California FHA Loans Versus Other Mortgage Options For Homebuyers

Gustan Cho Associates are mortgage brokers licensed in 48 states

California FHA loans are the mortgage option of choice for first-time homebuyers, buyers with bad credit, borrowers with collections and charged-off accounts, recent college graduates with no credit scores and little to no credit tradelines, and mortgage borrowers with high debt to income ratios. California FHA loans are one of the few loan programs that offer borrowers with credit scores down to 500 FICO to be eligible for a low down payment government-backed loan. FHA, VA, and non-QM loans are other options for first-time homebuyers with low credit scores and less than perfect credit.

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California VA Loans Versus FHA Loans

VA loans are limited to borrowers who are active duty and/or retired members of the U.S. Armed Forces with a valid VA certificate of eligibility. Not everyone can qualify for a VA loan. Non-QM loans are a specialty alternative mortgage loan program for borrowers that cannot meet traditional mortgage guidelines. If you want to qualify for a mortgage with a low down payment with credit scores down to 500 FICO, the best mortgage options for homebuyers and homeowners are FHA loans. In this article, we will go over the California FHA loans on home purchases and refinance as well as other mortgage loan programs for borrowers with bad credit, lower credit scores, recent bankruptcy, and/or foreclosure.

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The Demand For Housing In California Forecasted To Remain Strong

Understanding The California Housing Market And Economy

All the talk of skyrocketing home prices and the mass exodus of Californians fleeing to states with lower home prices has not made a dent in California home values. Home prices in California have skyrocketed even more. In this article, we will cover the following topics:

  • The demand for housing in California.
  • The ability to qualify for a mortgage in California with bad credit.
  • Can you qualify for a high-balance loan with less than perfect credit?
  • What are my options to qualify for a mortgage in California with Non-QM loans?

Over 75% of our borrowers at Gustan Cho Associates are folks who could not qualify at other lenders. The team at GCA Mortgage says yes when other mortgage companies say no.

California FHA Loans For First-Time Homebuyers With Bad Credit And Low Credit Scores

FHA loans are the most popular loan program for first-time homebuyers, borrowers with credit scores down to 500 FICO, homebuyers with prior bad credit and large outstanding collection accounts, borrowers with high debt to income ratios, and homebuyers with other credit/income issues. HUD, the parent of FHA, has developed very lenient agency mortgage requirements and guidelines so homebuyers with credit scores down to 500 FICO and prior bad credit have the ability to purchase a home with a low down payment. It is easier to get an approve/eligible per automated underwriting system on an FHA loan with prior bad credit and high debt to income ratio than any other loan program. HUD has by far the most lenient mortgage requirements and guidelines than any other government and/or conventional loan program.

Understanding The California Housing Market And Economy

The California housing market is stronger than ever after the coronavirus pandemic recovery. Home sales are at a historic high despite the economic disaster the state took due to the COVID-19 shutdown in the state. Home sales are expected to continue to be strong going into 2022 and into 2023. California is unique in a sense because home prices are much higher than in other parts of the Union. California has one of the highest home prices in the nation. The state’s beautiful climate, landscape, booming economy, and great high-paying job opportunities attract thousands of talented workers from other states as well as from other countries. Big Tech giants like Facebook, Google, Microsoft, Twitter, YouTube, are based in the state of California. The state has one of the world’s most prestigious state university systems, the University of California. World top universities such as Stanford University and the University of Southern California is headquartered in California. California also has the world’s fifth-largest economy.

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California High-Balance FHA Loans In High-Cost Counties

A large portion of counties in California is classified as high-cost areas by the United States Department of Housing and Urban Development, HUD. Parts of California have home prices that are double or sometimes triple than comparable homes in other parts of the United States. San Francisco home prices are probably one of the highest home values, if the highest home values, in the country. California FHA Loans are unique because most counties in California are in high-cost areas. Everything is more expensive in the state. However, wage earners make substantially much more money than workers from other states. In the following paragraphs, we will discuss and cover California FHA Loans versus other mortgage loan programs for homebuyers and homeowners.

2022 Loan Limits In California FHA Loans In High-Cost Versus Traditional Areas

FHA Loan Limits in most parts of the country are capped at $422,480.  HUD, the parent of the Federal Housing Administration, realizes that California housing prices are substantially higher than the rest of the United States. A large number of California counties are classified as high-cost areas. The maximum FHA Loan Limit on a single-family home in high-cost areas in California is capped at $980,800. In areas of Los Angeles, Irvine, San Francisco plus dozens of other counties, the FHA Loan limits are at the state’s maximum FHA Loan limit cap of $970,800. Other counties in California have higher than the standard FHA loan limit of $420,680 but lower than the ceiling FHA  high-cost Loan Limit of $980,700.

