How to Buy a Home in San Diego – From a Lender’s Perspective

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How to Buy a Home in San Diego – From a Lender’s Perspective

October 5th, 2007 categories: Buying, Real Estate Finance

As home prices fall and interest rates drop, home ownership is once again attainable for many. I have received a lot of calls lately from people who see homes for sale at discounted prices but have no idea if they qualify or how to get started.

Step One: Establish a Budget

Before you do anything, analyze your finances. Determine the monthly payment that you can comfortably afford. Often, people can qualify for a larger mortgage than they are willing to make the payment on. By knowing up front what your monthly budget is, you will avoid getting into more home than you want. It is also a good idea to consult your tax preparer at this time. He/She can advise you of the tax benefits of owning a home versus renting a home.

Step Two: Speak to a lender to get Pre-Approved

The pre-approval process is usually fast and relatively easy. It should also be free of charge. Avoid lenders who charge an up front “application fee.” It is important to start this process as early as possible. Lenders will categorize you based on three main factors: credit, income, and assets/equity in property. Typically, if you are strong in all three areas you will receive the lowest interest rates. However, even if you are only strong in 1 or 2 of these areas, you will likely still qualify for a good interest rate.

Your lender will review your credit report with you. Often, there are items on your credit report that are erroneous. Or you may find that by paying down credit card balances, you can improve your credit score and subsequently qualify on a better mortgage. Either way, it is a good idea to review your credit report early on to ensure you have the highest possible credit score.

A good lender will take the time to review your loan application with you, advise you on areas you can improve, and discuss the different loan options that are available for you in today’s market. Going through the pre-approval process early allows you to identify the areas in which you may be able to improve your qualifications and ultimately lower your interest rate. You will then have an idea of how much home you can afford, which mortgage is right for you, and what you can do to qualify for a low interest rate.

Step Three: Down Payment and Reserves

There are still 100% financing programs available for borrowers who have high ficos, high reserves (money left in the bank after closing), and high income. However, even for a well qualified buyer, 100% financing is very expensive.

If a buyer can come up with at least 3% down payment, then financing is very attractive. There are several programs that allow for expanded guidelines for buyers with 3% and a good credit score, making it very easy to qualify to purchase a home. If you are paying $1800 a month or more in rent and plan to live in your home for a while, you may find that you are much better to buy a home then to continue to pay rent.

For most people, when considering the average tax advantage, if you are paying $1900 a month in rent, you can afford to buy a home for approximately $350,000 with 3% down payment. If you are paying $2100 a month in rent, you can afford to buy a home for approximately $400,000 with 3% down payment.

Step Four: Find a Home

Once you are pre-approved for a mortgage that fits your monthly budget, it is time to find a home. As a buyer, a good real estate agent can be invaluable. We are currently in what many call a “buyer’s” market. With many sellers selling their homes at a discount and with a large inventory of homes on the market, a buyer has a unique opportunity to negotiate not only a fantastic price on a home but also buyer friendly terms.

Often, sellers are willing to pay all or part of a buyer’s closing costs. Closing costs in San Diego county can be anywhere from 1 to 3% of the purchase price. Having the seller pay the closing costs helps lower out of pocket expenses, leaving a buyer with more money for down payment, reserves, or even money to hire a moving company. A seller can even pay a point or more (a point is one percent of the loan amount not the purchase price) to buy down the interest rate for the buyer.

Pre-qualifying it easy and free. With interest rates low and inventory high, now is a great time to look at purchasing a home.

Lysa Catlin

CMC Finance, Inc.

(858) 456–3000 office

(858) 456–6200 fax

This entry was posted on Friday, October 5th, 2007 at 9:00 pm and is filed under Buying, Real Estate Finance. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.