What is an FHA loan?

An FHA loan is a type of mortgage insured by the Federal Housing Administration (FHA), which is overseen by the U.S. Department of Housing and Urban Development (HUD). While the government insures these loans, they’re underwritten and funded by FHA mortgage lenders. Many big banks and other types of lenders offer them.

FHA loans have a low minimum credit score and down payment requirement, which makes them especially popular with first-time homebuyers. You can get an FHA loan with a credit score as low as 580 if you have 3.5 percent of the home’s purchase price to put down, or as low as 500 with 10 percent down. These flexible underwriting standards are designed to help more borrowers become homeowners.

You can’t buy just any home with an FHA loan, however. You can’t use this loan to buy an investment property or vacation home. Based on your credit and finances, the lender determines how much mortgage you’d qualify for within the FHA loan limits for your area.

Who are FHA loans best for?

FHA loans are generally best for borrowers with lower credit scores, limited down payment savings or both. This might include first-time or younger homebuyers, or those with smaller incomes.

How do FHA loans work?

FHA loans work like most other mortgages, with either a fixed or adjustable interest rate and a loan term for a set number of years. There are two term options: 15 years or 30.

You’ll also pay closing costs for an FHA loan, such as appraisal and origination fees. The FHA allows home sellers, a home builder or a mortgage lender to cover up to 6 percent of these costs.

To insure these loans against default — that is, if you were to stop repaying your loan — the FHA requires borrowers to pay mortgage insurance premiums, or MIP. These go into the Mutual Mortgage Insurance Fund (MMIF), which helps cover loss claims. Although you’ll pay the premiums as the borrower, FHA mortgage insurance protects the lender — not you.

FHA loan requirements

Here’s an overview of the requirements for an FHA loan:

• FHA credit score: As low as 580 with a 3.5 percent down payment or as low as 500 with a 10 percent down payment
• FHA down payment: At least 3.5 percent down if your credit score is at least 580, or at least 10 percent down if your credit score is between 500 and 579
• FHA debt-to-income (DTI) ratio: At most 43 percent (up to 50 percent in some cases)
• FHA occupancy rules: Primary residences between one and four units
• FHA mortgage insurance premiums (MIP): An upfront premium of 1.75 percent of the loan principal, typically paid at closing; plus annual premiums between 0.15 percent and 0.75 percent depending on down payment and loan amount and term, typically paid monthly

FHA minimum credit score

If you put just 3.5 percent down, the minimum credit score for an FHA loan is 580. You can qualify with a score as low as 500, but you’ll need to make at least a 10 percent down payment. Keep in mind that the FHA sets this limit, but individual lenders might require a higher score.

FHA down payment

For an FHA loan, you’ll need a down payment of at least 3.5 percent. This minimum increases to 10 percent if your credit score is between 500 and 579.

FHA loans allow borrowers to use down payment funds from sources other than their savings, such as a gift from family. Borrowers might also be eligible for down payment assistance to help cover the cost.

FHA debt-to-income (DTI) ratio

To meet the DTI ratio requirements for an FHA loan, your combined monthly debt payments, including your mortgage, shouldn’t exceed 43 percent. No more than 31 percent of your income should go toward your mortgage payments.

That said, your lender could make exceptions for your overall DTI up to 45 percent, 50 percent or even 57 percent with an FHA loan, assuming you have mitigating factors like a lot of liquid assets or can make a sizable down payment.

FHA mortgage insurance

All FHA loans require you to pay mortgage insurance, which is split into two components:

• Upfront premium: 1.75 percent of the loan amount, which is paid either at closing or incorporated into the final loan amount
• Annual premiums: Amount varies based on down payment, loan amount and loan term

For example, if you’re an FHA borrower who opts for a 30-year term and a 3.5 percent down payment, you’ll pay 0.55 percent of the loan amount, divided by 12 and added to your monthly payment. That means if you borrow $300,000, you’ll pay $1,650 a year — or $137.50 monthly — for MIP. Source

DRE ID # 01769353

NMLS ID # 394275

Chattels and Fixtures in Real Estate: Protecting Your Purchase

Understanding the distinction between chattels and fixtures is essential in any real estate transaction to ensure a seamless purchase and avoid post-closing complications. Chattels, being movable personal property, typically appliances, furniture, and decorations, are not automatically included in the sale unless specifically listed in the Agreement of Purchase and Sale. They differ from fixtures, which are permanently affixed to the property, such as built-in cabinetry, light fixtures, and HVAC systems, and are presumed to be part of the real estate unless explicitly excluded in the APS.

