“Whether you are buying your first home or buying a home for the first time in California to move from a different state, this comprehensive guide on mortgage lending California is all you will need to get started. This guide on mortgage lending California covers discussions on various aspects of how the mortgage lending process in California works.”
Buying a home for the first time is a huge endeavor on its own and for many – may be a once-in-a-lifetime opportunity. Hence, planning it as carefully as possible, especially with the help and expert advice of a professional, should be your priority. Mortgage lending California is one such thing that needs to be taken great care of in this regard.
Hence, understanding and having preliminary information regarding –
- the different mortgage plans in California that are available to you,
- how you could qualify for the best ones,
- lender requirements in each case,
- California mortgage terms,
- variable vs fixed rate mortgages in California,
- mortgage loan down payments in California, and
- California closing costs
on your own is necessary as well before making the final decision.
This article covers many of the items in the list mentioned above. However, if you are not sure about where to begin and need professional advice – which we suggest you should – you can always contact our team of experts at Attorneys Funding Group to help you navigate and make the right decision at the right time.
So, let us begin by understanding some of the key aspects of mortgage lending California.
Mortgage lending California
How is the overall housing market in California? – A brief overview of mortgage lending California
This passage briefly highlights what you or any first-time homebuyer should necessarily know about the housing market in California, and why you should or should not consider relocating to, moving within, or even becoming a first-time homeowner in California. Therefore, before moving any forward, let us get this one thing straight.
Honestly, the housing market in California has some of the priciest homes available in the whole of the US. However, this should not be the reason you are not able to purchase and become a homeowner in The Golden State.
This is because despite the real property in California having higher price tags, the overall mortgage lending California programs simultaneously offer great opportunities to first-time homebuyers.
There are many mortgage loan options to choose from and depending on your eligibility and needs, there is always something for everyone in most cases.
The main purpose of these mortgage lending California programs is to help first-time homebuyers, especially those having low-to-moderate incomes.
In many cases, this can be very accommodating for first-time homebuyers in California as it increases their potential and chances of becoming a first-time homeowner. In other words, these mortgage lending California programs not just facilitate but also encourage many to take the bold step towards owning their own home in California.
Who is a first-time homebuyer in California?
Since many of the mortgage lending California programs are targeted toward first-time homebuyers, it is important to know whether and when you are or are not considered a first-time homebuyer for mortgage lending California.
To be considered a first-time homebuyer in California, it is important that you should not have owned and occupied a home in the past three years.
Types of government-insured and conventional home loans in California
CalHFA or the California Housing Finance Agency provides homebuyers access to a comprehensive list of government-insured and conventional home loan programs. As mentioned earlier, the majority of these mortgage programs are offered to assist first-time home buyers with low and moderate incomes to obtain fixed-rate loans.
Here is a list of the several types of government-backed and conventional mortgage lending California programs.
Government-insured home loans in California
1. FHA loans in California
The California FHA or Federal Housing Administration home loans is a preferred mortgage program among first-time homebuyers in California. This is because the eligibility criteria for FHA loans are minimum – requiring a down payment of only 3.5% if the borrower’s FICO score is 580 or higher.
In cases where a borrower is not able to make a down payment himself, FHA loans also accept down payment in the form of a gift from either a blood relative or by-marriage (spouse) relatives.
Most mortgage lending California FHA loans are available with a 15- or 30-year loan term and come with a fixed-rate.
Besides having less stringent criteria specially to assist first-time homebuyers, FHA loans have some downsides as well.
For instance, the price of the property you intend to buy should not exceed the mortgage limits as set out by the FHA. The FHA adjusts its mortgage amounts each year. These amounts must correspond with the loan limits set out by the Federal Housing Finance Agency or FHFA.
The FHA loan limits for 2022 are –
- Minimum $420,680 in low-cost areas
- Maximum $970,800 in high-cost areas.
Another important thing about FHA loans is that their borrowing costs can turn out to be higher in certain cases. Whether this thing applies in your case or not, you should discuss it with a professional loan advisor beforehand.
2. California VA or Veterans Affairs loans
A VA loan is another type of government-insured mortgage program backed by the United States Department of Veteran Affairs (VA).
One of the best-selling perks about mortgage lending California VA loans is that they require zero down payment. Yes, this is true, however, not every US citizen (non-veterans only) is eligible to apply for a VA loan.
VA loans are exclusively available to veterans, service members, and their eligible surviving spouses. Upon meeting a specified criteria, people from these three categories only can apply for and get a VA loan approval. However, the good thing is that VA loans are assumable and non-veterans too can assume a VA loan.
VA loans normally carry a fixed and lower interest rate and come with a 30-year term.
Similar to FHA loans, mortgage lending California VA loans are also subject to loan amount limits. VA loan limit in most places is currently $647,200. However, this limit can go up to $970,800 as well in a few other places.
