Your Ultimate Guide on How to Apply for A Home Loan in Santa Cruz, CA

 

Embarking on an exciting quest to acquire one of those Santa Cruz homes for sale is truly an exhilarating pursuit. Congratulations if you plan to own your first home in Santa Cruz. Whether you are looking into Los Gatos homes for sale, Capitola homes, or homes in Aptos, CA, for sale, the Santa Cruz real estate market offers many options to suit your preferences and budget. No matter how exciting the thought of owning a house is, the reality is that affordability is the deciding factor. This is where home loans come into play. When you know how to apply for a home loan, you get a head start on owning the property of your dreams as soon as possible. Here is a rundown:

Assess Your Financial Health

Start by reviewing your credit report. Access your report from the top credit reporting bureaus, such as Experian, Equifax, and TransUnion. Dispute any errors or items that appear wrong. They could hold your score back. An excellent credit score is one that is anywhere between 720 and 850, whereas a score below 629 is often seen as bad.

 

Besides, know your DTI (debt-to-income) ratio. Using this ratio, you may compare the entire amount of your debt payments to the amount of your gross monthly income. Your debt-to-income ratio is one metric that your home loan lender will probably use to determine your capacity to manage the additional debt responsibility that will come with the home loan if you are accepted.

 

Lastly, accumulate some savings before applying for a loan and entering the Santa Cruz properties market. Even if approved for the loan, you will still have to pay some out-of-pocket expenses. For example, apart from the closing costs, which can be anywhere from 2-10% of the property's value, you will also require a down payment.

 

However, if you are truly dedicated to exploring the Santa Cruz homes for sale, you shouldn't let your previous missteps in managing your debt and financial difficulties discourage you from seeking homeownership. Many banks and credit unions feature specialized real estate financing programs for those with less-than-perfect credit or limited financial resources.

Understand Your Home Loan Options

The first step in applying for a house loan in Santa Cruz, California, is to familiarize yourself with the many possibilities available. When you choose the right mortgage lender and package, you may lower your monthly payments. Here are some of the most popular mortgage alternatives today:

 Conventional loan

The majority of the country's borrowers choose these loan types. These loans do not receive any backing from the federal government. You can choose between two types of conventional loans: conforming and non-conforming. 

 

●      Conforming loans: A conforming loan adheres to the standards set forth by the FHFA (Federal Housing Finance Agency) regarding the amount, kind, and creditworthiness of the borrower. After a home loan demonstrates compliance with these regulations, it will be available for acquisition by Freddie Mac and Fannie Mae. These organizations have provided financial support to the largest portion of the US mortgage industry.

●      Non-conforming loans: These loans do not follow the FHFA's established rules. Lending institutions consider non-conforming loans very high-risk since Freddie Mac and Fannie Mae cannot purchase them. Examples of non-conforming loans are:

1)    FHA Loans: An FHA loan may be available with as little as a 3.5% down payment and a minimum FICO score of 580. Many first-time homebuyers choose these loans. Common features include:

●      If you are a borrower with a FICO score in the 500–579 range, you must make a 10% down payment.

●      If you have at least a FICO score 580, your minimum down payment is just 3.5%.

●      Some restrictions prevent mortgage payments from exceeding 38% of your gross monthly income.

●      For some cases, DTI can't be more than 51% of total monthly revenue. 

2)    Jumbo Loan: This is a loan that most people opt for when they want to finance expensive properties, like a luxury home. Common features include:

●      A typical loan's baseline DTI is less than 45%.

●      Putting down more than 10% of the total amount is customary.

●      It is common practice to need a minimum median FICO score of 680.

●      The size of the loan will determine whether your lender requires additional paperwork. 

 

3)    VA Loans: A VA loan is only available for you if you are a qualifying member of an active-duty service member, an armed forces veteran, a National Guard member, a Reservist, and a spouse of a diseased veteran. There is no down payment necessary, and interest rates are lower with VA loans, among other advantages. Nevertheless, applicants must fulfill certain requirements and pay a unique origination cost, known as a VA funding fee:

 

●      The loan does not impose a minimum credit score requirement.

●      Restrictions apply; only those directly affiliated with the United States military will be considered.

●      The property must be occupied as a main residence no later than sixty days after buying. 

 

4)    USDA Loans: The government is taking measures to ensure that very low-income Americans become eligible for home loans. USDA loans are only available to those in selected rural areas. The zero-down payment, low interest rates, and opportunity to incorporate closing fees into the mortgage make USDA loans popular. Common features include:

 

●      The majority of lenders usually require a FICO Score of 640 or above.

●      You must find a property in a designated suburban or rural region.

●      Your household's income cannot exceed 115% of the neighborhood median.