While thorough attention during the transaction process is crucial, parties must also be ready to tackle potential post-closing issues, especially those related to the condition and functionality of chattels and fixtures. Problems may arise when items included in the APS are found to be missing, damaged, or not functioning after closing. By default, chattels and fixtures specified in the APS are expected to be in working order at the time of closing, making it the seller’s responsibility to ensure they meet this standard. Common post-closing complaints involve faulty appliances and systems such as ovens, dishwashers, air conditioning units, furnaces, security systems, and locks. If any such items are defective, the buyer may have grounds to seek remedies from the seller. However, when the APS explicitly states that the property, including its chattels and fixtures, is sold “as-is,” the buyer’s options for recourse are significantly limited unless the seller has concealed or misrepresented material facts.

A pre-closing walkthrough is essential for buyers to confirm the condition and functionality of chattels and fixtures included in the APS. This step ensures appliances are operational, light fixtures are intact, and all agreed-upon items remain on the property. If issues are discovered post-closing, buyers should first review the APS to understand their options, as it specifies the items included and their expected condition. Clauses requiring items to be in “working condition” or providing warranties strengthen the buyer’s position. Buyers can then negotiate with the seller for compensation or repairs, as many sellers prefer to resolve minor issues amicably. If negotiations fail, buyers may pursue legal action, such as filing in small claims court for lower-value disputes, provided they can demonstrate a breach of the APS or concealed defects.

Home warranties or insurance can offer solutions for addressing defects. A home warranty plan may cover certain appliances or fixtures, so buyers should review its terms carefully. For systems like plumbing or HVAC, filing an insurance claim might be an option. If repairs are needed, buyers should document all costs to support negotiations or potential legal action.

Preventing disputes over chattels and fixtures starts with a well-drafted APS. These items are integral to real estate transactions, and disagreements about their condition or presence can cause significant frustration post-closing. Buyers can minimize risks by adopting a proactive approach, including precise APS terms, thorough pre-closing inspections, and detailed documentation. Should issues arise after closing, understanding your legal options and engaging in fair negotiations with the seller can help resolve matters efficiently. Source

DRE ID # 01769353

NMLS ID # 394275

Happy Holidays!

 

Happy Holidays from us to all of you! We hope you have a healthy and safe holiday season! Let's make 2025 the best year yet!

Work and Associates Home Loans 

(916) 847-3090

margeate@workhomeloans.com

DRE ID # 01769353

NMLS ID # 394275

What Is A Conventional Loan?

Conventional loans, the most popular type of mortgage, come in two flavors: conforming and non-conforming.

• Conforming loans: A conforming loan “conforms” to a set of Federal Housing Finance Agency (FHFA) standards, including guidelines around credit, debt and loan size. When a conventional loan meets these standards, it’s eligible to be purchased by Fannie Mae and Freddie Mac, the two government-sponsored enterprises (GSEs) that comprise much of the mortgage market.
• Non-conforming loans: These loans do not meet one or more of the FHFA’s standards. One of the most common types of non-conforming loan is a jumbo loan, a mortgage in an amount that exceeds the conforming loan limit. Non-conforming loans can’t be purchased by the GSEs, so they’re a riskier prospect for lenders.

Pros of conventional loans

• Available from the majority of lenders
• Can be used to finance primary residences, second or vacation homes and investment or rental properties
• Can put down as little as 3% for a conforming, fixed-rate loan

Cons of conventional loans

• Need a credit score of at least 620 to qualify
• Lower debt-to-income (DTI) ratio threshold compared to other types of mortgages
• Need to pay private mortgage insurance (PMI) premiums if putting less than 20% down

Who are conventional loans best for?

