With only a couple of months left in the year, many first-time home buyers in California are looking ahead to 2018. And a lot of them share the same questions: What are the mortgage qualification requirements for first-time home buyers in California? What kinds of things do I need to buy a house?
We have your answers! Here is an overview of first-time home buyer qualifications in California, fully updated for 2018.
Down Payment Requirements for First-Time Buyers
Down payment requirements for first-time home buyers in California vary depending on the type of home loan you use. And a 20% down payment is not always needed. This is a common misconception.
Recent surveys have found that many first-time home buyers in California and nationwide think they have to make a down payment of at least 20% when buying a house. The truth is, your upfront investment could be as low as 3% to 3.5%, depending on the type of home loan you use. If you happen to be a military member or veteran, you could qualify for 100% financing through the VA loan program.
These days, there are several low-down-payment mortgage programs available for first-time buyers in California. Additionally, you could obtain money from a third-party source, such as a family member or close friend, to cover some or all of your down payment expense.
Credit Score Needed to Buy a Home in California
We’ve covered credit-score requirements for first-time buyers in California in a separate article, which you can read here. Here is a short recap, updated for 2018.
Credit scores are certainly not the only qualification requirement for first-time buyers who need mortgage financing. There are other requirements as well, including the debt ratios mentioned below. But the credit score is one of the more important qualification criteria.
Here’s a quick overview of credit-score requirements for first-time buyers in California:
- For an FHA loan, borrowers must have a credit score of 580 or higher to qualify for the 3.5% down payment option (which is why most people use this program in the first place).
- Conventional loans (that are not insured by the government) sometimes require higher credit scores than FHA and VA. Generally speaking, a score of 600 or higher will put you in a pretty good position to qualify for a mortgage loan and buy a home in California. But that number is not set in stone.
- VA loans for military members and veterans have the most flexible qualification criteria for first-time buyers. This applies to credit scores as well.
If you’re not sure where you stand, just give us a call or send an email. We can review your financial situation and let you know if you’re a good candidate for mortgage financing.
Debt-to-Income Requirements in 2018
This is one of the areas where we’ve seen some easing over the last couple of years. And we’ll get to that in a moment. But first, a quick definition:
Debt-to-income ratios are one of the most important qualifications for first-time home buyers in California. As you might’ve guessed, a debt-to-income ratio compares the amount of money a person earns each month, to the amount they spend covering their various debts.
Fannie Mae, the government-sponsored corporation that buys home loans from lenders, announced in 2017 that they would start allowing higher debt-to-income limits for borrowers. They increase their limit from 45% to 50%. This is for a conventional mortgage loan that is not insured by the government. FHA-insured home loans have similar requirements for debts ratios.
The whole purpose of a debt-to-income ratio is to ensure that you, the borrower, are not taking on too much debt with the addition of a mortgage loan. So you can think of it as a protective measure. Most of the home loans available in 2017 and 2018 set the bar somewhere around 43% to 50%, as far as the total debt-to-income limit.
Inventory Is Tight in Many Markets, So Be Flexible
In 2018, first-time home buyers in California will have to be flexible and open-minded when it comes to shopping for a home. That’s because inventory is still limited in most real estate markets across the state.
A “balanced” real estate market is said to have somewhere between five and six months worth of supply. Most major cities across California currently have less than a three-month supply of homes for sale.
Granted, our real estate market is not as “tight” as places like Seattle, Washington and Portland, Oregon. But there is still limited supply relative to demand.
So consider this another requirement for first-time home buyers in California. When conducting your home search, you’ll benefit from being flexible and open-minded with regard to the features of the property. Chances are, you’ll have to make some compromises along the way.
This is just a quick overview of first-time home buyer qualification requirements in California, updated for 2018. The mortgage process is highly individualized. Every financing scenario is different, because every borrower is unique. That’s why it’s important to speak to a knowledgeable mortgage professional about your financing goals. And that’s where we come in.