A very popular home loan option in California in 2018 is the FHA loan. The Federal Housing Administration backs this program. It is one of the most affordable home loans today which is why so many first time home buyers consider FHA to insure their mortgage.
An FHA loan is guaranteed against default. If you do not pay your mortgage, the lender will be reimbursed for most of the amount you owe. This is important to you because it means that lenders are much more willing to give FHA home loans to buyers who have credit problems and less than a 20% down payment. FHA loans are a major reason that the home ownership rate is as high as it is in the US today. It is possible with an FHA loan to get a home loan with as low as a 3.5% down payment and a 580-credit score.
However, the FHA does have its limits. For example, there are limits to the amount of home loan that FHA will insure. Every year, FHA performs a recalculation of what the maximum loan is that FHA will insure in case of default. Home prices in 2018 are generally on the rise in most of the US, so FHA is continuing for now to increase the limit.
As of the beginning of 2018, the conforming limit around the US for FHA loans is $424,100. This is the FHA limit for most parts of the country with normal real estate costs.
But what about other parts of the US where real estate and cost of living is much higher? FHA has taken this into consideration. For some of the most expensive parts of the US, including San Diego, Orange County, Los Angeles, Riverside, Fresno, San Jose, San Francisco, the limit for these loans is much higher.
For these areas of California with much higher costs for real estate, the maximum amount of loan that FHA will back is a maximum of $636,100. However, the exact amount for 2018 will hinge upon which specific city or county you are in. But most of the counties that contain the largest California cities, such as Los Angeles, San Diego and San Francisco, will have the maximum FHA loan amount.
Here are some of the maximum conforming loan amounts for many of the most populous parts of California:
- Alameda: $636,150
- Contra Costa: $636,150
- Marin: $636,150
- Monterey: $575,000
- Orange: $636,150
- Riverside: $379,500
- Fresno: $281,000
- Sacramento: $488,750
- Santa Cruz: $636,150
- San Benito: $636,150
- San Francisco: $636,150
- Santa Barbara: $636,150
- Santa Clara: $636,150
- Sonoma: $595,700
- Ventura: $636,150
Why Does FHA Increase Loan Amounts in California?
It is simple really: Houses in most of California cost much more than in other states. A four-bedroom home in Dallas might cost $275,000. The same home in San Francisco will cost two or three times more. If FHA only had one maximum conforming amount for the entire country, many people in more expensive parts of California would not qualify for a loan. The US government wants to encourage people to buy homes because it leads to stable communities and more economic activity.
Another issue with certain real estate markets is that some of them increase in value much faster than others. So, FHA needs to set different maximum conforming amounts based upon the individual economic characteristics of San Francisco, San Diego, Los Angeles, Orange County, etc. Before making an offer, you need to determine how much of a FHA loan do you qualify for.
If FHA did not have such policies, many people in California with lower credit scores and incomes would not be able to get a home. For people with credit scores in the low 600s and only 3.5% or so to put down, FHA loans may be the only option. Getting a conventional loan requires better credit and a bigger down payment. Find out what it takes to get pre-approved for a FHA mortgage today.
Can You Beat FHA Loan Limits for California?
Yes. If you want to buy a home that has a higher value than what FHA will allow, here is what you need to do:
- Put down more cash. CA FHA loan limits are based upon the loan amount and not what the home is worth. If you can do it, you can save up more money for a year or two before you buy so that you can have a larger down payment. Putting more cash down also drops the insurance premiums that you pay on your loan.
- Increase your credit score. If you need to get a conventional loan, you will probably need a credit score from about 640 to 680 to qualify. You can increase your credit score over time by making all payments on time and paying off as much debt as you can.
- Consider areas that are less expensive. Take a look at counties that surround the more expensive parts of California. You can find areas that have a lower cost of living and cheaper real estate. And more companies allow workers to telecommute these days, so this may be more possible than you think.
Takeaways on Higher FHA Loan Amounts in California
FHA loans are a great option for people with lower income and credit scores. But in California, you can run up against the maximum conforming loan limit quickly. Look at what the maximum amount is for the part of California you are considering before you start to go house shopping.