FHA Loan Requirements in Los Angeles – A Complete 2023 Guide

Getting an FHA loan to buy a home in Los Angeles can seem complicated but it doesn’t have to be! FHA loans are a great option for first-time homebuyers and folks with less-than-perfect credit because they require lower credit scores and down payments than conventional loans.

In this complete guide we’ll walk through everything you need to know about FHA loan requirements, limits and the process of getting approved for an FHA mortgage in LA.

Overview of FHA Loans

FHA loans are backed by the Federal Housing Administration (FHA) and insured by the government. This reduces the risk for lenders, allowing them to offer mortgages to buyers who may not qualify for conventional loans.

Some key benefits of FHA loans include:

• Low Down Payments – FHA allows down payments as low as 3.5% of the purchase price. This makes it easier for first-time buyers to afford a down payment.

• Lower Credit Requirements – You can qualify for an FHA loan with a credit score as low as 580 if you put down 10% or more. With a score of 580-619, you’ll need at least a 3.5% down payment.

• Flexible Guidelines – FHA is more flexible than conventional loans in terms of income, debt-to-income ratios, and even recent foreclosures or bankruptcies.

• Low and No Down Payment Programs – Special programs like FHA 203(k) loans allow buyers to finance their down payment and closing costs into the mortgage.

Now let’s look specifically at FHA loan requirements in Los Angeles and California.

FHA Loan Limits in Los Angeles

The first thing to know is that FHA sets limits on the maximum loan amount you can borrow based on local home prices. Here are the 2023 FHA loan limits for LA County:

• 1-unit home: $970,800
• 2-unit home: $1,243,050
• 3-unit home: $1,502,475
• 4-unit home: $1,867,600

So if you’re buying a single-family home or condo in LA, you can borrow up to $970,800 with an FHA loan. The limits are higher for 2-4 unit properties.

Minimum FHA Credit Score Requirements

To get approved for an FHA loan in LA, here are the minimum credit score requirements:

• 580 – At this score, you’ll need a manual underwrite and at least 10% down.
• 620 – The minimum FHA score for an automated approval with 3.5% down.
• 680 – You’ll get the best rates with a score of 680 or higher.

The minimum score is 580, but you get the most benefit by having a 620+ FHA score. This qualifies you for low down payment options.

Debt-to-Income Ratio Limits

Part of qualifying for a mortgage is having an acceptable debt-to-income (DTI) ratio. This measures your monthly debt payments against your gross monthly income.

The maximum DTI for an FHA loan is 43%. But many lenders prefer DTIs of 40-41% or less. The lower your ratio, the easier it is to get approved.

Here’s an example of how DTI is calculated:

• Gross Monthly Income: $5,000
• Total Monthly Debt Payments: $2,000
• $2,000 (debt) / $5,000 (income) = 40% DTI

Keeping your DTI at 43% or lower will help you meet FHA DTI requirements.

Down Payment Options and Requirements

FHA allows several different down payment options:

• 3.5% Down – This is the most popular FHA option. You’ll need a credit score of at least 620.

• 10% Down – Borrowers with credit scores between 500-579 will need at least 10% down to qualify.

• $0 Down – Special programs like the FHA 203(k) rehab loan allow you to finance both the purchase price and down payment/closing costs into the mortgage.

No matter the down payment, the funds must be your own and cannot be borrowed. And the money must be seasoned in your bank account for at least 2 months.

Gifts can also be used for some or all of the down payment under certain conditions.

What Counts as Income for an FHA Loan?

Lenders want to see stable income to make sure you can afford the new mortgage payment. The good news is FHA allows many different sources of income. Here are some examples:

• W-2 Wages
• Self-Employment Income
• Social Security
• Disability Payments
• Pension/Retirement
• Child Support/Alimony
• Rental Income

You’ll need to provide documentation like tax returns, pay stubs, and bank statements to verify your income. Two years of consistent income is ideal when applying for an FHA mortgage.

FHA Home Inspection and Appraisal Requirements

The property you buy must pass an FHA appraisal and home inspection before your loan can be approved. Here’s what to expect:

FHA Appraisal

• Performed by an FHA-approved appraiser
• Confirms the home is worth at least what you’re paying (the purchase price)
• Cost is around $375-$575 and is paid by you.

Home Inspection

• Checks for defects like a leaky roof, faulty plumbing, or structural issues
• Usually costs $300-$500 and is also paid by you.
• Major repairs needed to pass inspection may need to be completed before closing.

Total FHA Closing Costs in Los Angeles

Closing costs average 2-5% of the total loan amount for FHA buyers. With the high LA home prices, expect total closing costs around $15,000-$30,000.

Here are some common fees that make up total closing costs:

• Origination Fee – Up to 1% of loan amount
• Discount Points – Prepaid interest charges
• Appraisal – $375-$575
• Home Inspection – $300-$500
• Credit Report – $50-$75 per person
• Title Fees – $700-$1500
• Taxes and Insurance – 2-3 months required at closing
• Prepaid interest – Daily mortgage interest for remainder of month
• Mortgage insurance – Upfront 1.75% of loan amount + monthly premium

Good news – most closing fees can be rolled into your mortgage instead of paying out of pocket!

How Long to Close an FHA Loan?

Once your offer is accepted, expect the FHA loan process to take 30-60 days until closing day. Here are typical timeframes:

• 7 days – Your loan officer gathers documents and submits your application

• 14 days – Underwriting reviews your application and issues loan approval

• 7-14 days – The home appraisal is completed

• 14 days – Your loan goes through final processing and preparation for closing

• 3-5 days – The lender disburses funds and you sign final documents

So in as fast as 3-4 weeks, you could have the keys to your new home!

5 Tips for a Smooth FHA Loan Process

Follow these tips to help expedite the FHA loan process and avoid delays:

1. Check your credit – Order a credit report to check for errors and start improving your score several months before applying.

2. Save for your down payment – Have enough for at least 3.5% down plus closing costs.

3. Gather key documents – Have pay stubs, tax returns, and bank statements ready to support your income and assets.

4. Limit new credit – Don’t open or close any accounts while your FHA loan is being processed.

5. Respond quickly – Return any requests from your loan officer right away to keep things moving.

##alternatives

Here are a few alternative ideas for the article:

• Focus on first-time homebuyers specifically looking to use FHA loans in LA
• Tips for finding and working with an FHA lender in Los Angeles
• How FHA loans can help buyers deal with LA’s competitive housing market
• Using FHA loans to purchase multi-unit properties or investment homes in LA
• Unique programs like FHA 203(k) renovation loans for fixer-uppers in Los Angeles
• Advice for improving your credit score to qualify for better FHA rates in LA