California FHA loans are a preferred mortgage solution for various borrowers, including first-time homebuyers, individuals with poor credit, and those dealing with collections or charged-off accounts. They are also well-suited for recent college graduates needing more credit scores or credit history and borrowers with high debt-to-income ratios. Limited programs allow borrowers with a credit score as low as 500 FICO to qualify for a low down payment government-backed loan. In addition, first-time homebuyers with low or imperfect credit scores can also consider FHA, VA, and non-QM loans as alternative financing options.

California VA Loans Versus FHA Loans

California FHA loans offer a valuable solution for homebuyers and homeowners seeking mortgages with minimal down payments and credit scores as low as 500 FICO. VA loans, while an excellent option, are specifically reserved for active and retired U.S. Armed Forces members holding a valid VA certificate of eligibility, limiting their availability.

For those who do not meet conventional mortgage criteria, non-QM loans present an alternative, catering specifically to borrowers with challenges such as lower credit scores, recent bankruptcies, or foreclosures. This article will discuss the details and benefits of California FHA loans for purchasing and refinancing homes, alongside other mortgage options available for those with less-than-perfect credit histories.

Contact Us Today To See If You Qualify For A Home Loan: click here!!!

The Demand For Housing In California Forecasted To Remain Strong

Despite widespread discussions about soaring home prices and many Californians relocating to more affordable states, the value of homes in California continues to rise. This article will explore various topics, including:

• The ongoing demand for housing in California.
• Options for securing a mortgage in California, even with poor credit.
• Possibilities for obtaining a high-balance loan despite less than perfect credit.
• Alternatives for mortgage qualification in California using Non-QM loans.

At Gustan Cho Associates, over 75% of our clients could not secure financing through other lenders. Our team often approves applications that have been declined elsewhere, demonstrating our commitment to helping more people achieve their dream of homeownership, especially those interested in California FHA loans.

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

California FHA Loans are the preferred choice for first-time homebuyers, individuals with credit scores as low as 500, and those who have faced previous credit challenges, including significant outstanding collection accounts. These loans also accommodate borrowers with high debt-to-income ratios and other credit or income complications.

The Department of Housing and Urban Development (HUD) oversees FHA and offers exceptionally flexible mortgage requirements. This allows individuals with credit scores starting at 500 and past credit issues the opportunity to buy a home with a minimal down payment.

Moreover, securing approval through the automated underwriting system for an FHA loan is generally more straightforward for those with prior credit issues and high debt-to-income ratios than other loan types. HUD’s guidelines are recognized as the most accommodating compared to other government or conventional mortgage programs.

Understanding The California Housing Market And Economy

The recovery from the coronavirus pandemic has fortified the California housing market, leading to unprecedented levels of home sales. Despite the economic impact of the COVID-19 shutdowns, the housing market remains strong. Projections indicate that it will remain robust throughout 2022 and 2023.

California distinguishes itself with its exceptionally high home prices, some of the highest in the United States. The state’s appealing climate and landscapes, a thriving economy, and numerous high-paying job opportunities draw a diverse workforce from across the nation and the globe. Major technology corporations such as Facebook, Google, Microsoft, Twitter, and YouTube have established their headquarters in California.

Additionally, the state is home to some of the most prestigious academic institutions in the world, including the University of California system, Stanford University, and the University of Southern California. Contributing further to its distinction, California boasts the world’s fifth-largest economy. These factors make California FHA Loans an attractive option for many looking to purchase homes in the state.

California High-Balance FHA Loans In High-Cost Counties

The United States Department of Housing and Urban Development (HUD) has identified several counties in California that are considered high-cost areas. In certain parts of California, housing prices can be twice or even triple those of similar homes elsewhere in the United States, with areas like San Francisco likely having some of the nation’s highest, if not the highest, home values.

This makes California FHA Loans particularly distinctive, as they are predominantly utilized in these high-cost regions. The cost of living in California is generally higher. Yet, residents typically earn significantly more than their counterparts in other states. In the subsequent sections, we will explore and compare California FHA Loans with other mortgage options available to homebuyers and homeowners.