If you have a strong credit score and can afford to make a sizable down payment, a conventional mortgage is the best pick.

“Conventional loans are flexible and suitable for a wide range of homebuyers, especially those with good-to-excellent credit scores, stable income, and some savings for a down payment,” says Matt Dunbar, senior vice-president of Southeast Region for Churchill Mortgage. “These loans offer competitive interest rates and flexible terms, making them attractive to buyers who meet the qualification criteria.” Source

DRE ID # 01769353

NMLS ID # 394275

What Is A Foreclosure?

Foreclosure is a process that’s triggered when a homeowner fails to make their mortgage payments. When a home is foreclosed on, a lender typically repossesses the property and attempts to sell it to recover their loss. Mortgage loans are secured by real estate. Because the home serves as collateral for the loan, a lender can legally repossess the property when a borrower fails to make their monthly mortgage payments.

What Is The Process Of Foreclosure?

While the foreclosure process may differ slightly from state to state, homeowners will likely experience common steps.

A lender contacts a homeowner to inform them of their delinquency and notify them about the possibility of foreclosure. The lender and homeowner explore options to keep the loan current. If the homeowner can’t bring their mortgage up to date, the lender may proceed with foreclosure. Depending on your state’s laws, your lender may file with a court to initiate foreclosure.

Early Intervention

Before a lender can proceed with foreclosure, the loan must be at least 120 days delinquent (with some exceptions). Lenders and loan servicers are required to make good faith efforts to contact a borrower about missed payments and foreclosure alternatives. A borrower can even take advantage of a few options to avoid losing their home even after a lender initiates the process. If there is no resolution, the lender usually initiates foreclosure once the borrower has missed at least four payments.

Foreclosure Counsel And Notice Of Default

Servicers or lenders referring a loan to foreclosure counsel is the first step in the foreclosure process. Depending on state laws, an attorney will initiate the process by filing a complaint or notice of mortgage default. Defaulting means a borrower has failed to repay a loan according to a lender’s terms.

Even after the first legal action, borrowers can apply for loss mitigation and look into options to avoid losing their homes.

Judicial Foreclosures Vs. Nonjudicial Foreclosures

There are two types of foreclosures: judicial foreclosure and nonjudicial foreclosure;

• Judicial foreclosures are usually more time-consuming than nonjudicial foreclosures. While all 50 states allow judicial foreclosures, some states require it. Judicial foreclosure requires a lender to file a lawsuit in court. The borrower receives up to 30 days to respond to the lawsuit. If they don’t respond, the court may rule for the lender, and the house can be foreclosed and sold. If they respond and go to court, the case will go before a judge to decide whether a settlement can be reached or the lender can foreclose.
• Nonjudicial foreclosure typically occurs when a mortgage has a power of sale clause, or the promissory note is tied to a deed of trust. If a borrower defaults on a mortgage with a power of sale clause, the lender doesn’t need to go to court. They can auction off the home after the warning and waiting period outlined in the state’s laws. In the case of a deed of trust, the trustee, usually a title company, can seize a property and sell it without a court order.

Eviction

If a homeowner can’t bring their loan current, eviction will likely be the next step in a foreclosure proceeding. Homeowners may receive a notice to quit from the lender to leave the home. How lenders contact homeowners varies by state. A letter or warning typically includes the timeline residents have to vacate the property – usually 3 – 30 days. Lenders may sue if residents ignore an eviction notice and stay in the home.

Foreclosure Added To Credit Report

A foreclosure is an adverse event that stays on your credit report 7 years from your first missed mortgage payment. Your existing credit history will significantly impact how foreclosure affects your credit score.

The hit your credit takes from a foreclosure can hurt your ability to purchase or rent a home. Many lenders won’t consider an applicant with a foreclosure on their credit report, but some lenders may be more forgiving, especially if the foreclosure happened years ago. Source

DRE ID # 01769353

NMLS ID # 394275

What Is Homeowner's Insurance?

 

 

Homeowners insurance helps offer financial protection to your home and everything inside of it when damages occur. It also helps provide liability coverage if someone is injured on or off your property. Watch this short video to learn more.