5)    Fixed-Rate Mortgage: All home loans with fixed rates have interest rates that remain the same throughout the mortgage's duration.

6)    ARM (Adjustable-rate conventional loans): You can also have an adjustable-rate mortgage (ARM), where the interest rates might change over time and can go up or down.

Loan Preapproval

When you get a loan preapproval and a confirmation of your creditworthiness, it communicates to potential owners of homes for sale in Santa Cruz that you are interested in. Because the lender is the one who issues a preapproval letter, this document demonstrates to your seller and realtor that you are qualified to receive financing (you can afford to buy the property) and that you are a serious buyer.

How to Apply for a Home Loan Using a Standard Application Form

The Uniform Residential Loan Application (URLA) is a standard form that most mortgage lenders in Santa Cruz ask applicants to fill out. The URLA form you utilize is expected to remain essentially unchanged whether you're exploring options for Capitola homes, Los Gatos homes for sale, homes for sale in Watsonville, CA, or properties elsewhere within Santa Cruz County and across the nation. It is the standard form used by most lenders in business. Fannie Mae calls this document Form 1003, while Freddie Mace calls it Form 65. However, regardless of what they call it, it is the same 5-page document.

 

Applying for a home loan using this form will require you to provide details such as:

●      The kind of loan you are applying for

●      The loan amount

●      A list of your assets and liabilities

●      Home information, including the legal description of the property, street address, etc.

●      Your personal details, including marital status, SSN, name, etc.

●      Personal information of your co-borrower, if applicable

●      Your employment status, including the length of your job contract, the amount you earn at the job, your employer, etc.

Other Documents are required.

Other than filling the standard URLA form, at some point in the process, you will need to provide other documents, such as:

●      Tax returns, pay stubs, and W-2 forms. The aim is to prove your income.

●      You may be required to provide documents relating to your retirement accounts (where applicable), as well as bank and investment statements, as proof of your assets.

●      Proof of debts, using documents such as car loan statements, credit card statements, and official documents relating to your student loan (where applicable)

●      Proof of employment (an official letter from your employer)

Home Hunting

After getting a loan preapproval letter and having a clear idea about homes for sale in Santa Cruz that you are eyeing, start to hunt for your dream home. Never allow the emotions that accompany house ownership to overcome you. Thus, stay within your budget when looking at houses for sale.

Finalize the Process

Now that you have identified your potential lenders, gotten a preapproval letter, and found your perfect property among the many Santa Cruz County homes for sale, it is time to finalize the process. It is best to send formal home loan applications to at least three financiers. It'll help you compare your options and choose the best fit for your budget. You will probably get your Loan Estimate within 72 hours. Now that you have access to various Loan Estimates, you can evaluate them side by side to choose which lender best fits your circumstances.

 

Focus on comparing APRs (Annual Percentage Rates) rather than simple interest rates. Remember that the terms of a home loan can be revised, just as mortgage terms are negotiable. Consider requesting that one lender replicate another loan offer's terms, fees, and interest rate if that can help you negotiate a better deal.

 

Once you and a potential lender have agreed, your next move is to take action. The underwriting procedure for the loan will now begin. The lender will essentially attempt to validate your personal and financial details; you could be asked to take a few more steps or provide additional documents to finish this procedure.

 

Finally, arrange for a house inspection. Pick an inspector you'd be comfortable working with, and have them go over the property from top to bottom. When this is done, any problems with the property will become apparent. The house inspection report will determine if you can renegotiate the sale. But remember that not all mortgage lenders insist on a house inspection before approving a borrower. Next, you need to wait for the home to be appraised to ensure the loan amount is not higher than the home's actual market value.

 

While your lender processes the loan, you may be required to apply for homeowner's insurance, all things considered. Your home loan will be "cleared to close" after the underwriting process is complete, and the lender will coordinate a closing date with a title firm or legal representation. Be prepared to receive and sign a mountain of documentation throughout the closing process. After all parties have signed the necessary paperwork and paid the needed down payment and closing costs, you will be given the keys to your newly acquired Santa Cruz property.

 

Paul Burrowes, CRS, CCEC, SFR, NHCP, LHC, REALTOR® Licensed REALTOR® with over 15 years of experience and expertise.  Commits to being on time and transparent. Acts as your consultant to ensure you make the best decisions to fit your transaction at every step in the process. Negotiates towards a low stress, win-win outcome. Handles all the details for you, ensuring the hundreds of steps in your real estate transaction go smoothly. Proudly serving Silicon Valley, Santa Cruz, Monterey, and Santa Clara Counties!  | DRE# 01955563 | (831) 295-5130 | paul@burrowes.com | About Santa Cruz and Northern California Real Estate