the Sapphire program for 100% financing
If you have been thinking of purchasing a home, you will definitely want to know about FHA loans. West Coast Lending Team is located in Roseville CA, and we have closed hundreds of FHA loans. FHA loans are very popular, and are usually the best choice for first time buyers. This six point article will give you a breakdown on exactly what FHA is, and as a bonus it covers the Sapphire program which provides a grant that gives you 100% financing.
1. What is an FHA loan
FHA loans are popular because they allow somewhat lighter lending standards compared to conventional loans, and they require a smaller down-payment. FHA is just a federal insurance on the loan that is provided to banks for lending you the money. Because this lowers the risk on the loan, banks can afford to take a bigger chance and use lighter standards.
2. Credit Requirements
The minimum required credit score to qualify for an FHA loan is 580. There are exceptions to go lower with a higher down payment, but that is not recommended because it can turn into an expensive headache for everyone involved. With a little work we can just help you fix up your credit if needed so the home purchase process goes much more smoothly.
3. Down Payment requirements
Now down payment on an FHA is the best part. Its only 3.5%, so $3,500 for every $100,000 you borrow. Compared to a conventional loan that traditionally requires a 20% down payment, an FHA loan keeps a lot of that money in your bank account.
A little further down though we explain the “Sapphire” program which will get rid of the down payment completely for those who qualify.
4. Finding the right loan
Because FHA is not a lender and just an insurance company, you will need to seek the actual loan from a bank. Every bank has different fees, costs and rates so you need to find one that meets your needs. That is actually where we come in. We learn about your situation and what you are looking for, then search around for you to find the best deal. We then give you a few different custom options to pick from and we get you a loan. Brokers have much more flexibility because of this, so 80% of consumers prefer working with a broker rather than finding a bank to work with. Most times brokers will deliver better rate and terms because the banks we use are competing for our business.”
5. How much the insurance costs
Mortgage insurance fee is what pays for the insurance on the loan. The upfront fee is 1.75% of the loan amount, then generally 0.85% of the loan amount per year. This drops off once you pay down the loan.
You can check this out if you use that loan calculator over to right side of the screen, and if you are on mobile it will just be down at the very bottom of this page.
6. Sapphire program
Sapphire is a grant that takes away the need for a down payment. The grant comes from CALHFA for California only and it can give you either a 3% or 5% grant. Everyone just uses 5% though because you NEVER have to pay it back, and it is completely forgiven after 6 months. This is attached to your FHA loan, and will carry a higher interest rate. Right now the interest rate would be 4.5% on your first loan instead of a rate possibly at 3.75% or 4%. It’s still a great rate though and will keep that down payment money in your pocket. The constraints with this program is you have to have a minimum credit score of 620. There are also income limits which are about 110% of the median income. Sacramento county for example has an income limit of $82,225 per household. We have a list of limits per county, so just ask if you want to know what it is for your county.