2023 Loan Limits In California FHA Loans In High-Cost Versus Traditional Areas

California FHA loans are designed to accommodate the state’s higher housing costs than the rest of the country. Most regions in the U.S. have FHA loan limits set at $472,030. Still, due to the elevated prices in California, many counties are considered high-cost areas.

The FHA loan limit for a single-family home in these high-cost counties is $1,089,300. In places like Los Angeles, Irvine, and San Francisco, along with numerous other counties, FHA loan limits hit California’s peak at $1,089,300. Meanwhile, other California counties have FHA loan limits that exceed the typical $472,030 but do not reach the high-cost ceiling of $1,089,300.

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HUD Guidelines Versus Lender Overlays On California FHA Loans

California FHA loans have two groups of lending criteria. Mortgage lenders must ensure that their borrowers meet specific requirements to comply with the basic mortgage regulations established by the U.S. Department of Housing and Urban Development (HUD). The Federal Housing Administration (FHA) is supervised by HUD in this area.

HUD, a significant government entity, established these baseline guidelines for FHA loans. If a mortgage company wants the FHA to insure loans defaulted by homeowners, it must comply with these HUD guidelines. Mortgages must meet the HUD 4000.1 FHA Handbook’s minimum lending requirements to be insured by HUD.

In addition to these mandatory guidelines, mortgage companies can impose stricter lending criteria, known as lender overlays. California FHA lenders may apply these overlays to various aspects of the loan process. After reviewing the fundamental HUD agency mortgage guidelines for FHA home loans, we will explore typical lender overlays in more detail.

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.

Gustan Cho Associates Has No Lender Overlays: qualify and get pre-approved by clicking here!!!

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

Mortgage companies are required to comply with the HUD’s minimum agency mortgage guidelines for California FHA loans to ensure the loan is insured should a borrower default. HUD will only insure California FHA loans that adhere to these strict guidelines.

With the security of a government guarantee, lenders are motivated to attract borrowers for California FHA loans, offering them a low 3.5% down payment requirement for individuals with a 580 FICO score at favorable mortgage rates. Despite the leniency of HUD-agency mortgage guidelines, many mortgage companies adopt their own additional requirements, often referred to as lender overlays.

Applicants for California FHA loans must meet these minimum HUD guidelines, but lenders may have more stringent criteria. Although HUD mandates a 580 FICO score as the minimum credit requirement for a home purchase down payment of 3.5%, several lenders in California may require a credit score of 620 or higher. Such lenders have a credit score lender overlay requirement.

California FHA Lenders With No Lender Overlays On FHA Loans

Mortgage lender overlays are additional qualifications private lenders impose on top of the basic federal FHA requirements. Gustan Cho Associates is proficient in handling California FHA Loans without these extra lender overlays. To be eligible for a 3.5% down payment on a home purchase FHA Loan, a borrower must have a credit score of at least 580, according to the standard FHA Lending Guidelines for FHA Loans.

However, many California FHA Lenders implement overlays on credit scores, refusing applicants for California FHA mortgage loans who do not have a minimum credit score of 640. This particular California FHA Lender applies an overlay, requiring a credit score 640, despite the federal minimum guideline being only 580 for California FHA Loans.

Typical Lender Overlays By California FHA Lenders

Many lenders offering California FHA loans implement lending criteria that exceed the basic mortgage guidelines set by the HUD for FHA loans. Borrowers must familiarize themselves with these baseline HUD guidelines on California FHA loans. Suppose one lender turns a borrower down despite meeting the HUD’s minimum mortgage requirements.

In that case, they may still be approved by another lender that does not apply additional lender overlays. In the subsequent sections, we will explore and explain the common lender overlays typically enforced by lenders on California FHA loans.

California FHA Loan Credit Score Requirements and Lender Overlays

Many lenders offering California FHA loans implement stricter credit score requirements, often setting the minimum at 620 FICO or above, despite the HUD’s minimum requirement of 580 FICO for a 3.5% down payment FHA loan. These additional requirements, known as lender overlays, are commonly applied by lenders in California to enhance the credit criteria above the standard requirements for FHA loans.

