Am I Qualified for a Mortgage Loan in California?

First-time home buyers in California tend to have a lot of questions about the mortgage qualification and approval process? One of the most common questions is: Am I qualified for a mortgage loan in California? And if not, what can I do to improve my chances?

Can I Qualify for a Mortgage in California?

When you apply for a mortgage loan, the lender will examine all aspects of your financial situation. More than anything, they want to ensure you have the ability to repay your loan. In fact, this is one of the most important qualification requirements for borrowers.

So that’s the first thing you’ll need, in order to qualify for a mortgage loan in California. You must fully document your ability to repay the loan. You can expect the lender to look at your bank statements, tax returns, W-2 documents, and other items that relate to your earnings and assets.

Your lender will also want to know how you have borrowed and repaid money in the past. Have you repaid most (or all) of your debts on time? Or do you have a history of missing payments? This is where your credit reports and credit scores come into the picture.

To put it simply: A higher credit score can improve your chances of qualifying for a mortgage loan in California, while a lower score could make it harder to qualify.

So, what credit score is needed to qualify for a mortgage loan in California? It can vary depending on the type of home loan you use and other factors. These days, most banks and lenders want to see a credit score of 620 or higher for conventional loans. While the FHA and VA loan programs tend to be a bit more flexible.

Having a manageable level of debt can also help you qualify for a mortgage loan in California. Lenders will evaluate your debt-to-income ratio, or DTI. This is a comparison between the amount of money you earn each month, and the amount you spend to cover your recurring debts.

If your combined monthly debts (including the estimated mortgage payment) use up too much of your income, it could make it harder to qualify for a loan. On the other hand, a more manageable level of debt could improve your chances of getting a mortgage loan.

The maximum “debt-to-income” ratio for most mortgage programs falls somewhere between 45% – 50%. So if you fall below this threshold, you’re probably in good shape.

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 to consider taking:

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. Secondly, you’ll encounter some closing costs, and these can quickly add up to several thousand dollars. The point is, the more money you can save between now and the time you apply for a mortgage loan — the better!
4. Avoid major purchases. If you plan to apply for a mortgage in the near future, it’s probably best 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.