3. California USDA or United States Department of Agriculture loans
Another zero down payment loan option is offered by the USDA or the United States Department of Agriculture. The USDA is a federal executive department responsible for overseeing and regulating policies related to several industries including farming, food safety, ranching, forestry, and natural resources.
To obtain a USDA loan, the USDA has no specific requirements for borrowers to maintain a minimum credit score. However, not requiring a FICO score does not mean that every person’s USDA loan request gets approved. Therefore, lenders may still require loan applicants to first prove their ability to meet their loan repayment obligations.
Conventional home loans in California
Here is a quick overview of conventional home loans in California.
1. California conforming loans
A conforming loan is a mortgage type that meets the funding criteria set by the Federal National Mortgage Association (FNMA or Fannie Mae) and the Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac). Both the FNMA (Fannie Mae) and the FHLMC (Freddie Mac) are government-sponsored entities that govern the home loans market.
Just like some other types of mortgages, conforming loans also have a size cap or dollar limit which cannot exceed the California conforming loan limits.
This limit changes each year and as of 2022, is set at $647,200 for most parts of the country, especially low-cost areas. For high-cost areas, this dollar limit for 2022 is set at $970,800.
In addition to a home loan’s dollar limit, other rules and guidelines set by FNMA (Fannie Mae) and FHLMC (Freddie Mac) which the conforming loans should necessarily meet include a borrower’s –
- Debt-to-income ratio,
- Credit score and history,
- Loan-to-value (LTV) ratio, and
- Certain other important documents.
Remember that both the FNMA (Fannie Mae) and FHLMC (Freddie Mac) are quasi-government agencies. And while they do create funding guidelines for mortgages of single-unit properties, none of the two issue mortgages themselves. Instead, they function as insurers for mortgages issued by other mortgage lenders such as banks.
2. Non-conforming loans
As said at the beginning of this article, California has some of the most highly priced real estate properties in the whole of the United States. Hence, a prospective borrower may have eyes on a home whose price tag is way above the conforming loan limits.
So, what should such interested homebuyers do? Should they abandon their dream of owning a huge and/or luxurious home just because they could not get a bigger loan approved?
Well, the answer is – No, never!
This is because there are also bigger mortgages available, which exceed the loan limits of a conforming loan. These bigger than conforming loan mortgages are classified as nonconforming loans or jumbo mortgages.
These loans are not guaranteed by government-sponsored entities such as Fannie Mae (FNMA) and Freddie Mac (FHLMC). In addition, they also carry higher interest rates and require a higher minimum down payments because of the greater risk involved.
Mortgage lending California – Mortgage duration in California
Mortgage lending California is mostly available with two terms – 15-years and 30-years. Both these mortgage terms usually carry a fixed rate. Adjustable rates are also available but for shorter mortgage terms and usually require the borrower to refinance their mortgages in the future. This enables the borrower to reset the term of the mortgage and switch from variable-rate to fixed-rate.
1. 30-year term fixed-rate mortgage
According to a market data report by the California Association of Realtors, more than 80 percent of all loans in California carry a fixed rate. Similarly, the report also says that more than 70 percent of all mortgages are on a 30-year term.
In a 30-year fixed-rate mortgage, the only things that vary with time are the taxes and insurance. Other than these two, neither the principal amount nor the interest change. Rather, they remain the same for the entire mortgage term.
2. 15-year term fixed-rate mortgage
A 15-year term fixed-rate mortgage will normally carry a lower interest rate than a 30-year term fixed-rate mortgage. This means that borrowers get to save on their interest payments.
However, having a shorter repayment term (half of a 30-year fixed-rate mortgage) means having to pay more in principal amount repayments each month.
For borrowers having the financial strength to bear more burden each month in terms of higher repayments and looking to get rid of their mortgages in a shorter period, a 15-year term fixed-rate mortgage can be an excellent option.
3. Adjustable-rate mortgages
Adjustable or variable-rate mortgages are available with a shorter loan duration, normally just a few years. Interest rates in these mortgages vary and move following the market movements. This means that the interest rate in adjustable-rate mortgages can go up and down depending on the market conditions.
Ready to get started? – Book a free consultation now with one of our experts at Attorneys Funding Group
While mortgage lending California has mortgage programs to suit the needs of different borrowers, the real challenge is to understand and find the best one that suits your needs in particular.
Hence, hiring a professional loan advisor and an expert to help you explore and assess all the options available in your situation should be a priority.
If you are someone who has always dreamt of becoming a homeowner or owning a home in California but don’t know or aren’t sure where to get started, surely, we can help. Attorneys Funding Group has experts with decades of experience in helping people like you seize real estate opportunities in California.
Call us now at (916) 471-2678 o click here to book a free consultation session and discuss your mortgage needs with one of our expert loan officers.