Ozean Realty

FHA Loans

The Federal Housing Administration (FHA) has helped people become homeowners since 1934 by insuring loans from approved lenders. FHA loans are easier to qualify for than conventional loans but require more documentation and mortgage insurance. They’re a great option for borrowers who might not qualify for other mortgages

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What is an FHA Loan?

FHA loans are government-insured, allowing lenders to approve borrowers with less-than-perfect credit. While borrowers must pay mortgage insurance, it makes financing possible for those who might not qualify for conventional loans. For 2025, FHA loan limits for single-family-homes in California range from $524,255 in lower cost areas to $1,209,750 in high-cost areas. 

Requirements

FHA loans are easy to qualify for, requiring a low down payment (as little as 3.5%) and a credit score as low as 500. The Federal Housing Administration (FHA) insures the loan, enabling lenders to offer better deals.

While the down payment is 3.5%, total closing costs typically range from 6–8% of the sales price, including taxes, insurance, and interest. Borrowers can reduce payments with lower interest rates by paying points or opt for higher rates to lower upfront costs. Funds for closing can come from savings, gifts, grants, retirement loans, or seller contributions.

Documents needed: 

  1. Provide – 2 years of W2. 
  2. Provide – 2 years of Personal Tax Returns
  3. Provide – 2 years of Business Tax Returns (1099)
  4. Provide – 2 months bank statements. 
  5. Provide – 2 weeks of Paystubs
  6. A valid DMV license or State ID card.
  7. A valid social security number

Other Requirements:

  1. FICO score can be as low as 500-579. 
  2. Minimum down-payment can be as low as 3.5% for borrowers whose FICO score 580+. Borrowers with FICO of 500-579 – Minimum down-payment is 10%. 
  3. Have a debt-to-income ratio (DTI) of no more than 56.99%
  4. Pay Upfront Mortgage Insurance Premium (UFMIP) of 1.75% of the base loan amount. 
  5. Must be at least two years out of bankruptcy, unless you can prove that bankruptcy is was due to circumstances beyond your control. 
  6. Must be at least 3 years removed from any foreclosures. 
  7. Borrowers with less than 10% downpayment will have mortgage insurance payment for life of the loan. 
  8. Borrowers with 10% downpayment will have a mortgage insurance payment for 10 years. 

Benefits

As previously mentioned, FHA loans have very tangible benefits for borrowers, the most notable being the flexible credit requirements. Moreover, FHA loans can be used to buy a home and fix it up combined into one loan. Low down payments and relatively low closing costs make this type of loan very appealing for all types of home buyers.

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