California Home Loans With Bad Credit And Lower Credit Scores

This BLOG On California Home Loans With Bad Credit And Lower Credit Scores Was UPDATED On January 29th, 2019

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.

There are two sets of mortgage guidelines:

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

In this article, we will cover and discuss qualifying for a mortgage in California with bad credit.

Agency Guidelines Versus Overlays

What are the agency guidelines and overlays

All California Lenders needs to meet government and/or conventional guidelines.

  • However, every lender can have their own overlays
  • Lender Overlays means 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 credit report but has 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.

Mortgage Lender Overlays Versus Government Guidelines

Many lenders have overlays where they may require 620 credit scores versus 580 required by FHA.

  • Lenders with overlays may request that borrower pay off outstanding collections and charge offs
  • This holds true even though FHA Guidelines does not require it
  • Lenders with overlays may cap debt to income ratios at 45% to 50% when FHA Guidelines On DTI is 56.9%
  • Borrowers of California Home Loans With Bad Credit And Lower Credit Scores should seek lenders with no overlays
  • 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 Qualifying 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, 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.

Bankruptcy Rate In California Was Among Highest

Was the bankruptcy rate in California one of the highest

The Great Recession of 2008 really affected California citizens.  California’s home values were and still is 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 scramble 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 slow down but because many lending institutions eliminated bridge loans, business loans, and other forms of capital loans in order for them to operate
  • Bankruptcy rates in the state of California were one of the highest, if not the highest, in the nation
  • Due to the sluggish California economy, even the whole state of California was on the verge of bankruptcy

Bankruptcy rates in California soared to the highest rate in history in the state of California.

Foreclosures In California

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
  • 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 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 their keys in to the bank or do a short sale or deed in lieu of foreclosure.

Qualifying For California Home Loans With Bad Credit

The economy and real estate market in California has since recovered, although not a full recovery.

  • 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
  • Home buyers seeking California home loans with bad credit and go to their local banks, credit unions, or local mortgage company and are told they do not qualify, do not give up
  • Many banks, credit unions, and mortgage companies have lender overlays
  • Mortgage lender overlays are lending guidelines that surpass the minimum federal lending guidelines where the individual mortgage lender can impose on the mortgage applicant
  • For example, many California mortgage lenders will have minimum credit score requirements of 640 for applicants seeking a home purchase loan

However, the minimum FHA lending guidelines with regards to the minimum credit score is 580.

Credit Scores Requirement To Qualify For California FHA Loans

What is the creditworthiness assessment requirement in order to qualify for California FHA loans

California Home Buyers can qualify for an FHA loan with a 580 credit score with a mortgage lender that does not have an investor overlay

  • But not with a lender that will have overlays on top of the minimum federal lending guidelines
  • Another common overlay set among private lenders are debt to income ratio overlays
  • Maximum debt to income ratio requirements on FHA loans is 56.9% 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

Those who need to qualify for California Home Loan With Bad Credit with a direct lender with no overlays can contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at [email protected] Gustan Cho Associates, the national consumer direct division of Loan Cabin Inc. NMLS 1657322, is a national direct lender 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 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.

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