What Is Required to Buy a House in Stockton?

by Lance McHan

Owning a home is the American dream for many people. Although 67.9 percent of Americans are homeowners, the remaining population is in the dark about the process.

Not many people are familiar with the requirements to buy a house. If you want to know what the requirements to buy a house in Stockton, CA or anywhere are, you came to the right place.

Read on to learn what is required to buy a house.

Proof of Steady Employment

If you’re serious about buying a home in Stockton, you need to prove you have a steady source of income. The mortgage lender will expect you to show proof of income.

Many lenders will want to see you have maintained steady employment at the same place for at least two years. When they start the employment verification process, they will check your title, length of employment, and event as about the future. Some lenders will want to make sure you will have a job for the next five years.

Those who are self-employed can still get a loan, but the process might be slightly more complicated. Because self-employed individuals don’t have W-2s, they will rely on tax returns from the last two years to confirm steady employment.

Strong Income

Even if you can confirm you have steady employment, you still need to confirm your income is enough to pay for the mortgage.

To ensure your income is enough to pay back the loan, your employer will take the annual salary and divide it by twelve to get your monthly take-home pay.

If you get paid by the hour rather than by salary, the lenders will take the average number of hours you work per month and multiply it by your hourly wage.

The lender will perform the same process with any over-time or end-of-year bonuses you might have earned.

If you’re self-employed, you will have to supply the lender with the IRS form 4506-T, a Transcript of Tax Return.

Avoid High Debts

If you want to buy a home in Stockton, you will have to ensure you pay off your debts down. Although you can still get a mortgage if you have some debts, you will have to prove what percentage of your monthly income goes towards paying off your debts.

When credit bureaus calculate your credit score, 30% of it depends on credit utilization. If you’re serious about buying a home in Stockton, you have to bring your credit utilization to a minimum.

To keep your credit score high, make sure you only borrow 30% of the credit available to you. For example, if your credit card has a credit limit of $5,000, make sure you keep your balance consistently below $1,500.

Your Credit Score

Once you have sorted out your employment and paid down your debts, the next step is to figure out your credit score. With a traditional mortgage lender, you will be able to borrow a higher amount at a lower interest rate if you have a high credit score.

However, if your credit score is only decent, but you have a steady employment source, you can still get a mortgage. While some credit lenders might want you to have a higher credit score, there are ways for you to obtain a loan.

FHA Loans: The Federal Housing Administration offers traditional lenders the option to back your loan through them. In case you cannot pay the lender back, the FHA will take care of it for you.

You can qualify for an FHA loan if you have a credit score of at least 580, and you can put down 3.5%. Also, if you can manage to put down 10% or more, you only need a credit score as little as 500.

However, keep in mind if you get an FHA loan, you will have to pay a mortgage insurance premium of 1.75% of the base loan. The FHA premium is included in your loan payments.

VA Loans: If you’re a veteran, you can qualify for a loan through the Department of Veteran Affairs. You can qualify for this loan if you’re a veteran or the surviving spouse.

With a VA loan, there’s no minimum credit score requirement, and you can obtain a loan without the need for a down payment.

USDA Loans: Backed by the United States Department of Agriculture, USDA loans provide mortgages for those homes in approved farmland, suburban, or rural areas.

To qualify for a USDA loan, you need a credit score of at least 640 and there’s no minimum payment requirement.

Save for a Down Payment

Although many people think they don’t have the possibility to buy a house because they cannot swing the 20% down payment, this couldn’t be further from the truth.

If you want to buy a house in Stockton but you don’t have 20% saved up, the good news is you can get a loan with as little as 3% down.

In fact, according to national averages in 2019, first-time homebuyers put down as little as 6.7% down and repeat buyers put down 16%.

There are still many perks of putting down a larger down payment. The higher the downpayment, the lower your monthly payments will be.

Get Pre-approved

Before you start looking for homes in Stockton, it’s important you get a letter of pre-approval. Many real estate agents will not show you homes until you have your pre-approval letter.

Many sellers won’t take you seriously as a buyer without a pre-approval letter.

Getting pre-approved is such an important step in the home buying process because it clears you through the initial steps. The pre-approval letter will also state how much you can afford, so you don’t look at places out of your price range.

Real Estate Agent

Before you start the search for your next Stockton home, you should work with a real estate agent. Ensure you choose a real estate agent that has a strong track record in the area.

Also, ensure you look through their website to see the current listings and read more about their credentials.