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HUD Guidelines Versus Lender Overlays On California FHA Loans

There are two different types of lending requirements on FHA loans. Every mortgage company needs to have its borrowers meet the minimum HUD agency mortgage guidelines on FHA loans. HUD is a large government agency and the parent of FHA. The U.S Department of Housing and Urban Development (HUD) sets the minimum agency mortgage guidelines on FHA loans. HUD-approved lenders must follow HUD guidelines on FHA loans if the lender wants homeowners defaulted on FHA loans to be insured. HUD will not insure any mortgage companies not meeting the minimum lending requirements of the HUD 4000.1 FHA Handbook. Mortgage companies can have higher lending requirements that are above and beyond the minimum agency mortgage guidelines of HUD. The higher lending requirements are called lender overlays. California FHA lenders can have lender overlays on just about anything. We will discuss typical common lender overlays after we discuss the minimum HUD agency mortgage guidelines on FHA home mortgages.

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HUD Minimum California FHA Loan Requirements

Below are the minimum California FHA Loan Requirements all lenders need to make sure their borrowers must meet in order for HUD to insure the mortgage lender a defaulted FHA loans.

The following are the HUD California FHA loan requirements and guidelines:

  • The minimum credit score required is a 580 FICO to qualify for an FHA loan in California for a 3.5% down payment home purchase loan
  • For homebuyers with credit scores between 500 to 579, HUD requires a 10% down payment
  • Borrowers need to show a two-year employment history
  • The maximum front-end debt to income ratio required is 46.9% and back-end of 56.9%
  • Non-occupant co-borrowers who are allowed if the borrower cannot meet the minimum debt to income ratio requirements
  • HUD requires non-occupant co-borrowers to be related to the main borrower by law, marriage, blood for a 3.5% down payment home purchase FHA Loan
  • Non-occupant borrowers who are not related to the main borrower can be non-occupant co-borrowers but a 25% down payment versus a 3.5% down payment is required
  • Gift funds for the down payment and/or closing costs are allowed
  • the type of property that is eligible for an FHA loan are owner-occupant primary one to four-unit residential homes that qualify
  • HUD-approved condos are eligible for FHA financing
  • There is a two year waiting period after the Chapter 7 Bankruptcy discharge date
  • There is a three year waiting period after foreclosure, deed in lieu of foreclosure, short sale
  • The team at Gustan Cho Associates are experts in manual underwriting
  • Borrowers who cannot get an approve/eligible per automated underwriting system and get a refer/eligible per AUS can get qualified and approved with a manual underwrite on FHA loans

The team at Gustan Cho Associates can help our clients rebuild and re-establish their credit after bankruptcy foreclosure, deed in lieu of foreclosure, short sale. Do not under any circumstances hire an expensive credit repair consultant for credit repair. Credit repair companies do more damage than good. We have helped thousands of borrowers get their credit scores to over 700 FICO in less than one year after the Chapter 7 Bankruptcy discharge date and/or after a housing event. The key to being able to qualify for an FHA loan after a period of derogatory period is to have timely payments in the past 12 months. No late payments after bankruptcy and/or a housing event are a must.

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Why California FHA Lenders Do Not Have The Same FHA Loan Requirements 

Mortgage companies need to follow the HUD minimum agency mortgage guidelines on FHA loans in order for the lender to be insured in the event a borrower defaults on their FHA loan. HUD will only insure FHA loans that meet the minimum HUD agency mortgage guidelines. Due to the government guarantee, lenders promote to get borrowers for FHA loans with only a 3.5% down payment with a 580 FICO at low mortgage rates. Since the HUD-agency mortgage guidelines are very lenient, most mortgage companies have additional mortgage loan requirements often referred to as lender overlays. Mortgage loan applicants need to meet the minimum HUD guidelines. Lenders can have higher mortgage requirements that are above and beyond the minimum mortgage guidelines of HUD. This is why many lenders require a 620 credit score or higher on a 3.5% down payment home purchase FHA loan in California when HUD’s minimum credit score requirement is 580 FICO. The higher credit score requirement is called a lender overlay on credit scores.

