MORTGAGE LOANS | BlancaOthmanWebsite

Types of Loans

01 Conventional Loans

A conventional loan is the most common form of home loan, and it offers a more set structure for borrowers. Conventional loans can be had with a down payment amount as low as 3%. They can come with a fixed or adjustable interest rate. A low down payment loan requires less that the 20% down that is typical with a standard conventional loan. Putting 20% down on a home will eliminate the need to pay Private Mortgage Insurance (PMI), and reduce the amount of the mortgage loan that's needed, which means the buyer pays less interest on the loan you choose and the lender's criteria.

Conventional Home Loan Requirements for Buying a House

Minimum credit score requirement of 620
Minimum down payment requirement of at least a 3%
Maximum debt-to-income ratio of 43%

Private Mortgage Insurance

When you put less than 20% down on a conventional loan, your lender will require Private Mortgage Insurance (PMI). This coverage helps protect the lender if you default on the loan.

PMI does increase monthly mortgage payments. But that's ok if it allows you to get a conventional loan with with a down payment you can afford. Also note that conventional PMI can be cancelled later, once your home reaches at least 20% equity.

Debt to Income Ratio

The buyers debt to income ratio (DTI) also influences conventional loan qualifying. DTI compares your total monthly debts (including mortgage costs) to your gross monthly income. Your lender uses DTI to determine how much a mortgage fits within your monthly budget

To find your debt-to-income ratio add up your loan payments including:

Student Loans
Personal Loans
Car Loans
Credit Card minimum payments
your projected mortgage payment

Also add in any child support or alimony payments you're required to make each month. Then divide that sum by your gross monthly income.

Employment and income requirements

During the mortgage application process home buyers must provide a proof of earnings. This may involve some or all of the following documentation:

30 days paystubs
2 year's W2s
2 year's tax returns if self-employed
2 years bank statements
Proof of education for new graduates

02 FHA Loan

There are many different types of FHA loans available in California. Requirements are different for each loan. Some of them can be stricter than those of Conventional loans. Contact your lender to discuss loan specific requirements.

Here are some general FHA loan requirements for California.

A credit score of 580 or higher: A lender may accept credit scores of 500-579 under certain conditions. A credit score lower than 580 will require a larger down payment.
The ability to pay a 3.5%-10% down payment: The percentage you will pay will be calculated according to your credit score. The borrower’s credit score must be 580 or higher to have a down payment of 3.5%
Minimum of two years employment: Must have verifiable, steady, and consistent income. You will need documentation. It can include tax returns, pay stubs, or W-2s. This requirement is the same for borrowers who are employees and those who are self-employed.
Mortgage insurance: The ability to pay the mortgage insurance premium (MIP) is required. The dollar amount of MIP will be calculated based on the amount of the loan. However, all FHA loans will require borrowers to pay an upfront MIP of 1.75%. This is in addition to monthly mortgage insurance, which is required for the life of the loan.
Higher home inspection standards: Property must pass an FHA-specific appraisal.
Loan must be for a principal residential property: FHA loans cannot be used for rentals, investing in properties, or vacation homes. They are also not available for business properties.
A debt-to-income ratio of less than 57%: A person’s debt-to-income (DTI) ratio is the percentage of their gross monthly income they spend to cover debts. Debts can include student loans, credit cards, and any type of federal debt.

To qualify for an FHA loan, you cannot spend more than half of your gross income on debt. There are some exceptions. In general, however, many lenders in California will want to see your debt-to-income ratio be no greater than 43%.

03 VA Loans

VA Home Loans are provided by private lenders, such as banks and mortgage companies. VA guarantees a portion of the loan, enabling the lender to provide you with more favorable terms.

VA home loan benefit

No downpayment required
(*Note: Lenders may require downpayments for some borrowers using the VA home loan guaranty, but VA does not require a downpayment)
Competitively low interest rates
Limited closing costs
No need for Private Mortgage Insurance (PMI)
The VA home loan is a lifetime benefit: you can use the guaranty multiple times

In general, California VA Loan Eligibility Requirements are met if you qualify under one of the following:

Active Duty:

Not dishonorably discharge
Active duty during war time: 90 consecutive days
Active duty during peace time: 181 consecutive days

Veterans: honorably discharged and served

Active duty during war time: 90 consecutive days
Active duty during peace time: 181 consecutive days

Reservist: minimum 6 years service in any of the following:

Army National Guard
Army Reserve
Air National Guard
Coast Guard Reserve
Navy Reserve
Marine Corps Reserve
Air Force Reserve

Spouse of Active Duty or Veteran

Un-remarried and serving spouse died while in service or from service-connected disability
Serving spouse was MIA or POW

There is no minimum VA Credit score required for California VA Loan Eligibility, but the individual lender who provides the money is allowed to set their own minimum VA Credit standards. (The VA doesn’t lend money. The VA provides an insurance policy that insures the institution lending money. If a VA Loan borrower should default on or stop making payments on the California VA Loan, the VA will reimburse the lender for a portion of their loss—usually 25%).

In terms of credit scores and FICO requirements (FICO is a branded credit score issued by Fair Isaac Corporation), it is important to know that VA has no minimum. Each lender, however, can set their own minimum. As of 3/4/21, our minimum score (the lower of the middle score of all borrowers on the loan) is 600 (this score can change periodically, so please contact us for the most current score requirement).

Don’t think you have the minimum score required to get a VA loan? DO NOT LET THIS DISCOURAGE YOU. Ask a qualified California VA Lender their requirements. If you don’t have the needed FICO score, many times they can advise you of steps to take to raise your score and get yourself qualified to buy.

Determining California VA Loan Eligibility can be accomplished through WealthWise Mortgage Planning or another experienced VA lender (To make your VA Loan process as easy and painless as possible, experience is key when getting a California VA Loan. Find a loan professional, like me, who is licensed by the California Department of Real Estate and by the National Mortgage Licensing System).

Determining your VA Loan Eligibility requires the following paperwork:

Discharged Veterans: Form DD214
Active-Duty: Statement-of-Service
National Guard/Reserve, never activated: NGB Form 22 or 23
Any of the above: Certificate of Eligibility (COE) to determine you have VA entitlement.

WealthWise Mortgage Planning, as an experienced California VA Lender, has direct access to the Veteran’s Administration and can help you get your Certificate of Eligibility much quicker than if you did it on your own.

Lastly, if you have either had a divorce, filed bankruptcy, or had a previous home go into foreclosure, you are not immediately disqualified from a California VA Loan, although there are some additional restrictions.