California Mortgage & Refinancing

Last Updated on September 17, 2020 by Andrew Lee

In every eight Americans, one calls California home. There are many good reasons behind this obvious preference, and the beautiful outdoors comprised of beaches, forests, and other natural wonders are just the tip of the iceberg. With many large, internationally-acclaimed companies headquartered here, it’s easy to see why so many people want to buy a home here. (Source: Livability.com)

San Francisco, Santa Barbara, and Palo Alto are just three of its best cities. And while homeownership, at a 54.3% rating (Source: SmartAsset), is lower than some of the other states, experts predict it to rise.

Expectations when Buying a Home

In 2014, The Golden State had mortgage rates averaging at 4.04%, slightly lower than the national average of 4.13%. This dropped to 3.80% in 2015, still putting its rate average lower than that of the country, which was at 3.88%. One thing home buyers can expect though is the higher prices of real estate here. In other words, they would have to make a bigger down payment to secure a mortgage, along with preparing for higher monthly payments.  

Home Sales Prices and Average

In CA, values of single-family homes average at $382,312.09, with these residential properties consisting of 83.70% of all houses in the state. Condominiums take the second-biggest share at 11.80%, with their value averaging at $276,409.60. PUD homes cost more than condos, at $400,553.22 on average, although they only comprise 3.30% of the housing market. Lastly are townhomes, with their average value at $372,823.24. Only 1.30% of houses are townhomes.

Fixed- and Adjustable-Rate Mortgage: How They Differ

Like everywhere else in the country, borrowers here can choose either a fixed-rate or an adjustable-rate mortgage (ARM). Both have their own advantages and risks, so homebuyers should ensure they have a basic understanding of these home loans before making a final decision.

Fixed-rate mortgages are less risky than ARMs, primarily because their interest rate won’t change no matter where the market heads to. Borrowers can expect their monthly payments to remain the same throughout the entire duration of their loan contract. The drawback to this is that those who have this mortgage won’t see any reduction in their interest rate once the market improves and current interest rates go down.

The biggest benefit of adjustable-rate mortgages is lower monthly payments since these loans all have initial lower interest rates. The biggest disadvantage to this is that the rate can move in an upward manner, based on market performance. However, the risk associated with ARMs comes with the reward of potentially lower interest rates if the market begins to perform better.

Avoiding Mortgage Insurance

As mentioned above, borrowers should prepare themselves to make a down payment bigger than what people in other states make. This comes with a benefit though. When homebuyers can put down at least $20% on the house they want to purchase, they most likely won’t have to get mortgage insurance anymore. This type of insurance is one of the largest contributors to unnecessarily higher mortgage-related expenditures.

It’s also worthy to note that the bigger the down payment is, the lower the amount of money one needs to borrow. In short, consumers can minimize their financial responsibilities.

How Improving Credit Score Can Help

Because lenders charge applicants with good credit scores lower interest rates, homebuyers may want to first improve their rating before application. This way, they can secure better rates once they do apply. Also, better credit scores mitigate the likelihood of application rejection, which can actually have a serious, negative impact on one’s financial credibility.

References:

Experian: http://www.experian.com/blogs/ask-experian/infographic-what-are-the-different-scoring-ranges/

California Housing Finance Agency: http://www.calhfa.ca.gov/

State of California Consumer Home Mortgage Information: http://www.yourhome.ca.gov/