California FHA Lenders With No Lender Overlays On FHA Loans

HUD Minimum California FHA Loan

Mortgage lender overlays are private mortgage lending guidelines on top of the federal minimum FHA guidelines. Gustan Cho Associates specializes in California FHA Loans with no lender overlays. For example, the minimum FHA Lending Guidelines on FHA Loans is that the FHA loan borrower needs a 580 credit score to qualify for a 3.5% down payment home purchase FHA Loan. Most California FHA Lenders will have lender overlays on credit scores where they will not accept any California FHA mortgage loan applicants who do not have a minimum of 640 credit scores. This California FHA Lender has FHA Overlays on credit scores where even though the minimum FHA credit score guidelines are 580 their overlay is 640 when it comes to California FHA Loans.

Typical Lender Overlays By California FHA Lenders

Most California FHA lenders have higher lending requirements that are higher than the minimum HUD agency mortgage guidelines on FHA loans. It is very important for borrowers to understand minimum agency HUD guidelines on FHA loans. If you get denied by one lender and meet the agency mortgage requirement of HUD, you can get approved at a different lender with no lender overlays. In the following subparagraphs, we will be discussing and covering typical lender overlays that are commonly imposed by California FHA lenders on FHA loans.

California FHA Loan Requirements On Credit Score Requirements Versus Lender Overlays Imposed By Lenders

Most California FHA lenders will have a higher FHA loan requirement above the 580 FICO required on a 3.5% down payment FHA loan.  Lender overlays on the minimum credit score requirements to 620 FICO or higher are very common when HUD requires a 580 FICO on a 3.5% down payment home purchase FHA loan. This is called a lender overlay on credit score by California FHA lenders on FHA loans.

FHA Loan Guidelines In California With Outstanding Collections And Bad Credit

California mortgage borrowers can now qualify for a California FHA loan credit score down to 500 FICO, prior bad credit, outstanding collection and charged-off accounts, higher debt to income ratio, and prior bankruptcy and/or housing event. HUD, the parent of FHA, is the government agency that is in charge of creating and implementing the agency mortgage guidelines on FHA loans. Borrowers do not have to pay collections accounts to qualify. However, many California FHA lenders may require you to pay outstanding collections and charged-off accounts due to their lender overlays because they might think the collections can turn into judgments.

California FHA Loans For 500 Credit Score Homebuyers

HUD allows borrowers under 580 credit scores and down to a 500 FICO to qualify for an FHA loan in California. However, for borrowers with less than 580 credit scores, HUD requires the borrower to put a 10% versus a 3.5% down payment. Most California mortgage companies do not want to approve borrowers with credit scores under 580 FICO because they think lower credit score borrowers are too risky. Lenders do not have to take on a borrower if they feel certain borrowers are too risky for their financial institution. FHA loan requirements on 500 credit scores apply for home purchases and refinance mortgages.

California FHA Mortgage Guidelines On Manual Underwriting

FHA and VA loans are the only two mortgage loan programs that allow manual underwriting on home loans. FHA and VA manual underwriting guidelines are almost exactly the same. However, most mortgage companies do not do manual underwriting on FHA and VA loans as part of their lender overlays due to their layered risk levels. The key to qualifying for an FHA or VA  manual underwriting is to have been timely in the past 24 months. Verification of rent is required on all manual underwrites. The only difference between automated underwriting system approved files and manual underwriting is the debt to income ratio caps are lower on manual underwrite.

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FHA Loan Requirements In California After Chapter 7 Bankruptcy

There is a two-year waiting period after the Chapter 7 Bankruptcy discharged date. Rebuilt and re-established credit after bankruptcy is required. No late payments after bankruptcy. Lenders expect rebuilt and re-established credit after bankruptcy.

FHA Loan Requirements During Chapter 13 Bankruptcy Repayment Plan

FHA Loan Requirements During Chapter 13 Bankruptcy Repayment Plan

Homebuyers and homeowners can qualify for a home purchase or refinance FHA loan during Chapter 13 Bankruptcy repayment plan after making 12 timely payments to the trustee and with trustee approval and via a manual underwrite. Timely payments during the Chapter 13 Bankruptcy repayment plan with no late payments. Chapter 13 Bankruptcy does not have to be discharged. Most California FHA lenders will not accept borrowers during Chapter 13 Bankruptcy repayment plan as part of their lender overlays.