DRE ID # 01769353

NMLS ID # 394275

How Long Does the Mortgage Approval Process Take?

When you’re ready to buy a home, it seems like your closing day can’t come soon enough. But even after you find a house, make an offer, and get the good news that your offer is accepted, you still have a few more tasks before you receive your new house keys. But there’s great news: if you have a basic understanding of the mortgage approval process, how long it might take, and what factors might speed up the process, you are one step closer to a smooth, streamlined loan experience.

How Long Does the Mortgage Approval Process Take?

On average, the mortgage approval process takes 30 to 60 days — although it can be significantly shorter or longer, depending on the situation. If you are pre-approved or credit pre-approved for a loan before you start the home shopping process, your mortgage could close in as little as two to three weeks after your offer is accepted on a home.

With a pre-approval in hand, you’ll likely have a smoother home shopping experience, and you can submit offers with confidence — knowing that a reputable mortgage lender has already assessed your financial situation. Think of it this way: with a pre-approval, you and your lender are putting in more effort upfront — but that means that you’ll probably have a more streamlined, quick home loan process, as compared to a homebuyer who is not pre-approved.

What Could Delay My Mortgage Approval?

Whether you are pre-approved or not, the mortgage process can be delayed by a variety of factors. If you change jobs, have a change in your income, or even make a significant purchase (such as a car or furniture) during the approval process, the mortgage approval could be delayed or denied. If the lender requests additional documentation during the loan approval and you don’t provide it in a timely manner, this can also significantly delay the loan closing.

Other delays to the mortgage process have to do with the property itself. If the home inspection uncovers a big problem, such as mold, structural issues, or other major safety concerns, these can push back the closing date until they are remedied. Issues with the appraisal can also cause delays; if the appraisal value doesn’t meet or exceed the property’s sale price, the loan process could be deterred. Legal issues with the home title or deed (such as unpaid taxes or liens on the property) are another challenge that may delay a mortgage closing.

Also, contingency failures can put the mortgage approval behind schedule or even cause the financing to fall through entirely. For instance, if the buyer has a contingency that states they must sell their current property before purchasing their next home — and this doesn’t happen within the specified timeframe — the loan for their new home could be jeopardized. Another example of a contingency failing would be the buyer’s inability to secure homeowners insurance before the closing.

What Can I Do to Speed Up My Mortgage Approval Process?

Aside from getting pre-approved, there are a few things you can do to help the home loan process move along quickly, including:

Check Your Credit Score in Advance

Before you start the mortgage approval process, review your credit report to make sure there are no errors (this happens more frequently than you may think). More than one-third of American consumers found at least one mistake in their credit reports, according to a recent study by Consumer Reports. These errors can delay the loan process and even jeopardize your home loan approval. Another advantage of knowing your credit score is that it will help you narrow down which home loans you may qualify for — saving you additional time when you’re ready to choose a mortgage.

Be Completely Honest With Your Loan Originator and Their Team

When disclosing your financial information for the approval process, make sure you are transparent. Acknowledge any factors that may affect your loan approval, such as late credit card payments, additional streams of income, etc. This will help your processor and underwriting team move quickly through your financial information — without any “surprises” along the way.

Be Prepared to Provide Additional Documentation ASAP

Because the home loan process is unique to everyone, it’s likely that even the most prepared borrowers will need to provide an extra document or two in the middle of the journey. If your lender’s team asks for a document, be prepared to send it as soon as possible. Source

DRE ID # 01769353

NMLS ID # 394275

Mortgage Bankers vs. Mortgage Brokers: What’s the Difference?

The key difference between the two? Mortgage bankers directly loan you the money for a home; mortgage brokers serve as an intermediary, meaning they don’t approve your loan or directly provide the money for your mortgage — instead, they coordinate with the lender or bank on your behalf.

Pros of a Mortgage Broker

Each mortgage broker operates a little differently but, in general, here are some of the benefits you can expect if you decide to work with a mortgage broker:

Support with Paperwork

A broker can help guide you by specifying exactly what you need to provide in terms of documentation; because they work one-on-one with you, they’re less likely to request the same document twice, which may happen with a larger mortgage banker where multiple departments or employees are involved.

