FHA Loans in California – Buy with 3.5% Down for First-Time Buyers
What Are FHA Loans in California?
California home prices? Completely insane. But you can still buy with just 3.5% down using FHA loans. Stop watching home prices climb while you’re desperately trying to save more.
Been doing mortgages since ‘92. Remember when $300K felt expensive for Bay Area homes? That exact same house today? Costs $1.2 million easy. Maybe more.
But here’s what hasn’t changed one bit. Regular working people still need a realistic way to buy their first home. Not everyone has rich parents or trust funds.
FHA program lets you buy with just 3.5% down payment. Government-backed financing designed specifically for folks without massive savings accounts. Check purchase loan options if you’re ready to buy.
Federal Housing Administration insures these loans. That backing means lenders relax their normal requirements. Less-than-perfect credit? Seen it thousand times. Small down payment? Welcome to California. Most people in that exact boat.
FHA started back in 1930s. Survived Great Depression. Every market crash since then. Every boom. Every weird economic situation imaginable. Built for working people. Not built for wealthy people.
Why FHA Loans Work for California Buyers
California’s median home price: $765,000. But with FHA, you only need 3.5% down instead of 20%.
Let’s do the math:
- Conventional loan on a $765,000 home? $153,000 down.
- FHA loan? Just $26,775.
That’s $126,000 you keep for moving, furniture, or repairs (and California homes always need repairs).
Had a client once who found out their “move-in ready” house needed a new water heater on day two. Lucky they didn’t blow everything on the down payment.
Best part? You’re not stuck with this loan forever. Build some equity, improve your credit, then refinance to conventional later. Starter financing, not forever financing. Consider refinance options when ready.
FHA Loan Eligibility Requirements in California
Can you qualify? Requirements aren’t that strict. That’s the whole point. The government wants regular people buying homes, not just the wealthy.
Teachers, firefighters, retail workers – they all get approved. Last month helped a barista and rideshare driver buy in Sacramento. The barista had better money habits than some six-figure earners I’ve worked with.
Who Qualifies:
- 580+ credit score for 3.5% down
- 500 to 579 credit score? You need 10% down
- Steady income for 2 years
- Debt-to-income under 57%
Even if your credit took a hit from bankruptcy or foreclosure, you’re not out. Life happens.
Bankruptcy? Wait 2 years (Chapter 7) or 1 year (Chapter 13). Foreclosure? 3 years. People bounce back stronger. Sometimes they’re better borrowers after learning the hard way.
Key FHA Loan Benefits
3.5% Down: Buy a $600k home with $21k instead of $120k.
Credit Flexibility: 580 credit score works for 3.5% down. Even 500 to 579 qualifies with 10% down. They look at your whole credit story, not just the number.
Gift Funds: Parents or grandparents can help with down payment and closing costs. Just document it properly.
Higher DTI: Up to 57% debt-to-income ratio (vs 43% conventional). More flexibility if you qualify.
2025 Loan Limits in California
California’s FHA loan limits range from $524,255 in lower-cost counties to $1,209,750 in high-cost areas. Major metro counties have the highest limits.
Limits adjust yearly based on home prices. In ‘95, LA County limit was around $200k. Look at it now.
Quick breakdown:
- LA, SF Bay Area, San Diego, Orange County – $1,209,750
- Most other California counties – $806,500 to $1,209,750
- Some lower-cost inland counties – As low as $524,255
The Mortgage Insurance Reality
“What’s the catch?” Everyone asks.
You pay mortgage insurance. Two types:
Upfront: 1.75% of your loan (rolled in, not out-of-pocket). On a $600k house, about $10,500.
Monthly: 0.15% to 0.75% annually. Usually $200 to $375/month.
Not ideal. But saving $120k for 20% down takes 5 to 10 years. Meanwhile prices climb.
Had clients come back after two years of saving needing an extra $50k because prices went up. One told me, “Rodney, by the time I save that down payment, I’ll be too old to enjoy the house.” He was right.
Would you rather pay $300/month insurance or wait 8 years while that house costs $200k more? Most people pick the insurance.
FHA Loan Process
- Check eligibility – Review credit, gather docs (tax returns, pay stubs, bank statements)
- Get pre-approved – Submit application, get approval in 24 hours
- Find your home – Shop FHA-eligible properties within loan limits
- FHA appraisal – Property evaluated for value and safety standards
- Underwriting – Lender verifies everything (2 to 3 weeks)
- Close – Sign docs, pay costs, get keys (30 to 45 days total)
Real Success Story
Jessica M., a San Diego teacher, bought a 2-bedroom condo near the beach with just $18,000 down. Mortgage insurance stings a bit, but she’s building equity instead of paying rent.
California Market Stats
Been doing this since 1992. Seen programs come and go. FHA sticks around because it works.
Remember “no-doc” loans from the mid-2000s? Total disaster. FHA keeps working.
The numbers:
- 42,300 FHA loans in California last year
- Average loan: $565,500
- Hot counties: LA, San Diego, Orange County
Seeing more action in Riverside and San Bernardino. People figure out you get twice the house for half the price if you’ll drive 45 minutes.
FHA Guidelines
Credit & Income:
- 580+ credit for 3.5% down
- 500 to 579 credit needs 10% down
- 2-year employment history preferred
- DTI under 57% with compensating factors
Property & Limits:
- Primary residence only (no investments)
- Must meet FHA minimum standards
- Loan limits: $524,255 to $1,209,750 by county
- 1 to 4 unit properties work if you live in one
These are guidelines. Exceptions happen. Contact us about your situation.
Bottom Line
FHA loans aren’t perfect. You’ll pay mortgage insurance. Deal with property requirements. But you get keys with 3.5% down.
Could sell you some fancy jumbo loan with all the bells and whistles. But for most first-time buyers in California’s expensive market, that 3.5% down option is the difference between buying now or renting forever.
While you’re saving for 20% down, prices climb faster than you save. Perfect is the enemy of good enough.
Had a couple last year. 598 credit. $22k saved. Traditional lenders kept rejecting them. FHA got them approved for $585k loan in Sacramento. Closed in 38 days. Three years of rent payments gone forever, now building equity instead. That’s what FHA does.
Don’t need perfect loan, perfect credit, perfect timing. Just need good enough to start. If you’re between properties, check out bridge loans. Call (510) 589-4096 to see if FHA works for you.