FHA Loan Requirements After Chapter 13 Bankruptcy Discharged Date

There are no waiting period requirements after the Chapter 13 Bankruptcy discharged date. However, if the Chapter 13 Bankruptcy has been seasoned for less than two years, the file needs to be a manual underwrite. Most lenders will require a one-year to two-year waiting period as part of their lender overlays. Gustan Cho Associates has no lender overlays on borrowers after the Chapter 13 Bankruptcy discharged date. Manual underwriting guidelines apply. Low payment shock is considered a strong compensating factor.

VA Loan Requirements After Chapter 13 Bankruptcy Discharged Date

VA guidelines on qualifying for a VA loan after the Chapter 13 bankruptcy discharge date are the same as FHA loans. There are no waiting period requirements after the Chapter 13 Bankruptcy discharged date. However, if the Chapter 13 Bankruptcy has been seasoned for less than two years, the file needs to be a manual underwrite. Most lenders will require a one-year to two-year waiting period as part of their lender overlays. Gustan Cho Associates has no lender overlays on borrowers after the Chapter 13 Bankruptcy discharged date. Verification of rent is required on manual underwrites. Gustan Cho Associates will waive manual underwrites if the borrower was living rent-free with family to save for the home purchase.

Mortgage Bankers With The Ability To Broker Non-QM And Specialty Mortgage Loan Programs

Contact Gustan Cho Associates at 262-716-8151 or text us for a faster response if you are looking for a reputable experienced California FHA Lender with no FHA Lender Overlays. Or email us at [email protected] The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays. Over 75% of our borrowers at Gustan Cho Associates are folks who could not qualify at other mortgage companies due to lender overlays. Gustan Cho Associates are mortgage bankers, correspondent lenders, and mortgage brokers. We underwrite and fund government and conventional loans and have the ability to broker non-QM and specialty mortgage loan programs such as non-QM loans, non-QM loans one day out of bankruptcy and foreclosure, no-doc mortgages, bank statement loans for self-employed borrowers, asset-depletion mortgages, P and L stated income loans, traditional 90% LTV jumbo loans, non-QM loans with credit scores down to 500 FICO, and dozens of other mortgage loan programs for owner-occupant homes, second homes, and investment property loans.

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California FHA Loans Versus Other Mortgage Options For Homebuyers And Homeowners

California has one of the highest housing values in the nation. Home Buyers can California Home Loans With Bad Credit And Lower Credit Scores. Not all California mortgage lenders have the same mortgage lending requirements on FHA, VA, USDA, and Conventional Loans. We will cover California VA loans in the next several paragraphs.

There are two sets of mortgage guidelines:

  1. Government And/Or Conforming Guidelines
  2. Mortgage Lender Overlays

The best mortgage option for borrowers to qualify for a home loan with bad credit with a low down payment in California is FHA loans. Non-QM loans are a great mortgage option. However, non-QM lenders normally require a 20% to a 30% down payment on a home purchase. VA loans are the best mortgage loan program in the nation due to the 100% financing benefit, no monthly mortgage insurance premium, and no maximum loan limit on VA loans.

Agency Guidelines Versus Overlays

All California Lenders need to meet government and/or conventional guidelines. However, every lender can have its own overlays. Lender Overlays mean that the lender can impose a higher lending requirement. An example would be home buyers California Home Loans With Bad Credit And Lower Credit Scores. Say this borrower has a 580 credit score and outstanding collections. They had previous bad credit but has been timely in the past 12 months with all of their monthly debt payment. They have outstanding collections and charged-off accounts on the credit report but have been over a year old. Under HUD 4000.1 FHA Handbook, this borrower will definitely qualify for California Home Loans With Bad Credit. Gustan Cho Associates can definitely qualify and close this borrower.

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Lender Overlays By Mortgage Companies Versus Agency Guidelines

Lenders need to meet the agency guidelines of FHA, VA, USDA, Fannie Mae, and Freddie Mac. However, lenders can have higher lending requirements that surpass the minimum agency guidelines which are called lender overlays. Most lenders will have lender overlays on one or more lending requirements. Many lenders have overlays on FHA loans where they may require 620 credit scores versus 580 required by FHA. Lenders with overlays may request that borrowers pay off outstanding collections and charge offs. This holds true even though FHA Guidelines do not require it. Lenders with overlays may cap debt to income ratios at 45% to 50% when FHA Guidelines On DTI is 46.9% front-end and 56.9% back-end debt to income ratios.

