This is part of an ongoing blog post series where we answer common questions among home buyers in California. Today’s question is: How much can I borrow for a home loan in California? How do mortgage lenders determine how much I am able to borrow?
There are many variables that will determine how much new debt you can take on, in the form mortgage loan. But your ability to repay is the overriding factor.
When you apply for a mortgage loan in California, the bank or lender will review your financial situation to ensure you have the ability to repay the debt. There are several factors that go into this process, and we will discuss them below.
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How Much Can I Borrow for a Mortgage in California?
The amount of debt you have, in relation to your income, is a primary consideration that will affect how much you’re able to borrow for a mortgage loan California. This is aptly referred to as the debt-to-income ratio, or DTI for short.
This is one of the ways banks and lenders assess your ability to repay a mortgage loan. Basically, this is a percentage that shows how much of your monthly income goes toward your debts.
There are two main types of DTI ratios, one that looks at all of your debts, and one that only factors in your housing-related expenses. It is the total or “back-end” ratio that matters most, because it partly determines how much you can borrow for a California mortgage loan.
DTI limits are not written in stone. The standards vary from one mortgage program to the next, and exceptions can be made. With that being said, having a total debt-to-income ratio below 50% will improve your chances of getting approved for a loan. A lower DTI ratio is even better.
Some home loan programs have specific guidelines for debt ratios. For example, the Federal Housing Administration says that borrowers should have a combined debt-to-income ratio no greater than 43% when using an FHA home loan to buy a house. But they also go on to list a number of exceptions to this rule. Borrowers who are well qualified in other areas could have a DTI ratio above 43% and still get approved for an FHA loan.
So again, there are exceptions to the rules. It’s the big picture that matters most, and that includes your ability to repay the debt.
How Loan Limits Affect You
As a mortgage borrower in California, you should also be aware of the different loan limits that might apply to you. Most of the major mortgage financing programs available today have maximum amounts that you can borrow. These are aptly referred to as loan limits.
Here’s a quick overview of these amounts:
FHA: The loan limit for a single-family FHA mortgage loan California varies from one county to the next, because they are partly based on median home prices. FHA loan limits in California range from $275,665 up to $636,150. The higher limits are used in more expensive real estate markets like the Bay Area and Los Angeles.
VA and conventional: VA military home loans and conventional (non-government-insured) home loans have the same limits in 2017. They are established by the Federal Housing Finance Agency. In California, they range from $424,100 up to $636,150. The maximum amount for high-cost areas is the same as the FHA maximum amount shown above. But there is a different minimum or “floor” for VA and conventional loans, and that is $424,100.
Borrowing More Money With a Jumbo Loan
Borrowers with sufficient income can exceed the limits shown above, by using what is known as a jumbo loan. This is a conforming mortgage loan that exceeds the limits on above.
In California, jumbo mortgage products often exceed $1 million, due to the high cost of housing in our state.
But here again, the borrower must demonstrate an ability to repay the loan. This is the overriding factor that determines how much you can borrow for a mortgage loan California, regardless of what loan program you use. Your income must be sufficient to meet your monthly payments, along with all of your other recurring monthly debts.
Find out how much you can borrow: Bridgepoint Funding has been serving borrowers in California for more than 16 years. We can review your financial situation and tell you how much of a loan you might be able to borrow. Please contact our staff with any mortgage-related questions you have, or to get pre-approved for almost.