FHA Loan Guidelines In California With Outstanding Collections And Bad Credit

Numerous financial institutions providing California FHA loans enforce higher credit score standards, typically establishing a minimum threshold of 620 FICO. However, the HUD stipulates only a 580 FICO score is sufficient for a 3.5% down payment on an FHA loan. Known as lender overlays, these stricter stipulations are frequently adopted by California lenders to elevate credit benchmarks beyond the federal baseline for FHA loans.

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. Qualify for FHA Loans For 500 Credit Score Homebuyers 

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.

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

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 800-900-8569 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 gcho@gustancho.com. 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.

California VA Lenders With No Lender Overlays On FHA Loans: click here to qualify!!!

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.

Contact Us Today To Qualify For A Mortgage: click here!!!

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

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.

No Waiting Period Requirements After Bankruptcy With Non-QM Loans: click here!!!

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.

Apply Today For A Mortgage: click here!!!

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.

Prequalify for a mortgage in just five minutes. 

The Ability To 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 

• 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. Gustan Cho Associates 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

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 800-900-8569 or text us for a faster response. Or email us at alex@gustancho.com. 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.

FAQs About California FHA Loans Versus Other Mortgage Options For Homebuyers

1. What are California FHA loans? California FHA loans are government-backed mortgages that help various borrowers, such as first-time homebuyers, those with poor credit, and individuals with high debt-to-income ratios, purchase homes. They are known for allowing low down payments and accepting credit scores as low as 500 for certain programs.

2. How do California FHA loans compare to VA loans? While FHA and VA loans offer low down payment options, VA loans are exclusively available to active and retired U.S. Armed Forces members and require a valid VA certificate of eligibility. FHA loans are more broadly accessible to the general public, including those with lower credit scores.

3. What alternatives exist for those with low or imperfect credit scores besides FHA loans? Aside from FHA loans, borrowers with low or imperfect credit might consider VA loans (for eligible veterans), non-QM loans, or FHA loans specifically designed for first-time homebuyers, which typically offer more lenient credit requirements.

4. How do lender overlays impact securing an FHA loan in California? Lenders may have more requirements than the ones set by the Federal Housing Administration (FHA). The FHA allows applicants with a credit score of 580 or more to pay a down payment of 3.5%, but some lenders may require a score of 620 or above.

5. Are there specific FHA loan options for first-time homebuyers in California? FHA loans offer advantages to those new to the housing market. These types of loans have less strict credit score requirements and lower down payment thresholds, making them an excellent choice for first-time homebuyers in California.

6. What should borrowers know about the demand for housing in California? Despite high prices and a trend of people moving to more affordable regions, California’s housing market remains robust due to its appealing climate, diverse job opportunities, and strong economic conditions, keeping demand high.

7. What are the FHA loan limits in high-cost areas of California? In high-cost areas, FHA loan limits can reach up to $1,089,300, accommodating the higher property values typically found in regions like Los Angeles, Irvine, and San Francisco.

8. What difficulties do borrowers with a credit score below 580 face when attempting to obtain an FHA loan? For borrowers with credit scores below 580 but above 500, the FHA requires a higher down payment of 10%. Additionally, these borrowers may find fewer lenders willing to provide financing due to the perceived higher risk.

9. Can borrowers with recent bankruptcies or foreclosures still qualify for FHA loans in California? Yes, FHA loans have specific waiting periods after significant credit events like bankruptcies or foreclosures, but these can vary. Sometimes, borrowers might qualify for an FHA loan with manual underwriting even if these waiting periods have yet to be fully met.

10. What should you do if you are turned down for an FHA loan in California? If an FHA loan is denied, it may be due to lender overlays. Borrowers should consider applying with another lender that might not impose such strict overlays or explore other types of loans, like non-QM loans, that might offer more flexible qualification criteria.

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This blog about California FHA Loans Versus Other Mortgage Options For Homebuyers was updated on April 16th, 2024.