Loan Variety

Brokers may have more access to a variety of loans (since they’re not working with only one bank or lender), which could ultimately give you more options.

Challenging Situations

A mortgage broker may have more options if you have a less-than-favorable circumstance (for example, other lenders won’t qualify you for a loan because of a low credit score, lack of down payment, etc.).

Delegate Responsibility

A broker often allows you to be more “hands off” during the loan process, because they take on the bulk of the responsibility (for communicating with the lender, etc.). This may also save you some time.  

Pros of Mortgage Banker

A mortgage banker also offers unique benefits, such as:

No “Middleman”

Since you’re working directly with the lender, they are more likely to be 100% familiar with their loan products and can address any issues or challenges immediately.

In-House Operations

Mortgage bankers often have an in-house operations team; in most cases, this will streamline the loan process, since there isn’t an intermediary or outside source that needs to weigh in on paperwork, decisions, etc. 

Potential to Save Money

In many situations, working with a banker will save you some cash, since mortgage brokers charge a fee for their services; although, in some cases, the lender will pay this fee (this is something you’ll want to check on up front, if you consider going with a broker).

Close Sooner

Compared to a broker, a mortgage banker will often close your loan more quickly (sometimes, even earlier than you anticipated), since they are working with their own loan products and their own in-house staff — and no intermediaries are involved.

Which Should You Choose?

This really depends on your unique situation. If you’re just starting out on your home finance search, it can be helpful to get quotes from a variety of mortgage brokers and bankers.

Overall, if you have a fairly strong financial situation (good credit score, low debt-to-income ratio, etc.), you may save time and money by using a mortgage banker for your loan and avoiding the fees associated with mortgage brokers. On the other hand, there are brokers whose fees are comparable to mortgage bankers.

If you have a challenging or unique situation, such as a lower credit score, no down payment, or a high debt-to-income ratio, a mortgage broker might be better equipped to find a loan program for you. However, many mortgage bankers also offer loans for people with less-than-perfect financial circumstances. Again, it will take some research to find your best option. That’s why it’s important to start early in the process, so you can find the right fit for your home financing needs. Source

DRE ID # 01769353

NMLS ID # 394275

Fixed vs. Adjustable Rate Mortgages

 

 

Fixed rate vs. adjustable rate mortgages (ARM): what's the difference? Both fixed and adjustable rate mortgages have their own benefits, but one may make more sense for your financial situation. 

Learn more about the differences and figure out whether an ARM or a fixed rate mortgage is best for you with this Better Money Habits video. 

DRE ID # 01769353

NMLS ID # 394275

What Is a Homeowners Association (HOA), and How Does It Work?

A homeowners association (HOA) is an organization in a subdivision, planned community, or condominium building that makes and enforces rules for the properties and residents. Homeowners associations are run by a board of directors and typically collect monthly or annual fees to pay for common area maintenance and the upkeep of facilities.

Those who purchase property within an HOA’s jurisdiction automatically become members. Some associations can be very restrictive about what members can do with their properties. Others give residents more freedom.

How Homeowners Associations (HOAs) Work

Homeowners associations (HOAs) are usually formed within communities or neighborhoods of single-family homes or multiple-unit buildings such as townhomes or condominiums. An HOA is typically established to make and enforce rules regarding the properties within the jurisdiction. HOAs are composed of and run by the community’s residents. Membership is usually a requirement to buy a home within a community where an HOA has been established.

An HOA usually has a board of directors or governors. These groups are elected to enforce and oversee the HOA’s rules and regulations. An HOA typically describes its rules as restrictive covenants in a document called a Declaration of Covenants, Conditions, and Restrictions (CC&Rs).

CC&Rs set certain conditions for owners about the maintenance of their properties. These sometimes include structural restrictions such as the type of fences or landscape allowed. They may also include more minor aesthetic choices like the color of paint on a house.

A CC&R document may also outline the penalties for violating the guidelines in the agreement. These penalties can take the shape of fees or forced compliance. They can even be as drastic as litigation in some cases.

