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FHA Loans Bad Credit California With No Lender Overlays

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FHA Loans Bad Credit California With No Lender Overlays

This BLOG On FHA Loans Bad Credit California With No Lender Overlays Was UPDATED On January 12th, 2019

California is one of the largest states in the nation.

  • The state of California is also one of the most populous states in the United States
  • California has one of the highest property values in the country
  • California, Hawaii, New York, Connecticut, Alaska are among the states with the highest property values
  • Due to the high property values in California, many counties in the state is considered high cost areas
  • Average FHA Loans sizes in the continental U.S. is $220,000
  • However, the average FHA Loan size in the state of California is $435,700 for a similar and like property

FHA Loans California 

The Federal Housing Administration, part of the United States Department Of Housing And Urban Development. Federal Housing Administration, also known as FHA, is not a mortgage company nor does it originate, process, underwrite, fund, or service FHA Loans.

  • Most folks have heard of FHA Loans
  • However, most folks do not realize that FHA is a government agency that has nothing to do with funding FHA Loans
  • FHA main function and role with FHA Loans is to insure FHA Loans
  • FHA insures loans that is originated, processed, underwritten, and funded by private banks and mortgage companies who are FHA approved lenders
  • Insures lenders against default and losses of FHA borrowers
  • In order for HUD to insure FHA Loans from private lenders, the FHA Loans needs to meet FHA guidelines
  • Qualifying for FHA Loans With Bad Credit California is definitely doable because FHA has lenient mortgage lending guidelines

Minimum Credit Score Requirements To Qualify For FHA Loans Bad Credit California

FHA requires a minimum of a 580 FICO credit score to qualify for a 3.5% down payment home purchase mortgage loan.

  • However, if California borrowers credit scores are below 620 credit scores, FHA considers borrowers a higher risk borrower
  • This is considered having an added layered risk
  • With FHA borrowers with credit scores under 620 FICO, the mortgage rates will most likely be 0.50% higher than those with credit scores of 620 FICO or higher
  • Debt to income ratio requirements is capped at 43% for FHA borrowers with credit scores under 580 FICO where the cap on debt to income ratios is capped at 56.9% debt to income ratio for FHA mortgage loan borrowers with credit scores of 620 FICO or higher
  • Rental Verification may be required for borrowers with credit scores of 620 FICO and under
  • VOR (Verification Of Rent) may be required if the Automated Underwriting System conditions it

FHA Loans Bad Credit California With Late Payments

Borrowers can qualify for FHA Loans bad credit California with low credit scores.

  • However, borrowers cannot have late payments in the past 12 months, especially a mortgage late payment
  • FHA understands that people can have gone through periods of bad credit due to extenuating circumstances such as periods of unemployment, divorce, and medical issues
  • FHA wants to see borrowers who have recovered, re-established their credit
  • Borrowers need to have been timely on their monthly minimum payments for the past 12 months
  • One or two late payments in the past 12 months may not be a deal killer with a good letter of explanation
  • However, multiple late payments will be an issue
  • Borrowers who had multiple recent late payments and want to qualify for a FHA Loan, the best advice I can give is to add new credit such as secured credit cards
  • Let the new positive credit drown the negative credit and let it season before applying for a FHA Loan

FHA Loans Bad Credit California With Collection Accounts

California home buyers can qualify for FHA Loans Bad Credit California With Collection Accounts without having to pay off the collection accounts.

  • However, if the unpaid collection accounts are non-medical and total $2,000 or more, then 5% of the unpaid collection account balance will be used to calculate borrower’s debt to income ratios
  • This holds true unless a written payment agreement is made with the creditor
  • If a written payment agreement is made between the creditor and debtor, the agreed monthly payment will be used to calculate the debt to income ratios
  • Medical collection accounts and charge offs does not matter and is exempt from this rule

California Home Buyers needing to qualify for FHA Loans With Bad Credit California with a direct lender with no lender overlays can us at Gustan Cho Associates at Loan Cabin Inc. at 262-716-8151 or text us for faster response. Or email us at gcho@loancabin.com. We are available 7 days a week, evenings, weekends and holidays.

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