Comprehensive Mortgage FAQ

Minimum credit scores vary by loan type: FHA loans accept 580+ (500+ with 10% down), conventional loans typically require 620+, VA loans have no strict minimum but most lenders prefer 580+, and jumbo loans usually need 700+. Higher scores (740+) qualify for the best rates. Even with lower scores, experienced brokers can find programs that work for your situation.

General rule: house price should be 3-4x your annual income, but Orange County's high prices often require higher ratios. Key factors: debt-to-income ratio (typically max 45-50%), down payment available, monthly payment comfort level including taxes/insurance (often $1,000+/month in OC), and loan type. Use affordability calculators, but get pre-approved for accurate purchasing power.

Standard documents include: 2 recent pay stubs, last 2 years W-2s and tax returns, 2 months bank statements, government ID and Social Security card, employment verification letter. Self-employed borrowers need: 2 years business tax returns, profit/loss statements, business bank statements. Asset documentation for down payment and reserves also required.

Yes, self-employed borrowers have multiple options: traditional loans with 2 years tax returns, bank statement loans using deposits instead of tax returns, P&L statement programs, and asset depletion loans. Requirements vary by program. Bank statement loans are popular for self-employed borrowers who write off significant business expenses, as they use bank deposits rather than adjusted gross income.

Debt-to-income (DTI) limits vary by loan type: conventional loans typically allow 45-50% DTI, FHA loans up to 57% with compensating factors, VA loans have no strict DTI limit (case-by-case), and jumbo loans typically max at 43-45%. DTI includes all monthly debt payments divided by gross monthly income. Higher DTI may be acceptable with high credit scores, significant assets, or other compensating factors.

Orange County is designated a high-cost area with conforming loan limits of $1,089,300 (vs $766,550 in standard areas). High median home prices ($1.2M+) mean many buyers need jumbo financing. Competitive market with multiple offers requires strong pre-approval. Property taxes vary by city. Many communities have HOAs with monthly fees. Beach proximity, school districts, and job centers significantly affect property values and loan considerations.

Orange County property tax rates vary by city and districts, averaging 0.75-1.25% of assessed value annually. High home values mean significant monthly escrow payments. Example: $1.2M home = $9,000-15,000 annual taxes = $750-1,250 monthly escrow. Property taxes are deductible up to $10,000 annually (SALT cap). New construction may have Mello-Roos special assessments adding $200-500+ monthly.

Many Orange County communities have HOA fees ranging $200-800+ monthly. Luxury communities and condos often have higher fees ($500-1,500+). HOA fees affect debt-to-income calculations for loan qualification. Lenders require HOA financials and budgets for condo financing. Some HOAs have rental restrictions affecting investment property purchases. HOA fees cover amenities, maintenance, insurance, and reserves.

Top-rated school districts (Irvine USD, Newport-Mesa USD, Capistrano USD) command premium home prices. School quality affects property values and resale potential. Families often prioritize school districts, creating strong demand in certain areas. Loan amounts may be higher in top school districts due to elevated home prices. Some areas have school enrollment requirements tied to property ownership rather than rental.

Luxury home financing (typically $2M+) requires: jumbo loan programs, higher down payments (20-30%), significant cash reserves (2-6 months payments), lower debt-to-income ratios, and extensive asset documentation. Appraisals take longer due to fewer comparable sales. Some luxury properties may require portfolio lending. Private banking relationships often beneficial for high-net-worth clients.

Consider refinancing when: rates are 0.5-0.75% lower than current rate, you want to eliminate PMI, need cash for improvements/debt consolidation, want to shorten loan term, or switch loan types. Calculate break-even point: closing costs divided by monthly savings. In Orange County's appreciating market, cash-out refinancing for investment opportunities is common. Consider how long you plan to stay in the home.

Rate-and-term refinancing: changes rate/term without taking cash, lower rates, easier qualification, loan amount stays same or decreases. Cash-out refinancing: borrower receives cash above payoff amount, typically higher rates, stricter qualification, loan amount increases. Orange County homeowners often use cash-out for: investment properties, home improvements, debt consolidation, or education expenses.

Minimum equity requirements: rate-and-term refinancing typically requires 5-20% equity (80-95% LTV), cash-out refinancing usually requires 20-25% equity (75-80% LTV), jumbo cash-out may require 30% equity (70% LTV). Orange County's appreciation helps build equity quickly. Investment properties require higher equity (typically 25-30%). PMI removal requires 20% equity for conventional loans.

Eliminate PMI when you reach 20% equity through: appreciation, principal paydown, or home improvements. Options include: automatic removal at 78% LTV, requesting removal at 80% LTV (may require appraisal), or refinancing to remove PMI. In Orange County's appreciating market, many homeowners reach 20% equity within 2-3 years. Compare PMI elimination costs vs refinancing costs to determine best option.

Limited options for underwater mortgages: HARP program ended, but some lenders offer similar programs for existing customers. Government programs like FHA Streamline or VA IRRRL allow refinancing without appraisal for existing FHA/VA loans. Portfolio lenders may offer solutions. Orange County's general appreciation trend means few properties are underwater, but pockets may exist from peak purchase periods.