Applying for a Mortgage:
The First Step to Buying Your San Diego Home
Are you getting ready to buy a home in San Diego? Well one of the first steps to buying your San Diego home is applying for a mortgage. The mortgage you choose will affect your finances for years to come, so it is imperative that you feel secure with your decision. The following key questions are a great place to start when looking to buy a new home in San Diego.
- What are current mortgage rates?
Mortgage rates change quite regularly and rates that you see online are often not available to all borrowers. Each loan application is different and will require analysis of many factors by a lender. A good mortgage lender will consider your personal financial status when calculating an interest rate for you. The goal is to give you the best rate and terms so that you will have the lowest monthly payments, as well as the lowest up front costs, on your new home in San Diego.
- What is a point?
One point is equal to one percent of the mortgage amount. You can pay money up front to gain points and decrease your interest rate. While this may sound great, it may not be beneficial to you in some circumstances. If you are planning on owning the property for a shorter term, say five years, it makes more sense to just take the higher interest rate. Likewise, if you think you will refinance your home within five to ten years because of upgrades or additions to the house, it may also be more beneficial to avoid paying the points. One case where it is better to pay the points is if you expect to own the property for the long haul, say thirty years, and do not plan on refinancing in the near future. You need to look at the amount your interest rate is being reduced in exchange for the upfront cost of points, as well as how much money you have to spare after closing costs, to make a decision as to whether points are valuable in your situation. My experience has shown that, typically, it is financially more beneficial to take the higher interest rate when my clients purchase a home in San Diego. Ask your mortgage lender for more information on your specific circumstances and whether points are beneficial to you or not.
- Why lock in a mortgage rate?
Interest rates can fluctuate during the time it takes to apply for a mortgage and purchase a home in San Diego. Locking in a mortgage rate during the application process means that you will have a set amount of time (typically less then ninety days but it can be longer) to finish the purchase process of a home in San Diego at the rate amount that was discussed with your lender. The downside of having a fixed interest rate is that, typically, the longer the amount of time that the rate is locked in, the higher the fees.
- What are the characteristics of an adjustable interest rate?
Adjustable rate mortgages are more appealing at first glance than other types of mortgages because they offer lower initial costs. However, they carry a large degree of uncertainty for the future since interest rates can more then double in just a few years’ time. My experience has shown that, every so often, shady mortgage lenders try to trap inexperienced borrowers by confusing them with industry terms often used with adjustable rate mortgages. If you choose this type of mortgage, be sure that you are fully aware of what the future may hold for your interest rate. If you don’t plan on living at the home in San Diego of your choice for very long, there may be advantages to an adjustable rate mortgage; otherwise I would proceed with caution.
- What are the characteristics of a fixed interest rate?
Fixed rate mortgages remain constant so there will be no surprise increase in the rate if inflation surges. They are much simpler for buyers to understand and easier to budget for, in comparison to an adjustable rate mortgage. One of the disadvantages of a fixed rate is that, if the market rates drop in the future, you must refinance to take advantage of them. Refinancing will mean a couple thousand dollars in closing costs, digging up tax forms and bank statements, and a return visit to the title company.
- How much should I have as a down payment?
If you have to funds to spare, it is best to put at least 20% down on your new home in San Diego. Mortgage lenders prefer to see this sum to show that you are committed to the purchase of the property. However, the cost of most homes in San Diego would require a very large sum to accommodate at least 20% of the costs, so there are other avenues available. If you do not have the funds to cover at least 20% of the total cost, you will have to pay for monthly PMI (private mortgage insurance). PMI will vary depending on the loan you acquire. If the value of the home has increased within a few years, you can have the property reappraised or refinanced to see if the increased value will cover the funds needed to complete the 20% of the property value. This is how many of my past clients have managed to drop their PMI from their monthly mortgage payments after they purchase their home in San Diego.
There are many more questions that you will have along the way, so take the time to find a mortgage lender that you trust to help guide you through the process. If you need guidance from a reputable source, call me, Kim Ward, at (619) 741-0111 I look forward to helping you through the process of finding and financing your new home in San Diego.