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Basic Mortgage Requirements for First-Time Buyers in California

First-time home buyers tend to have a lot of questions about buying a house in California. So we’ve created a blog series that addresses some of those frequently asked questions. Today’s question is: What are the minimum mortgage requirements for a first-time home buyer in California?

At a glance: Whether you are buying your first house or your third, the basic loan requirements are generally the same. In order to qualify for financing, a first-time home buyer in California will need a decent credit score, a manageable level of debt, sufficient income to repay the loan, and possibly a down payment of some kind. Learn more about these criteria below.

Basic Requirements for a First-Time Home Buyer in California

Different mortgage programs have different requirements for first time home buyers in California. For example, the VA loan program offers 100% financing with no down payment, while conventional home loans typically require a down payment in the range of 3% to 5%. So the mortgage qualification criteria for first-time buyers can vary depending on the type of loan that’s being used.

Here are some of the common requirements for buyers in California:

1. Sufficient income to repay your loan.

Having sufficient income to repay the loan is one of the most important requirements for mortgage approval. And that’s only logical. It’s important that you have enough income to manage your monthly mortgage payments, as well as all of your other monthly recurring debts.

To assess your ability to repay the loan, your mortgage lender will review your tax returns, pay stubs, bank statements and other financial records. They’ll also look at the amount of money you spend each month to cover your recurring debts, including the amount you would pay on your new mortgage payments. This is referred to as the debt-to-income ratio.

Debt-to-income requirements for first-time home buyers in California can vary depending on the particulars of the loan being used. With that being said, the limit is usually set somewhere around 45% to 50%.

Related: Buying in California in 2018

2. A good credit score.

Credit scores are another important mortgage requirement for first-time buyers in California. Your credit score is calculated from your credit reports, which are basically a record of your past financial behavior (particularly loans and credit cards). Paying bills on time and in full can help create a positive credit history and a higher score. Missing payments and defaulting on loans can lower a person’s score.

There is no single credit score requirement that applies to all first-time home buyers across the board. It can vary from one borrower to the next. A recent report from Ellie Mae, a mortgage software company, showed that most closed (successful) home loans had scores of 600 or higher for FHA, and 650 or higher for conventional mortgages. But those numbers are not set in stone — they just represent industry trends.

Credit scores are just one of the ways mortgage lenders measure risk. Lenders look at a variety of factors to determine if a first-time home buyer is qualified for a mortgage loan in California. With that being said, a higher credit score will improve your chances of qualifying. It could also help you qualify for a better mortgage rate.

3. Minimum down payments for buyers.

Down payment requirements for first-time buyers in California can also vary based on the type of loan being used. Military members and veterans can often qualify for VA loans that offer 100% financing. The FHA program requires a minimum investment of 3.5%. Conventional home loans tend to require 3% to 5% down.

The good news is that most mortgage programs today allow for down payment gifts, which means a third party (like a family member) can contribute money toward your down payment.

4. Documents needed for a mortgage loan.

Lastly, we have documents. This is another key requirement for a first-time home buyer in California. When you apply for a loan to buy a house, you will have to provide a variety of documents relating to your finances. We mentioned a few of these earlier. While documentation requirements can vary based on the mortgage program and other factors, first-time buyers usually have to provide the following types:

  • Copies of pay stubs showing at least the last 30 days
  • Names and addresses of employers for the last two years
  • W-2 forms for the last two years
  • One to two years worth of tax returns
  • Bank statements for the last two to three months
  • Profit and loss statement for self-employed borrowers
  • Other documents relating to income, assets and debts
  • View a more detailed list of mortgage documents

So those are a few of the minimum requirements for a first-time home buyer in California. You need to have sufficient income to repay your loan. You need to have a decent credit score, ideally 600 or above. And you’ll need to have a manageable level of debt that will allow you to make your mortgage payments each month. You might need a down payment as well, depending on the type of loan you are using.

Have mortgage questions? Our highly experienced loan officers can answer any questions you have about qualifying for a mortgage loan in California, whether you’re a first-time buyer or a repeat buyer. Please contact us today to get started. 

Mike Trejo

Mike Trejo is a Bay Area mortgage broker with 20+ years of knowledge and experience.

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