Can I Buy a Home in California With a Bad Credit Score?

“I’d like to apply for a mortgage loan to buy a house in California, but I have bad credit right now. Is it possible to qualify for a loan in California with a relatively low credit score these days?”

This is a common question from home buyers who have credit issues in their past. It’s also a hard question to answer broadly, across the board, because every lending scenario is different. But we’ll tackle it anyway!

Here’s what you need to know about getting a mortgage loan and buying a home in California with a “bad” credit score.

Buying a Home in California With ‘Bad’ Credit

If you’re planning to pay cash for a home in California, your credit score won’t come into the picture at all. But if you’re like most buyers, and you need mortgage financing to help complete your purchase, your credit could be an important factor in the underwriting and approval process.

It’s also important to realize that credit is just one part of a bigger picture. There are other factors involved in the mortgage qualification process, and we’ll talk about them later.

Banks and mortgage lenders look at credit reports and scores to get a sense of how a person has borrowed and repaid money in the past. That’s basically what these three-digit numbers show.

• A higher score generally indicates that a person pays his or her bills on time and uses credit sparingly. California home buyers with higher credit scores tend to have an easier time getting approved for mortgage loans and other types of financing.
• A lower score generally indicates that a person has had some kind of credit problem(s) in the past. This might include late payments, delinquencies, debt collections and the like. California home buyers with lower credit scores tend to encounter more scrutiny when applying for mortgages, auto loans, etc.

When it comes to mortgage loan approval, there is no single cutoff point for credit scores. It can vary based on the type of home loan being used and other factors. With that being said, lenders today generally prefer to see a score of 600 or higher for loan approval. But that’s not written in stone.

Related: Credit score needed to buy a house

So, is it possible to buy a home in California with bad credit? This is not a yes-or-no question. Mortgage lenders tend to look at the bigger picture when considering loan applicants. There are other factors that come into play, above and beyond the borrower’s credit score.

So let’s talk about those factors next.

Other Factors That Can Affect Mortgage Approval

There are many variables that arise when you apply for a mortgage to buy a home in California. Your credit situation is just one of them. When considering loan applicants, banks and mortgage companies also look at:

• the size of your down payment relative to the loan amount,
• your debt-to-income ratio, and…
• the amount of cash you have on hand to cover your initial home-buying expenses.

A strength (or multiple strengths) in these other areas might even offset a bad credit score. For example, a home buyer in California who has less-than-perfect credit might still qualify for a mortgage loan if he or she has a sizeable down payment and plenty of money in the bank.

The point is, there are many factors that affect your ability to qualify for a home loan. It’s rare for just one thing to “make or break” the deal. It’s the big picture that matters.

Related: Credit requirements for FHA loans

To recap: Buying a home in California with bad credit is sometimes possible, and sometimes not. There are several overlapping factors that determine if a person is a good candidate for a loan. Home buyers should avoid making assumptions about their ability to buy a house in California. The only way to find out where you stand is to speak to a knowledgeable mortgage broker or loan officer (like us).