The Importance Of Understanding The Minimum Agency Mortgage Guidelines

Borrowers of California Home Loans With Bad Credit And Lower Credit Scores should seek lenders with no overlays. If the homebuyer does not meet the agency mortgage guidelines of traditional loans, they have mortgage options with non-QM and alternative loan programs. This holds true for borrowers with less than perfect credit. Just because one lender says borrower does not qualify does not mean they do not qualify with other lenders. Over 75% of our borrowers at Gustan Cho Associates are folks who could not qualify at other mortgage companies due to their lender overlays. Gustan Cho Associates does not have any lender overlays on government and conventional loans. All of our pre-approvals are fully underwritten and signed off by our underwriters. Due to this fact, Gustan Cho Associates closes 100% of all of our pre-approvals. A substantial percentage of our loans are California Home Loans With Bad Credit And Lower Credit Scores.

Buying Home And Getting Approved For California Home Loans With Bad Credit

Buying Home And Getting Approved For California Home Loans With Bad Credit

California home values have always been much higher than the average home values throughout the nation. Even prior to the 2008 Great Real Estate Crash, home values in California have been much higher than any other state in the United States. When real estate values were appreciating in the late 1990s and the 2000s, the values of California homes were appreciating at a much higher pace than the rest of the country. Then came the Great Housing Bubble Crash of 2008 and homes in California went plummeting down like never recorded in history. California, in general, and historically, always had higher property values than the rest of the United States.

You Can Qualify For A Mortgage With Bad Credit In California: click here!!!

Buying A Home In California After Bankruptcy

The Great Recession of 2008 really affected California citizens.  California’s home values were and still are one of the highest in the nation. The real estate and credit meltdown of 2008 was the cause of many company shutdowns in California. Left hundreds of thousands of California workers out of work and scrambling to look for other jobs. Many California workers tried tirelessly to find work to no avail. Other California workers had to settle for jobs that they were overqualified for and take on menial jobs. Many successful California business owners had to shut down the businesses they had for decades. This was not just because of the slowdown but because many lending institutions eliminated bridge loans, business loans, and other forms of capital loans in order for them to operate.

Non-QM Loan Requirements After Bankruptcy In California

Non-QM loans are one of the most popular loan programs in California. Every loan program has its own lending guidelines on waiting period requirements after bankruptcy. However, non-QM loans have no waiting period requirements after bankruptcy.

Buying A Home In California One Day Out Of Bankruptcy With Non-QM Loans

Bankruptcy rates in the state of California were one of the highest, if not the highest, in the nation during the 2008 financial crisis. Due to the sluggish California economy after the 2008 real estate and credit collapse, many individual taxpayers and businesses filed for bankruptcy. Bankruptcy rates in California soared to the highest rate in history in the state of California. Homebuyers can qualify for home loans after bankruptcy. Government and conventional loans have mandatory waiting period requirements after bankruptcy. The waiting period requirements after bankruptcy depend on the individual mortgage loan programs. Gustan Cho Associates has a specialty mortgage loan program that has no waiting period after bankruptcy. Non-QM loans one day out of bankruptcy are available for homebuyers with a recent bankruptcy who are ready to purchase a home.

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Foreclosures In California Due To The Economic Downturn Of The 2008 Financial Crisis

California was one of the hardest-hit states in the United States when the 2008 Great Recession started. Home values in California came spiraling down in every county in the state of California. There was no area in California that was not affected by the 2008 Real Estate and Credit meltdown. Some counties in California had real estate values drop more than 50%. Many California homeowners were sitting on homes that had mortgage balances higher than the values of their homes. Others had teaser rate negative amortization mortgage loans.

Mortgage Requirements After Foreclosure In California

Teaser rates are when initial mortgage payments were very low and when a certain time period passed, their mortgage payments doubled or tripled. These folks could no longer afford the new adjustable-rate mortgage payment and ended up defaulting on their California home loan. Due to the loss of jobs or loss of business and the Great Recession in California, many homeowners could no longer afford their homes. Many had to turn in their keys to the bank or do a short sale or deed in lieu of foreclosure. Homes were worth less than the homeowners’ mortgage loan balance. A large number of homeowners no longer afford to keep up with the mortgage payments on their homes.

Non-QM Mortgage Options Of Buying A Home One Day Out Of Foreclosure

The good news is lenders are offering mortgage loan programs after a housing event. For homebuyers who recovered sooner after foreclosure, they can qualify for a non-QM mortgage one day out of foreclosure with no waiting period requirements. Rates will be higher than traditional loans. 30% down payment is required on non-QM loans one day out of foreclosure.

