Mission Hills

One of the most integral parts of a home purchase is finding the right loan and understanding how the home loan process works. The following information is to provide you with some general information to help you compare loan options available.

A key factor to consider when shopping for a loan is whether to choose a traditional fixed rate mortgage or an adjustable rate mortgage. If you plan to be in the home long term, over 7 years, it is likely best to choice a fixed rate loan with lowest rate you can find. If you are planning to move within 7 years it is usually better to select a short term fixed rate that will eventually adjust. Adjustable rate mortgages (ARM) typically provide a significantly lower rate than  a 30 year fixed loan which can save you money on your monthly payment but you do take the risk of the loan adjusting after it’s short term fixed timeframe has expired. The most common ARM loans are fixed for 3, 5, or 7 years before they adjust. 

Affordability Calculator

It is also important to understand how closing cost can affect the overall cost of the loan, commonly referred to as APR. You may receive a low rate quote but have higher closing costs to pay upfront. These costs can be included in the loan but you will be paying interest on them over time thus changing a 5% loan to an adjusted APR of 5.5% due to closing costs involved. It is best to discuss the best option for your scenario with your mortgage consultant. In some cases paying points on a loan in order to lower the rate can significantly lower your monthly payment. In general paying a point (1% of your loan amount) can reduce your rate by .25- .375%, which will reduce your monthly payment.

It is also extremely important to include all the other costs to your monthly payment when deciding on  a purchase price range price range. In San Diego County the minimum property tax rate is 1% of the value of the home and in some communities can be as high as 1.75%! On average $400,000 home with a 1.25% tax rate will have an annual tax of $5,000 or roughly $415 a month. Another monthly fee to consider is HOA dues which can range from $200 in some communities to $600 depending on the facilities and maintenance provided by the HOA. Finally don’t forget about insurance which will likely cost about $500 a year or $40.00 a month. As you can see your mortgage rate and payment are not the only factor when qualifying for home and it is very important to find out the tax rate and HOA fees on the property before purchasing.

Closing Cost Estimator