Homeowners Association (HOA) Fees

Some HOAs can wield significant financial and legal power over the property owners in their zone. HOAs collect monthly or annual HOA fees that depend on several factors:

• Type of property
• Number of properties in the group
• Location
• Amenities offered
• Operating expenses

The fees are typically $200 to $400 per month but they can range anywhere from less than $100 to upward of $10,000 in luxury neighborhoods or communities. HOA fees also often contribute to the association’s reserve fund which is set aside for major renovation projects or emergency use. In addition to regular fees, HOAs can also impose special assessments on homeowners when the association lacks sufficient reserves to pay for unexpected repairs on common areas such as sidewalks or parking lots.

The HOA’s board is usually responsible for the organization’s finances and it oversees the collection and management of funds. Along with setting dues and assessments, the board can slap fines on homeowners who break the rules or damage the common areas. HOAs can also place a lien on a property if a homeowner falls seriously behind on their dues.

Advantages and Disadvantages of Homeowners Associations (HOAs)

Advantages

The HOA provides regulations and guidelines for its members. These standards are upheld to preserve and enhance the community’s property values. The guidelines are often appearance-oriented so they deal with regulations for the cleanliness of the property, the condition of the property, and any repairs that are done to the property. The guidelines for HOAs are usually designed to help ensure a uniform appearance for all the properties included in the association’s zone.

The HOA management will typically provide additional services for its members in exchange for their HOA fees. These amenities are available to all HOA members and may include:

• Landscaping
• Parking lots
• Swimming pools
• Tennis courts
• Party spaces
• Snow removal
• Some HOA fees may also cover the cost of trash collection and certain utilities.

HOAs are symbolic of self-governance and democracy for certain individuals. This belief may stem from the idea that the best people to manage a community are those who live in it rather than a landlord who doesn’t reside on the premises.

Disadvantages

One disadvantage of an HOA is the high cost of the association fees. This can act as a deterrent for some prospective buyers. The HOA rules and regulations can also seem unreasonable, arbitrary, or too restrictive for some homeowners who may want the freedom to customize their properties.

HOA board members are normally volunteers and they may not be properly trained to manage real estate, deal with complex financial issues, or unite a disparate group of people for a common cause. The leadership of HOAs must reach a consensus when they're making decisions about maintenance and upgrades so it's also possible that there may be conflicts among HOA members who disagree. Source

DRE ID # 01769353

NMLS ID # 394275

What is a Starter Home?

 

 

A starter home is a home that acts as an entry point into homeownership for renters and other first-time home buyers. By definition, starter homes sell for less than the area median home sale price and may lack the features and amenities of other MLS-listed homes.

Starter homes have less space, fewer bedrooms, and fewer upgrades than “forever homes.” This is part of what makes them popular. Starter homes allow aspiring homeowners to stop renting, start building home equity, and begin benefitting from the responsibilities of homeownership. Homeowners often sell their starter homes and use their accumulated home equity as a down payment toward a larger, more expensive home within 7 years of purchase.

The most common reasons for trading up from a starter home include:

• Getting married
• Expanding a family
• Earning a higher income
• Selling a starter home may also come with tax breaks.

In the March 2024 State of the Union Address, President Biden announced a plan to award $10,000 in federal income tax credits to sellers who live in their starter homes and sell to a buyer who plans to make the home their primary residence. The sale price of a starter home may not exceed the county’s median home sale price to qualify it as a starter home. Property types can include single-family homes, condominiums, multi-family homes, and manufactured homes.

What should I look for in a starter home?

A good starter home meets your immediate needs, is within your monthly budget, and is located in an area that is expected to appreciate.

How long do people typically stay in a starter home?

Life moves at different paces for everyone, but it’s common for first-time buyers to stay in their starter homes for 5-7 years.

Can a starter home be a good investment?

Yes, a starter home can be a good investment. Buying in the right location and making smart improvements can increase the home’s value, and provide substantial home equity when you decide to sell.  Source

DRE ID # 01769353

NMLS ID # 394275