No Waiting Period Requirements After Foreclose With Non-QM Loans: Apply Now click here!!!

California Mortgage Options For Homebuyers With Bad Credit

The economy and real estate market in California has since recovered since the 2008 real estate and banking crisis. Many homeowners who had a foreclosure, deed in lieu of foreclosure, short sale, or bankruptcy can now qualify for California home loans with bad credit. Many homebuyers seeking California home loans with bad credit go to their local banks, credit unions, or local mortgage company and are told they do not qualify due to having prior bad credit. Not all lenders are created equally. One lender may say NO but a different would love to earn your business.

Shopping For A Mortgage With A Different Lender After A Loan Denial

Many of our borrowers at Gustan Cho Associates do not give up after getting denied a mortgage. Many banks, credit unions, and mortgage companies have lender overlays on government and conventional loans. Mortgage lender overlays are lending guidelines that surpass the minimum federal lending guidelines on FHA, VA, USDA, conventional loans. The individual mortgage lender can impose higher lending requirements than the agency mortgage guidelines of FHA, VA, USDA, Fannie Mae, Freddie Mac. For example, many California mortgage lenders will have minimum credit score requirements of 640 on FHA loans for mortgage loan applicants seeking a home purchase loan. However, the minimum HUD lending guideline for homebuyers to purchase a home with a 3.5% down payment FHA loan is 580 FICO. The higher credit score requirement by the lender than the minimum HUD guidelines on FHA loan requirements is called a lender overlay on credit scores.

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Credit Scores Requirement To Qualify For Mortgage With Bad Credit

The lower the borrower’s credit scores, the higher the risk for the lender. The higher the risk, the higher the rates lenders charge. Every loan program has its own minimum credit score requirements.

FHA Loan Credit Score Requirements

HUD has the most lenient mortgage loan program for borrowers with low credit scores. Per FHA credit score requirements, borrowers with credit scores down to 500 FICO can qualify for an FHA. HUD requires a 10% down payment versus a 3.5% down payment for homebuyers with credit scores under 580 FICO. To qualify for FHA loans with a 3.5% down payment, the homebuyer needs a 580 FICO.

VA Loan Credit Score Requirements

VA loans do not have a minimum credit score requirement. Most VA lenders will require a 620 FICO or higher on VA loans even though the VA does not require minimum VA loan requirements on VA loans. Fannie Mae and Freddie Mac have a minimum credit score requirement of 620 FICO on conventional loans. Non-QM credit score requirements on non-QM loans and alternative specialty mortgage loans depend on the individual non-QM lender. Most non-QM lenders will go down to a 500 credit score on non-QM loans.

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The Ability To Qualify For A Mortgage In California With Bad Credit

Qualify For A Mortgage In California With Bad Credit

Gustan Cho Associates specializes in originating and funding Bad Credit Mortgage Loans California with no lender overlays. California is one of the top states that got affected by the Great Recession of 2008. Many California residents lost their jobs, businesses, and homes. California is also the largest state in the continental United States and has one of the highest home prices. California citizens can qualify for Bad Credit Mortgage Loans California with no overlays. Gustan Cho Associates specializes in Bad Credit Mortgage Loans California with no overlays on government and conventional loans. Plus, NON-QM Loans are a very popular loan program where there is no waiting period after bankruptcy and foreclosure. Homebuyers can now qualify for home loans after bankruptcy and foreclosure in California without needing to meet mandatory waiting periods.

Refinance Mortgages

Homeowners in California have multiple mortgage options on refinancing their mortgage loans. Every loan program has its own lending requirements when it comes to refinancing. With historic low rates, it may make sense for California homeowners to consider to refinance and saving tens of thousands of dollars over the term of their loan. FHA, VA, non-QM, and conventional loans offer rate and term refinance, cash-out refinance, and other refinance mortgage loan programs. There are many reasons why homeowners may want to refinance. Due to the high home prices in California, most counties in the state of California has larger FHA Loan Limits in high-cost areas. High-cost FHA and conforming loan limits for 2022 in high-cost areas are capped at $970,800. Homeowners with current FHA loans can qualify for a fast-track streamline refinance loan program called FHA streamline refinance.

