How to Qualify for a Mortgage Loan in California: A Borrower’s Guide

For many first-time home buyers in California, the mortgage qualification and approval process is one big mystery. Borrowers tend to have a lot of questions about this process.

What does it take to qualify for a mortgage loan in California? What kind of qualifications does a borrower need? And how can I improve my chance of getting a loan?

What It Takes to Qualify for a Mortgage in California

Mortgage qualification is a general term that refers to the home loan application, underwriting and approval process.

In short, mortgage qualification occurs when you are reviewed for a home loan and ultimately approved by the lender. You “qualify” for financing, hence the term.

There are many components and steps to the mortgage qualification process in California. In order to qualify for a home loan, borrowers usually need to have the following:

• Decent credit: While there’s no standard credit score requirement, most mortgage lenders prefer to see a 600 or higher. FHA loans often allow for lower scores.
• Manageable debt: Your lender will also evaluate your current debt level, to make sure you’re not taking on too much additional debt via the mortgage loan.
• Sufficient income: To qualify for a mortgage in California, borrowers must have reliable and sufficient income to cover the monthly payments (and other recurring debts).
• Documentation: Lenders require a variety of financial documents when reviewing loan applications. This can include tax returns, bank statements, W-2 forms, and more.

How the Qualification and Approval Process Works

The mortgage application, qualification, and approval process can vary from one borrower to the next. That’s because it involves many different variables.

But in general, most borrowers complete the following steps to qualify for a home loan in California:

1. Speak to mortgage lender about your financing needs.

What kind of home loan do you need for your particular situation? How much do you need to borrow? What are your short-term challenges and long-term priorities, from a financing perspective?

These are important questions from a borrower’s standpoint. So you’ll want to resolve them before committing to a particular mortgage product or program.

2. Submit a standard loan application.

You can’t qualify for a mortgage loan in California until you submit a loan application. This document gets the ball rolling, so to speak. And the good news is that it’s fairly straightforward.

In California, borrowers seeking a home loan typically use the Uniform Residential Loan Application (URLA). This is the standard mortgage application document used by lenders all across the country.

You can find a sample application document online, just by googling “uniform residential loan application” or “Fannie Mae form 1003.” This will help you understand what kind of information you’ll have to provide.

3. Provide additional documents as needed.

In California, borrowers must provide a variety of documents relating to their financial situation. The “usual suspects” include bank statements, tax returns, pay stubs, W-2 forms, and other financial-related documents.

Mortgage lenders use these documents to qualify you for a specific mortgage amount, and to verify your assets, income, and debts.

4. Wait for the home appraisal and underwriting process.

Before you can be officially qualified and approved for a mortgage loan, you’ll have to get through the home appraisal and underwriting process. But there’s actually not much for you to do here, as a borrower.

The lender will request a home appraisal to determine the current market value of the home. The underwriter will then review the entire loan file to make sure it meets all applicable requirements.

There’s a chance you might receive some additional requests from the underwriter, such as a letter of explanation for a particular financial matter. So keep an eye out for that. Satisfying such requests in a timely fashion can help keep the process on track.

How to Improve Your Chances for Loan Approval

If you’re planning to buy a home in the near future, there are some things you can do right now to improve your chances of mortgage approval. Here are some actions that could help you qualify for a loan:

1. Check your credit reports. Your credit reports contain a detailed history of your loans and credit accounts. The information found in these reports is used to produce your credit scores. If you plan to apply for a home loan in the near future, you should take a close look at your credit reports. Check them for accuracy. Dispute any mistakes you find through the bureau that produced the report.
2. Maintain a good credit score. FICO credit scores, which are commonly used by mortgage lenders, cover a range from 300 to 850. The higher your score, the better your chances of getting approved for a home loan. You can maintain a high score (or improve a low one) by paying your bills on time and using credit cards sparingly.
3. Save as much money as possible. You’ll need a certain amount of money in the bank to qualify for a home loan in California. First, there’s the down payment to consider. You’ll probably have some closing costs, and these can add up to several thousand dollars. The more money you can save between now and the time you apply for a loan, the better!
4. Avoid major purchases. If you plan to apply for a mortgage in the near future, it’s wise to avoid making any major purchases. At least for now. In this context, a “major” purchase is anything that requires a credit card or loan. Purchasing big-ticket items can eat into those all-important savings we talked about in point #3 above. It could also increase your debt-to-income ratio, making it harder to qualify for a mortgage loan.
5. Keep your employment stable. Lenders like to see consistent and reliable income when evaluating loan applications. A steady job history can make you a more attractive borrower. Try to avoid changing jobs or industries right before applying for a mortgage, as it could raise concerns about your income stability.

Ready to Get Started?

Do you have questions about the mortgage qualification process in California? Ready to start the application process? Our team is ready to help you.

Bridgepoint Funding serves home buyers and homeowners all across the Golden State. We offer a broad range of mortgage financing options, some of which have flexible qualification requirements.