When researching the home buying process in California, you've probably heard about the "standard" 20%…
We looked at the overall requirements for a home loan in a previous blog post. Today, we will talk about the income and documents needed to buy a house in California, when using a mortgage loan.
Income Needed to Buy a Home in California
If you’re paying cash for a home, then there aren’t really any income requirements. But if you’re like most home buyers in California, and you need to use a mortgage loan to finance your purchase, then you will have to show that you have sufficient income to repay the debt.
So, how much income is needed to buy a home in California? The primary consideration is that you earn enough money to manage your monthly mortgage payments, along with all of your other recurring debts. This is what mortgage lenders are mostly concerned with, and for obvious reasons. We want to ensure that you are not taking on too much debt with the addition of a home loan.
This kind of analysis can be done in several ways. The debt-to-income ratio, or DTI, is the gold standard for determining whether or not a borrower has sufficient income for a mortgage loan.
As you’ve probably guessed, this ratio compares the amount of money a person earns to the amount they pay each month to cover their debts. There is both a front-end and a back-end debt ratio. The back-end or overall DTI takes all of your debts into account, including the mortgage payment. This is the most important number when determining if you have the income needed to buy a home in California.
The rules and requirements vary depending on the type of home loan being used, among other factors. With that being said, the limit for total debt-to-income is usually set somewhere between 43% and 50%. But again, it can vary from one borrower to the next. If your debt ratio falls at or below this range, you might be in a good position to take on a mortgage loan.
Please contact us if you have questions about the amount of income that is needed to buy a home in California, when using a mortgage loan. We can review your current financial situation and tell you if you’re a good candidate for financing. We could also pre-approve you for a home loan, to help you narrow down your housing search to a specific price range.
Documents Required for Mortgage Applicants
Documentation is the “lifeblood” of the mortgage industry. It’s not enough to say how much money you earn each year. Borrowers must show this by providing a variety of financial documents, when applying for a home loan.
Earlier this year, we published a list of common documents required for a mortgage loan in California. And there haven’t been any major changes in this area lately. So the documents needed to buy a house in California in 2018 will be similar to years past.
At a minimum, borrowers usually have to provide the following documents: bank statements, W-2 forms, pay stubs, tax returns, and documents relating to other assets (mutual funds, IRA / 401k, real estate, etc.).
Related article: Bank statement loans for self-employed
But these requirements can vary from one mortgage program to the next. For example, California home buyers who use an FHA loan must sign some additional documents that are specific to that program.