FHA Streamline Refinance With Bad Credit Qualification Requirements

No Credit Score Requirement:

  • Recent late payments, recent collections, recent charge offs does not matter
  • The only requirement is that the homeowner needs to have been timely on their current FHA Loan for the past 12 months
  • An appraisal is not required
  • There is no income verification is required so debt to income ratios is not an issue
  • Closing costs are not required by the borrower: Lender credit will pay all borrower’s closing costs

California Refinance Loan Programs

California homeowners who are thinking about refinancing their mortgage, there are other options.

Here are some California mortgage refinancing options homeowners may consider:

  • Refinancing 30-year fixed-rate mortgage to 15-year fixed-rate mortgage
  • 15 year fixed rates have lower mortgage interest rates than 30 year fixed mortgage rates
  • Refinancing their adjustable-rate mortgage (ARM) to a 15 or 30 year fixed rate mortgage
  • Refinancing 15-year mortgage to 30-year fixed-rate mortgage to reduce the monthly mortgage payment
  • Take out co-borrower with refinancing
  • Cash-out refinance
  • Refinance FHA Loan into a Conventional Loan to avoid paying annual FHA MIP

Refinancing Adjustable Mortgage Rates To Fixed Rate Mortgage

There are many homeowners who have adjustable-rate mortgage loans, also referred to as an ARM, from the sub-prime days with high or no limits on interest rate increases. Homeowners who have such loan programs should seriously consider switching it to a fixed-rate mortgage or to an adjustable-rate mortgage that limits changes in the rate at each adjustment date as well as over the life of the loan. California homeowners can still get competitive mortgage rates with bad credit and low credit scores. The mortgage industry went through major changes since the 2008 Real Estate and Mortgage Collapse. Predatory Lending is now illegal and in order for a loan officer to be able to refinance borrowers. Consumers need to get a net tangible benefit in order for the refinance mortgage process to proceed.

What Determines Mortgage Rates

Not every California borrower gets the same mortgage interest rates. Mortgage rates are determined by several factors.

Here are the factors that determine mortgage interest rates:

  • Borrowers credit scores: Lender view higher credit score borrowers as less risk
  • The higher the credit scores, the lower the mortgage interest rates

Property Type:

  • Single Family Homes are considered the less riskiest so it offers the lowest mortgage interest rates

Condos, townhomes, and two to four-unit properties are considered riskier so mortgage rates are higher

Down Payment on Conventional Loans:

  • Conventional Loans are not insured by the federal government
  • Lenders will offer lower rates to home buyers who put larger down payments on Conventional Loans

Private Mortgage Insurance Requirements On Conventional Loans

Any Conventional Loans with under 20% down payment require private mortgage insurance 

Any Conventional Loans with under 20% down payment require private mortgage insurance 

  • Premiums on private mortgage insurance (PMI) depend on the borrower’s credit scores and the amount of the loan to the value of the property
  • Prior bad credit does not affect mortgage rates
  • Only credit scores affect mortgage interest rates
  • Prior bankruptcy, deed in lieu of foreclosure, foreclosure, short sales do not affect mortgage rates

California refinance borrowers need to consider locking their mortgage rates as soon as possible.

  • After the election of President Donald Trump, mortgage rates are extremely volatile with major daily swings
  • Not locking in the mortgage rate is called letting rates float where in the event mortgage rates skyrocket, the refinance process will be dead
  • Loan officers should pay attention to mortgage interest rates and lock borrowers who are refinancing as soon as possible

In the event, if there is a closing delay, lenders can grant extensions on mortgage locks

FHA Loan Requirements With Bad Credit In California

FHA Loans are the most popular loan program in California. The Federal Housing Administration (FHA) is a government agency under the umbrella of the U.S. Housing and Urban Development (HUD). HUD does not originate nor fund FHA Loans. The role of HUD is to promote homeownership in the United States by insuring banks and private lenders on the home loans that they originate and fund that meet HUD Guidelines. In the event, if borrower defaults on their FHA-insured home loan, HUD will guarantee the loss to the bank or mortgage company that funded the FHA Loan This only holds true as long as the lender met all HUD Guidelines.  California FHA loans are the best bad credit mortgage loans for homebuyers with lower credit scores and credit/income issues.

FHA Guidelines And Mortgage Requirements On FHA Loans

Minimum credit score requirement of 580 FICO for 3.5% down payment home purchase loan:

  • Maximum debt to income ratio requirements is 56.9% for borrowers with 620 credit scores or higher
  • Under 620 FICO borrowers, the maximum debt to income ratio is capped at 43% DTI
  • Outstanding collections and charge off accounts do not have to be paid
  • Co-borrowers allowed
  • 100% gifted funds can be used for a down payment on a home purchase
  • 2 year waiting period after Chapter 7 discharge date
  • Borrowers can qualify for FHA Loan one year into Chapter 13 Bankruptcy repayment plan with trustee approval
  • No waiting period after Chapter 13 discharge date

There is a three-year waiting period after foreclosure, deed in lieu of foreclosure, short sale.

