For first-time homebuyers, the idea of securing a California home loan can be daunting. But it doesn’t have to be.

While there’s no cookie-cutter formula for getting pre-approved for California mortgages, the highly-personalized nature of the process can actually work to your advantage.

But it all starts with getting familiar with the factors in the equation and deciding if you’re ready to get the process underway.

To help break the pre-approval process down in simple terms, we spoke to Michael Waterman of Waterman Team Lending, and asked him to explain everything you need to know about applying for California home loans. 

Here’s what he told us. 

SOMO Village: When you’re speaking with a client about getting pre-approved for a California home loan, what are the steps they can expect to go through? 

Michael: Our approach is connecting with the client as early as possible—no two loan files are the same and the sooner we get started the better. 

It all starts with a strategy call to learn about their goals and financial situation. 

One thing people often find surprising is that applying for a California home loan actually does require a strategy—it’s not as simple as sending in an application, but that’s actually a good thing for potential homebuyers. 

This first conversation is specific to our clients scenario and will allow me to put the pieces of their financial puzzle together. 

At the end of this, we come up with an individual strategy and determine their purchasing power. 

This max purchasing power is then examined with the client, because everyone’s lifestyle and spending needs are different. So, we want to individualize and tailor-make the California home loan pre-approval.

What are the most important factors when it comes to building a pre-approval strategy for California home loans? 

When it comes to building your California home loan strategy, three big factors come into play: 

1. Credit scores
2. Assets to cover the down payment and closing costs
3. Monthly income

Some buyers have all three and they’re able to get pre-approved quickly. 

Others may have two of the three things, so it requires a different strategy or a longer-term approach to get their pre-approval  in order. 

But it’s important to remember that it’s still possible to secure mortgages in California, even if you don’t have all three of those things.

What do you typically request from people in order to start the process of mortgage pre-approval in California? 

There are a few things you’ll need to provide to get your California home loan pre-approval process underway, including tax returns for self-employed individuals or proper documentation for someone who isn’t a U.S. citizen. 

From there, we’ll fill out your application and then we can start crunching the numbers. 

Once that process is complete, we can finally have a conversation about real numbers—specifically, what amount they’re pre-approved for and what they can afford to buy. 

If someone is ready to start shopping for a home, at what stage should they get pre-approved for California home loans? 

As soon as possible. And definitely before you start shopping for a home!

Good opportunities can arise quickly out of nowhere, like a friend or family member wanting to sell their house. If you’re already pre-approved, you can act fast to make it happen. 

Another reason to get pre-approved early is to direct your home search to the proper price range and feel comfortable with the corresponding monthly payment. 

Real estate agents want to work with people who are pre-approved for California home loans. Further, sellers won’t even consider an offer from you without a pre-approval.

What do people need to know about down payments and closing costs for their California mortgages? 

Clients should not be discouraged or be positive that they don’t have enough saved for down payment and closing costs. 

This money can come from:

• Savings accounts
• Gifts from a family member
• Penalty-free withdrawals from a retirement account
• Down payment assistance programs

Down Payments

Many people think that a down payment for your California home loan must be 20%, but that’s just not the case. 

The down payment for California mortgages could be as little as 0% for a veteran, and there are great programs for as little as 3% and 3.5% down. 

That said, there are some advantages to putting more money down, including:

• Better interest rates
• Reduced or no mortgage insurance (something required when you put less than 20% down)
• Lower monthly payments

Closing Costs

Closing costs are made of fees and prepaid items. There are fees to the title company, to the processor, to the appraiser, lender, and more—those are straight fees connected to the purchase. 

But then there are prepaid items that are included into the closing costs. These items consist of things like the first-year of insurance, prepaid interest and county tax prorations. 

Pro tip: If you’d like to learn more about closing costs, read through our comprehensive resource on the subject.

You talked a bit about “credits.” Can you explain what exactly those are and how they’re related to closing costs on California mortgages? 

In certain instances, buyers can receive credits from the seller, builder or lender. These credits are easier to negotiate in a slower market when homes are not selling as fast. 

Let’s say we’re in a market where, if a house became available and there were 20 people trying to buy it, the seller could choose their best offer. So, the seller is really in the driver’s seat. 

But let’s say a house comes on the market and they’re not getting any offers for 30 to 60 days, the buyer now has a better opportunity to negotiate a credit. 

A credit can be used to pay for all or part of the closing costs.

Is there a risk of getting pre-approved and then not buying a home? How often can you get pre-approved for California mortgages? And how long is your pre-approval valid for?

There is very little to no cost to the buyer for a mortgage pre-approval in California.  A credit report is good for three months. Past that, we would need to update the report and the file. 

However, your pre-approval for a California home loan can change when certain events take place.   

For instance, if you have a job change, get a pay raise, take out a car loan, or take on a new structured debt, the pre-approval must be updated. 

What happens when interest rates change for California home loans? How does that impact fixed or variable-term California mortgages? 

Interest rate changes can dramatically affect California home loans and your ability to purchase something. 

Your lender will help get the best interest rate option for your situation, whether that’s a fixed or variable-term California mortgage. 

Fixed-term California Mortgages

The most common loan that we originate is a 30-year fixed mortgage. This means the rate and payment does not change until the loan is paid off in 30 years. 

However, if a client gets locked into a rate today—say, 6.5% for example—and rates go down to 4%, a refinance is a powerful strategy to dramatically lower the monthly payment. 

Adjustable and Variable-term California Mortgages

Adjustable loans are different. The interest rate on adjustable loans move up and down with the market, specifically tied to an index and a margin.  Certain hybrid loans are fixed for the first five, seven, or ten years. After this fixed period they become adjustable-rate loans and your monthly payment can fluctuate.

For example, let’s take the five-year hybrid ARM loan—it’s fixed for the first five years at a set rate and monthly payment. After five years, it becomes an adjustable-rate loan and it’s subject to change.

What happens if someone wants to take out a California home loan for a new build or pre-sale house?  

If you’re interested in purchasing a presale home, you definitely want to work with a lender that is experienced with this type of loan. It’s a more complex process, with longer durations and builder-specific intricacies.  You want to work with someone experienced in this arena and with whom the builder trusts. 

That said, buying a new build can be an excellent choice. Not only are you getting the newest technology, energy efficiency, and architectural design, you may not have the pressure and stress that buying a resale home in a competitive market can bring.

It’s also still very important to get pre-approved right away, even if your new build is 18 months away from completion. 

You want the builder to have confidence in your ability to purchase the home that they are building for you. 

What’s your final advice to anyone trying to get approved for California home loans? 

Start with the strategy call. We’ll go over the three things you need to get pre-approved—assets, income, and credit—and discuss your specific situation. 

But if you don’t have all three, don’t let that discourage you! 

There are a lot of strategies we can implement to make California home loans possible for you. Just book the call and we’ll see what we can do!

If you’re ready to get started schedule a free strategy call with Michael.

And if you’d like to learn about presale homes in Sonoma County, download our project brief to find out why SOMO Village might be the perfect community for you.

—

About Michael Waterman

Michael Waterman is a local mortgage lender who has helped hundreds of homebuyers in Sonoma County. He is both a preferred lender with builders and a trusted partner with real estate agents. Michael is a graduate of the Sonoma State School of Business and Economics and a local resident. He enjoys the outdoors with his family, scuba, travel, music, and helping his clients build wealth and achieve their goals through homeownership.

You can learn more about Michael and connect with him on LinkedIn to initiate a free strategy call and get pre-approved in California today.