What Are The Requirements To Buy A House In California?
Requirements to Buy a House in California
There's a big difference between all-cash buyers and those using a mortgage loan when it comes to home-buying requirements.
- Those who pay cash for a house do not need mortgage insurance, so most of the things below do not apply to them.
- But most California buyers do use mortgage loans when buying a house.
With that audience statement out of the way, here are some of the key requirements to buy a home in California:
1. Saving for a down payment.
Typically (but not always) a down payment is expected when you buy a home in California. These will range from 3 percent to 20 percent of the purchase price, depending on the type of loan and other factors being used. Service members and veterans are also eligible for VA home loans, which have 100 percent financing. The FHA loan program, which is especially popular among California's first-time buyers, allows borrowers to down 3.5 percent.
Though down payments are a common necessity to purchase a home in California, not necessarily the money has to come out of your own pocket. A lot of loan services these days allow down payment gifts. That is when you are given money by a relative, family member, employer or other authorized "donor" to fund some or all of your upfront investment.
2. Maintaining good credit.
Another key factor when purchasing a California home is credit scores. If it comes to obtaining a loan, you've already learned about the value of having good credit. For general, borrowers with higher credit ratings have easier time to apply for mortgage loans, and often prefer to get better interest rates.
Banks and mortgage companies do not employ a single cut-off point. It varies from one person to the next. Having said that, today most lenders want to see a score of 600 or higher from borrowers seeking a home loan. But that's just a general tendency — it's not in concrete.
The bottom line is that, by using a mortgage loan, a higher score will increase the chances of buying a home in California.
3. Managing your debt load.
Also, the amount of debt you have may affect your ability to get mortgage financing. So buying a house in California is another crucial requirement. In fact, it's the ratio of your gross recurring debts to your monthly income that really counts.
This is dubbed the debt-to - income ratio in lending lingo. The calculation indicates how much of your income goes into your monthly debt. It helps mortgage firms to ensure you don't take on too much debt (with a home loan added).
Like with credit ratings, this is a criterion for home ownership in California and can vary from one mortgage company to the next. Ideally, the overall debt-to-revenue ratio will drop below 43%. This is not a hard-and-fast statute, however. Even other considerations are taken into account.
4. Rounding up your financial documents.
Throughout California, paperwork is a standard prerequisite for purchasing a home. You'll be asked for a wide range of financial records when you apply for a home loan. The lender will use these to check your income and properties, the history of your borrowing and other aspects of your financial profile.
Current bank statements, tax returns and W-2 reports for the past two years, pay stubs and other documentation related to finance are frequently requested documents. Certain documentation would have to be issued by self-employed lenders, such as a profit-and - loss (P&L) statement.
5. Having the home appraised.
When you use a mortgage loan to buy a house in California, there's a fair chance the property will be priced before financing. Home appraisal is therefore another key requirement when purchasing a home.
A licensed and certified home appraiser can visit the home during this process and assess it inside and out. Then the appraiser will provide an estimate of the value of the property in the current market for real estate. The lender needs to make sure the amount owed for the property represents the true market value.
There really isn't anything for you to do as a home buyer during the valuation process. The lender will schedule it, and the appraiser must give the lender back his or her paper. It is just something you need to be conscious of.
The home valuation also highlights the value of making an insightful bid based on current market conditions. When you bid n sum well above market value, the property will not appraise for the purchase price agreed upon. This can create an impediment to approval of mortgages.