Home Loans in California - Frequently Asked Questions

• What should I consider when deciding whether to buy or rent?

  This is a decision based on both lifestyle and financial choices. From a lifestyle standpoint, you should consider wheter or not you want to commit to living in a home for several years. From a financial standpoint, you should compare the cost of renting to the after-tax cost of owning.

• What is the difference between being pre-qualified and pre-approved?

  Pre-qualifying is the process through which a loan officer determines the dollar amount that a buyer can qualify for based on their income, debts, and down payment. Pre-approval is when your loan application and income and asset documents are underwritten and approved by a specific bank or lender. Receiving an actual pre-approval is recommended before making an offer on a home for two reasons. The first is that a seller will feel more confidant receiving an offer from someone who has been pre-approved than from someone who hasn't. The second reason for pre-approval is that it reduces the amount of stress involved in the real estate purchase process. There's nothing worse than finding your dream home and worrying about being approved for the loan.

• How large of a loan will I be able to get?

  A general rule is that you usually can qualify for a mortgage loan of two to two and one-half times your household's income. For example, if your family has an income of $30,000 a year, you can usually qualify for a mortgage of $60,000 to $75,000. Lenders use many other factors to determine how large a mortgage they will give you. For example, lenders generally prefer that your housing expenses (including mortgage payments, insurance, taxes, and special assessments) not exceed 25 to 28 percent of your gross monthly income. Other long-term debt (monthly payments extending more than 10 months) added to your housing expenses should not exceed 33 to 36 percent of your gross monthly income. Federal Housing Administration (FHA) and Department of Veteran Affairs (VA) mortgage loan percentages may vary.

  In addition, lenders want to know about your employment and credit history. This includes finding out about your job and income and how well you handled and repaid loans in the past. Legal safeguards exist to ensure this information is used fairly. For example, the Fair Credit Reporting Act states that lenders must certify to the credit bureau the purpose for which this information is sought and that it will be used for no other purpose. The Equal Credit Opportunity Act prohibits discrimination in lending based on sex, marital status, race, national origin, religion, age, or because someone receives public assistance.

• What is the difference between a fixed-rate and an adjustable-rate mortgage?

  A fixed rate mortgage is an interest rate which remains the same for the life of the loan (usually 15 to 30 years), resulting in a monthly payment which remains constant. An adjustable rate mortgage, on the other hand, is a mortgage rate which is recalculated every 1, 6, or 12 months, depending on the terms of the note. This means that your interest rate and monthly payments will fluctuate based on the current index that the rate is tied to such as the 12 month Treasury Index.

• Do I need to pick the property I want to buy before I fill out a mortgage application?

  Not at all! You can fill out the application first, and once your mortgage loan is approved you can make changes to it up until the time that your loan rate is locked.

• How does a home loan work?

  Getting a home loan is a step-by-step process. First, a mortgage lender will pre-approve you for a loan based on a limited review of your financial situation. Next, after you and the lender settle on the type and rate of the loan, you'll complete a full application. Then the mortgage lender will process the application. The final step is to "close" the loan. This is when you and the lender sign all documents to finalize the loan.