Buying a House in San Diego

You have reached a point in your life where you know that now  is the right time to buy a house but are not sure exactly where to start. There is so much information out there you would think making a decision would be easy. But in fact, it sometimes is more confusing. This holds even if you have bought a home in San Diego in the past.

The first thing you should consider is how much money you can afford to put out every month to pay for this house. This means that just because you spoke to a Bank/Mortgage Broker/Lender and they told you that you could afford” X” amount does not mean that you will feel comfortable doing so once it is said and done. You are the only one that knows what you will feel comfortable with.

A good rule of thumb to determine how much of a mortgage you can afford determines what 30 percent or less of your income is. This is what should go into paying your mortgage. I know it is not easy based on the purchase price of what San Diego homes sell for, but this is a general guideline. This is not to say that Banks will not lend you their money if you go over this number.

You can start to figure this out by finding out what your new utility bills will look like based on the house square footage and the home area. Contacting the utility departments in that area and asking them would be a good idea. Other new bills would include new home insurance and property taxes. You can contact the San Diego accessors office and speak to someone in the Realty Division. As for home insurance quotes, ask your Realtor for a few referrals. They should have a few people who can recommend who would help you figure out the numbers.

You have most of the numbers for buying a house in place. Now you must determine how much of a down payment you can afford to put down or are willing to put down. Remember to keep in mind that you have to set aside money for closing costs, appraisals, and home inspections. In some cases, it behooves you to do several specific inspections, and they do come with a price. You are better safe than sorry, so listen to your Realtor when they recommend such inspections. Another cost to consider is the cost of moving and the cost of gas to go to and from work (if further away), we must not forget this one.

Having 20% down to buy a house in San Diego is great and more attractive to lenders lending you the rest of the money. However, there are other loan programs that you can use with 0% down (VA loan), 3.5% (FHA), 5% Conventional and several others.

These other loan options come at a higher price, but it is the cost of doing business with the banks willing to loan their money to you. You will have to pay private mortgage insurance with loans below 20% down.

PMI, aka private mortgage insurance, is the fee that the bank charges you for the risk they take to lend their money to you. If someone puts down less than 20% to buy a home, they should know all about PMI. With FHA loans, you will have this payment for the life of the loan. With other loan programs, you will cancel the PMI once you have 20% equity in the home.  Speak to your lender about this. Make sure that you understand this thoroughly before choosing a loan option.

With the prices of homes for sale in San Diego, this can be the difference in costing thousands of dollars more over the loan period. Even a slightly higher increase in interest rate can cause the lender not to lend you the funds because it will increase your monthly payment to the point that your debt to income ratio is out of balance.

First, figure out what neighborhood you would like to live in. Then, have all of the numbers in front of you; this is the time to have a serious conversation with your Realtor. Based on the numbers that you and your lender have come up with, your lender should be able to provide you with a DU approval instead of just a pre-qualification. Once you are confirmed with the price of the home that you can buy, you will then start touring homes with your Realtor.

Having a DU approval from your lender will make you a stronger buyer, especially if you are in a multiple offer situation. If a typical buyer provides a pre-qualification letter with their offer, they still have not filled out a loan application, and the lender does not know if they truly qualify for the loan. If you have a DU approval, this means that you have already provided the lender with your employment history, assets and income and debts and they become “Approve Eligible.” You will most likely receive final approval unless something with the title or appraisal comes back with something negative.

Buying a home will most likely be one of the largest and most important purchases of one’s life. Going out and looking at houses may be fun and exciting. Though, finding the right house and then not having your pre-approval in place will only hurt you when you find out that you can’t qualify it. Buying a house is a process, and finding out what you qualify for upfront will let you know what price range to look at right out of the gate. If you have already been in touch with a Realtor that you will be working with, ask them for a few lender referrals. They will have a handful of great resources. Once you sit down with the lender you feel comfortable with, they will ask you for many things from your financial history. After reviewing, they will provide a pre-approval letter stating the amount of money the bank is willing to lend you for the home you are about to buy. To become a stronger buyer, you should ask for them to give you a DU approval.

To receive a true pre-approval or DU Approval can take a few days or even weeks. This depends on how long it takes you to send over all of the documents the lender has requested. With the San Diego Housing Market being as competitive as it currently is, you must take this first step before you even start the search for homes with your Realtor. If you were to put an offer on a home without having a pre-approval, you would not be taken seriously.

When starting the process of applying for a home loan, you must provide the lender with all of the documentation that they ask for right away. Some things will include tax returns, bank statements, stocks, bonds, information on other real estate property that you may own, life insurance policies, other assets that you own, etc.…They will take all of this into consideration, and figure out a dollar amount of what a bank is willing to loan you for your new house. The lender will then supply you with a pre-approval letter or a DU approval letter, which is a lot stronger than a simple pre-qualification letter where they don’t even pull your credit history.

When a seller puts their home on the market, they are motivated to sell to “qualified buyers.” They don’t want to show their home to just anyone simply looking at homes without having been pre-approved by a lender. They also do not want to accept an offer from someone who cannot secure a loan. If you submit an offer without a pre-approval, this is what you are telling the seller. “I like your home, but I am not sure that I qualify for a loan to buy it.”

Once you have completed the paperwork with your lender and have an official pre-approval, or better yet, a DU approval, your Realtor will be able to help you search for the right house within your budget and the neighborhood that you have decided works for you. Knowing ahead of time what price range to look at will make that process smoother for everyone. Showing homes that are not in your price range will just set you up for failure, frustration and a big waste of time. Doing all of your homework upfront will end in a win-win for all parties involved.

Buying a home after bankruptcy depends on many factors, including credit score, personal history, employment history and much more. Speaking to your lender would be what I would recommend. They will be able to look at your current finances and come up with a plan of action. If you would like more information about this topic or need a referral to a good lender in San Diego, let us know. We have several great lenders we have worked with throughout the years. We are happy to give you their contact information.