California Mortgage Requirements for Home Buyers: 2018 Update

It’s the start of a new year. So we thought it was time to take a fresh look at the basic mortgage requirements for California home buyers in 2018.

Some of the criteria for home loan approval have eased over the last year or so. Also, most of the state will see higher loan limits in 2018. Here’s an overview of these and other mortgage requirements for California home buyers.

Higher Loan Limits in 2018

Loan limits are one of the mortgage components that have changed for 2018. Most of the mortgage programs have maximum size limits that can affect borrowers seeking financing. This is true for FHA, VA and conventional. All of these loan limits were increased for 2018 in response to rising home values.

The FHA loan limit for a single-family home purchase in California ranges from $294,515 up to $679,650, depending on the county. FHA loan limits were increased in most, but not all, counties for 2018 in response to home-price gains that occurred during 2017.

Conforming loan limits (that are used for conventional or non-government-backed mortgages) range from $453,100 up to $679,650. The lower limit or baseline covers most counties in California. The higher cap of $679,650 applies to the higher-priced markets in the Los Angeles area, Santa Barbara, and the entire San Francisco Bay Area.

It’s possible to borrow above these limits, if your income supports it. When a home loan exceeds the applicable limits mentioned above, it is known as a jumbo mortgage.

Basic Mortgage Requirements for California Home Buyers

Mortgage underwriters look at a wide variety of factors when considering loan applications. But the most important mortgage requirements for California home buyers are those that relate to the borrower’s credit score, existing debt, and income situation.

Here’s a look at those key requirements:

Credit scores: FHA loans require a credit score of 580 or higher, for borrowers who want to use the 3.5% down payment option. Conventional home loans typically have higher credit-score requirements, by they’re not necessarily set in stone. Generally speaking, a score of 600 or higher will help a person qualify for a mortgage loan California. Credit reports and scores show how a person has borrowed and repaid money in the past. That’s why these three-digit numbers are important to mortgage lenders.

Down payments: This is another important mortgage requirement for California home buyers in 2018. Down payments vary from one home loan program to the next. The minimum down payment for a conventional mortgage loan usually ranges between 3% and 5% of the purchase price. FHA loans allow for a down payment as low as 3.5% of the purchase price or appraised value. The VA loan program for California military members and veterans offers 100% financing and zero down payment requirement.

Debt and income balance: Borrowers seeking a mortgage loan in California must have sufficient income to repay the debt. This is evaluated through a variety of financial documents including tax returns and bank statements. Additionally, borrowers should have a good balance between debt and income. Most of the mortgage loans available in California today set a “debt-to-income” limit somewhere between 43% and 50%. This is done to ensure that the borrower is not taking on too much additional debt, with the acquisition of a home loan.

Related: Mortgage interest deduction changes

The bottom line to all of this is that mortgage requirements in California have eased a bit over the last few years. There’s quite a bit of flexibility within the industry today, and there are exceptions to many of the rules and requirements mentioned above. That’s why it’s so important to speak to a knowledgeable mortgage professional about your financing options.