What Are NON-QM Loans?

There are many non-QM and alternative specialty loan programs. Non-QM loans are portfolio loans. Each individual non-QM lender has its own lending guidelines on non-QM loans. One of the first non-QM loan programs to hit the market was the 12-month bank statement mortgage loan program for self-employed borrowers. Gustan Cho Associates now offers bank statement mortgage loans for self-employed borrowers. No tax returns are required. Personal and/or business bank statements are used to derive income. 100% of deposits over 24 months are averaged on personal bank statements. 50% of deposits are averaged on business bank statements.

Types Of Non-QM Loans

NON-QM Loans is a very popular mortgage program where there is no waiting period after bankruptcy and foreclosure to qualify for home loans. GCA Mortgage offers non-QM mortgages one day out of bankruptcy and/or foreclosure with a 30% down payment. Gustan Cho Associates has other non-QM loan programs such as no-doc mortgages, asset-depletion, non-QM jumbo loans with 500 credit scores, 90% traditional jumbo mortgages, and dozens of other specialty mortgage loan options for borrowers.

NON-QM Loans Mortgage Options

No waiting period after bankruptcy, foreclosure, deed in lieu of foreclosure, short sale:

  • Bank statement loans are for self-employed borrowers with  a lot of write-offs
  • No-doc mortgages with no income tax returns are required
  • Borrowers can qualify with our bank statement loan program where write-offs on tax returns do not matter
  • Available for both owner occupant and non-owner occupant investment properties

No Doc Fix And Flip Loans For California Real Estate Investors

Gustan Cho Associates offers the no-doc fix and flip loan program for real estate investors.

Borrower’s income does not matter so there is no debt to income ratio requirements:

  • Only the property is underwritten and not the borrower
  • 15% down payment on the property purchase and 10% down payment on the rehab costs
  • 2 to 3-week closings
  • Can close on the name of LLC or borrower
  • 9-month interest-only term
  • Extensions can be given in the event of delays with a construction project
  • Minimum $100,000 loan amount and no maximum loan amount

Mortgage Options For California Homebuyers

Homebuyers can qualify for an FHA loan with credit scores down to a 500 credit score with zero lender overlays

California homebuyers with bad credit or other credit/income issues have mortgage options at Gustan Cho Associates. Gustan Cho Associates has zero lender overlays on FHA, VA, USDA, and conventional loans. Homebuyers can qualify for an FHA loan with credit scores down to a 500 credit score with zero lender overlays at Gustan Cho Associates. But not with a lender that will have overlays on top of the minimum federal lending guidelines. Another common overlay set among private lenders is debt to income ratio overlays. The maximum debt to income ratio requirement on FHA loans is 46.9% front-end and 56.9% back-end DTI. Many FHA lenders may cap the debt to income ratios to 45% to 50%. When shopping for California loans with bad credit, make sure that if you are told that you do not qualify, ask them why and if they have their overlays.

Start Your Mortgage Process Today And Shop For The Best Mortgage Options For You

Homebuyers or homeowners who need to qualify for a mortgage with a lender licensed in multiple states with no lender overlays can contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at [email protected] Gustan Cho Associates is a mortgage company licensed in multiple states with ZERO OVERLAYS on government and conventional loans. We are correspondent lenders on non-QM loans and bank statement loans for self-employed borrowers. Gustan Cho Associates also offers alternative financing such as no-doc mortgages, asset-depletion loans, non-QM loans one day out of bankruptcy and/or foreclosure, condotel financing, and non-warrantable condo loans.  Our licensed loan officers at The Team at Gustan Cho Associates are available 7 days a week, evenings, weekends, and holidays. We have a national reputation for being able to do loans other mortgage companies cannot do. Over 75% of our borrowers are folks who could not qualify at other mortgage companies due to their lender overlays or because the other lender did not have the mortgage loan options the borrower needed. Gustan Cho Associates are mortgage bankers, correspondent lenders, and mortgage brokers. We have dozens of relationships with wholesale non-QM lenders. We have a reputation for being a one-stop mortgage shop.

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