What Is The Eligibility of Home Loan In California?

home loan in california

Eligibility to get pre-approved for a home loan depends on many factors. These include the type of home loan you plan to use and the amount you borrow. At a minimum, you will need to have decent credit and the ability to pay off your loan. You need sufficient funds to cover the down payment and closing costs based on the type of loan you’ve taken. Let’s take a look at all the factors you need to take care of to get a home loan in California.

Eligibility Criteria To Get A Home Loan In California

The following factors are extremely important to consider when you want to get a home loan:

Down Payment

You may need to make a down payment for a certain percentage of the loan amount or purchase price. This depends on the type of home loan you’ve taken. The down payment for conventional loans is minimum of 3%. The money can come from your own or a gift from a family member.

Mortgage Insurance

Conventional loans with less than a 20% discount require special mortgage insurance. This is to protect lenders at the end of default. The higher your down payment and credit score, the lower your PMI amount. You will pay between 0.15% and 1.95% of your loan amount in PMI annual installments. However, you can pay the PMI in advance once at closing.

Credit Score

Contrary to popular belief, borrowers do not require good credit to qualify for a home loan in California. The minimum credit rating for a traditional mortgage is 620. Higher scores give you better mortgage rates and lower PMI premiums.


Lenders require proof of stable income, focusing on the last two years of the job. If you’re self-employed, they’ll need more documents.

Debt To Income Ratio

Divide your total debt by your gross income to measure your debt-to-income ratio (DTI). Conventional lenders prefer a DTI of 45% or less. However, they can increase it to 50% with higher credit ratings and additional mortgage reserves.

Cash Reserves

It is also called mortgage reserves. These are the funds you’ll need to prove you can afford several months of mortgage payments in case of an emergency. It may require up to six months of cash reserves. This depends on your credit scores, DTI ratio, down payment, and whether you are buying a two to four-unit home.


Borrowers can purchase a home used as a primary residence, second home (vacation home), or rental property.

Property Types

Conventional mortgage requirements allow you to finance a one to four-unit home in a regular subdivision, condominium project, co-op project, or planned unit development (PUD). Conventional loans can also purchase manufactured homes attached to a permanent foundation.

Home Appraisals

An appraisal is necessary from a licensed real estate appraiser to meet standard credit requirements for an unbiased opinion of the home’s value. However, some borrowers with a down payment of 20% or more on a one-to-one home may qualify for a Property Inspection Waiver (PIW) and can skip a home appraisal.

On a Final Note

Before you consider buying your dream home, you should make sure that your finances are sound. Prepare wisely and meticulously before you begin the mortgage approval process.

Also read our previous blog story:-

Mortgage Loan: Know The Facts About Loan Against Property

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