This Article Is On Lending Requirements For Mortgage After Short Sale In California
The State of California has the nation’s highest home prices.
- California was one of the biggest hit states by the 2008 Real Estate and Mortgage Meltdown
- Many homeowners had home values drop 50%
- California is also the nation’s largest state
- A short sale is when a homeowner gets permission from their mortgage lender where they can sell their home for a value that is less than their mortgage balance
The Devastating Affects To Housing From The 2008 Financial Crisis
The Great Recession of 2008 has plummeted property values in California:
- California housing values plummeted more than housing values in other parts of the country
- California homeowners who thought they had plenty of equity realized that they now were stuck in their homes with no chance to ever sell
- All equity has been wiped out
- Many were sitting on homes with the balance of their mortgage higher than the value of their home after the 2008 Real Estate Crash
- They were stuck
- They could not sell their homes
- If they were to sell their California homes, they would have to come up with money out of pocket
- California home foreclosure rates have soared to historical levels
- There was not a home in a block where there was not a foreclosure property for sale
The good news is that California homes have appreciated double digits every year since 2012. Homeowners with underwater mortgages are now in the black.
How Does A Short Sale Work?
California homeowners with homes with mortgage balances higher than the value of their homes and who can no longer afford to stay in their homes had options.
- They could have requested a loan modification from their current lender
- Loan modifications are where the mortgage lender can restructure the loan
- Lenders can forgive part of the debt or all of their delinquent mortgage payments
- Lenders can reduce the interest rate and/or forgive part of the mortgage principal balance
- Or homeowners can turn in the keys to their lender and do a deed in lieu of foreclosure
- Lenders can offer homeowners with underwater mortgages a short sale
- A short sale is when the homeowner with balance higher than the value of their property selling their home below what they owe.
However, the homeowner needs the blessing of their lender.
Need Approval Of The Lender On A Short-Sale
A mortgage lender needs to approve the price and approve the final short sale:
- The homeowner gets to choose the listing real estate agent
- The lender will approve the listing price of the home and will review all purchase offers
- The lender needs to approve the purchase offer on bids of the property
- Once the lender approves the purchase offer, the real estate transaction is like any other home purchase transaction
- Short sales normally take much longer to close
This is because lenders take their time in signing off on short sales.
What Does A Short Sale Do To One’s Credit
If you have a short sale on your credit report, your credit scores will drop dramatically.
- A recent short sale on the credit report will drop credit scores by more than 100 points
- The good news is that the drop is just temporary
- Credit scores will improve as short sale on credit report ages
- To expedite higher credit scores, a person who just had a short sale should start re-establishing their credit
- The fastest way of boosting one’s credit scores after a short sale is to add new credit by getting three to five secured credit cards with at least $500 credit limits
- Secured credit cards are by far the best tool in re-establishing credit and boosting credit scores
I have seen consumer credit scores north of 700 just one year after having a short sale reported on their credit report.
Can I Qualify For Mortgage After Short Sale In California?
Homebuyers can qualify for a mortgage after a short sale in California via an FHA loan after a three year waiting period from the date of the short sale that is reflected on the HUD-1 Settlement Statement.
- California has one of the highest home prices in the nation
- Standard FHA loan limits for 2020 on FHA loans is $331,760 unless the home is located in a high-cost area
- Most areas in California are in high-cost areas and FHA loan limits in most counties in California is $765,600
- FHA loan limits in many parts of California are higher than Conventional loan limits, which is a huge advantage
The minimum credit score to qualify for a 3.5% down payment FHA loan in California is 580.
Credit Scores Versus DTI On FHA Loans
The maximum debt to income ratios for FHA loans in California for home buyers with credit scores at 620 or higher is 56.9%.
- If credit scores are lower than 620, the debt to income ratio is capped at 43% DTI
- Re-established credit is expected
- Verification of rent is a huge compensating factor that mortgage underwriters love
- Home Buyers can qualify for an FHA loan with credit scores under 580 in California
However, a 10% down payment is required for all mortgage loan applicants with credit scores under 580.
VA Mortgage After Short Sale In California
California is the home of many veterans.
- The Department Of Veterans Affairs rewards our Veterans with the ability to purchase a home with 100% financing with no money out of pocket with VA Home Loans
- VA Loans has less strict mortgage guidelines than any other loan programs
- There is no credit score requirements nor debt to income ratio caps to qualify for VA Loans
- Quiana Williams of Gustan Cho Associates Mortgage Group has no overlays on VA Mortgage Loans
- As long as veterans get an approve/eligible per Automated Underwriting System Findings and can meet the conditions, Quiana will not just close your VA Loan but will close it on time
VA requires a two year waiting period after housing event (short sale, foreclosure, deed in lieu) where FHA Loans requires a three year wait period.
Conventional Mortgage After Short Sale In California
Home Buyers looking for a conventional mortgage after short sale in California, there is a four-year waiting period to qualify.
- The waiting period to qualify for a conventional mortgage after a short sale in California starts from the date of the short sale which is reflected on the HUD-1 Settlement Statement
- Minimum credit scores required is 620
- Minimum down payment required is 3% down payment for homebuyers who did not own a home for at least three years
- Otherwise, a 5% down payment is required
- Re-established credit is expected and no late payments after the short sale are expected as well unless there has been extenuating circumstances
- There is a four year waiting period after a deed in lieu of foreclosure to qualify for conforming loans
The waiting period is 7 years to qualify for conventional mortgages after standard foreclosure.
Mortgage After Short Sale In California With No Waiting Period
California home buyers can now qualify for Mortgage After Short Sale In California with no waiting period. Non-QM Loans does not require any wait period after housing event (short sale, foreclosure, deed in lieu of foreclosure). 10% to 20% down payment is required. Down payment requirement is dependent on borrowers credit scores. There are no maximum loan limits on non-QM loans. There is no private mortgage insurance required on non-QM loans. Mortgage Rates are slightly higher than traditional government and conventional loans. However, not having to pay private mortgage insurance offsets the higher rates and many times traditional mortgage borrowers and non-QM borrowers have similar monthly housing payments.
California Mortgage Lender With No Overlays
Lender overlays are additional mortgage lending guidelines on top of minimum lending guidelines by FHA or Fannie Mae.
- For example, to qualify for an FHA mortgage loan in California, all that is needed is a 580 credit score and a 3.5% down payment
- However, many California lenders require mortgage applicants to have 640 credit scores
Gustan Cho Associates is a no overlay California mortgage lender. As long as borrowers can meet the minimum FHA, VA, USDA, Fannie Mae, Freddie Mac guidelines, Gustan Cho Associates Mortgage Group can get home buyers California mortgage loan approved, cleared to closed, and funded. Contact us at Gustan Cho Associates if you are looking for a California mortgage lender with no overlays. Gustan Cho Associates has a national reputation on being able to get loans closed other lenders cannot. The team at Gustan Cho Associates are experts specializing in California home loans with bad credit. Borrowers can apply online now and get a the pre-approval process by clicking APPLY NOW. Our team of licensed mortgage professionals will get alerted via email. We are available 7 days a week, late evenings, weekends, and holidays.
