The market has stabilized and continues to recover throughout the country, resulting in slightly less restrictive criteria when it comes to qualifying for a home loan – specifically, a FHA loan. California borrowers, however, should not expect that every applicant will be approved.
Remember, our state was arguably the hardest hit by the mortgage crisis, and much of that was because California participated heavily in the subprime lending phenomenon throughout 2001 to 2007. So while lenders may say that they are loosening their criteria, and that may be true, it is still possible to have your application for a home loan denied.
When a would-be home buyer is denied a home loan, it is usually because of one of the following reasons:
Poor credit. We don’t like to say that people get denied based on “credit history,” because a credit history is something that can be corrected. What matters is your credit score now – so if you currently have a low credit score, you may be considered too big a risk for an underwriter to take on, even for a FHA loan. California borrowers should have a credit score of at least 580 in order to qualify for a FHA loan, and that is typically the lowest score that can be considered, barring extenuating circumstances or qualifying for a VA loan.
For a conventional loan (which is not backed by the Federal Housing Authority), an applicant’s credit score should be at least 620; for a jumbo loan (which is a loan of $417,001 or more in the Inland Empire), the credit score must be at least 680. At many mortgage lending firms (including Wholesale Capital Corporation), VA loan borrowers are the only group that is exempt from a minimum credit score.
Outstanding debt. A debt-to-income ratio is the percentage of a person’s monthly income that goes toward paying their debts. When a person applies for a FHA loan in California, one of the criteria they must meet is a debt-to-income ratio that is below the lender’s threshold. Typically, the debt-to-income ratio for a home loan applicant must not exceed 56.99 percent. Anything above that is considered too much debt, because it indicates that the person may not be able to make their monthly mortgage payment.
Income instability. A person with an unstable job history or current employment that is not necessarily solid may be a risk to a lender, so it is important that any home loan applicant can prove stable employment for the past two years. Likewise, if the applicant is self-employed – or, perhaps employed but works on commission – then he may need to prove that his income has been stable for the past two years.
Irregular income is a big red flag to lenders, even if the borrower is applying for a FHA loan. California home buyers must understand that contrary to what they may have heard, a FHA loan is not a “low income” loan. It is simply a home loan product that allows for better access to mortgages. No matter what, there will always be guidelines that lenders must follow to process FHA loans.
A good lender will disclose to applicants why they were denied for a home loan, and a superior lender will provide them advice that can help them get back on the path toward homeownership. If your home loan application was denied in the past and you have since taken the right steps to remedy your lending profile, the mortgage experts at Wholesale Capital Corporation will be happy to speak with you about qualifying for a FHA loan in California. Contact us at 844-571-2777 to request a consultation with a knowledgeable loan officer from our team.
Wholesale Capital Corporation is not affiliated with or acting on behalf of or at the direction of the Federal Housing Authority (FHA), the Department of Veterans Affairs (VA), or any government agency or government-sponsored entity. WCC is licensed by the California Bureau of Real Estate, Broker License #01147747 and CA Finance Lender’s License #603K610. Also licensed in Arizona by the Arizona Department of Financial Institutions, MB #0926199. Equal housing lender.