California Mortgage Rates

California Real Estate Prices

With the downturn in the economy California mortgage rates have hit an all time low. However, with the increase in foreclosures and the uncertain market, it might be advisable for some buyers to wait a little longer before investing in real estate in certain areas of California. However, the market is still viable and savvy real estate shopper will find many properties in California that are worth the investment.

General Real Estate Prices in California

Interest rates verses Housing Prices

Now is not considered to be a very good time to buy a home in California while interest rates are low and housing prices are high. It is better to buy a home when prices are low and interest rates are high. Housing prices tend to rise when interest rates are low and vice versa, the prices tend to drop when interest rates are high.

It may seem irrelevant to the average buyer who thinks it doesn’t matter because the house payment is basically the same either way; however, there are factors to consider:

  • It is easier to pay off the principal on the loan if you purchase when housing prices are low.
  • Property tax does not consider the amount of interest you are paying on the mortgage, so if your home is valued at a lower rate, the property tax will be lower.
  • If you are trapped in a debt on a home that is over-priced, you will not be able to re-finance because you basically have no equity in the home.
  • You will not be able to sell without a loss. Even if the interest rate is at a long-term fixed rate, it will eventually go up.

Housing Prices Compared to Other States

For the most part the same factors that drove housing prices before the recession are still factors during the recovery period. States that are popular to people looking to escape the colder northern states still tend to have higher housing prices. California, Hawaii, and Florida for example are all popular destinations for “snow birds” from the northern states and Canada who are looking for warm temperatures, sandy beaches, and beautiful ocean views. These people tend to have higher incomes and are willing to pay higher prices for homes.

New York, New York is and will always be, the financial engine of the world. Housing prices are traditionally high, and will always be no matter what the economic trends. However, housing prices in the more rural upstate New York remain reasonably low.

On the other hand, Michigan, for example, has seen housing prices drop to all time lows as a result of the recession and downturn in the automobile industry. Massive layoffs and record high unemployment have turned cities like Detroit into “ghost towns.”

At the same time, Michigan boasts some the most jaw dropping scenery in the country, and still remains one of the major seaports in the United States. The majority of the Great Lakes are “Michigan Waterways” making the import/export business still a thriving income for the state. Michigan tourism still remains a popular destination but for a different type of vacationer. For many outdoorsmen, fishermen, and hunters, Michigan offers the type of setting for them to pursue their interests, though their housing needs are different from their counterparts flocking to the warmer climates.

Popular Cities To Live In California

Some of the most famous cities in the world are located in California which is part of why it is the most visited place on the planet. California has one of the largest economies in the world, and is the most populated state in the union. By geographic size it is the third largest state.

The California lifestyle is unique and attractive to people all over the world. The state of California has always been the leader in housing sales in the United States. There are many factors that make California so attractive to people from all over the world. The excellent job opportunities, entertainment, excellent educational system, colleges and universities, and medical facilities, among other factors make these California cities the most popular cities to live.

  • Los Angeles is the second largest city in the United States and the largest American city on the Pacific Rim. It has a population of over one million people and has some of the highest traffic congestion in the world. Its size and the fact that it is one of the economic centers of the country, makes it one of the fastest growing cities in California.
  • San Diego is the fifth wealthiest city in the United States and the ninth safest, according to The Federal Bureau of Investigation (F.B.I.). It has the venues that you expect in a large wealthy city, excellent schools, low unemployment, cultural attractions, and year round moderate temperatures. San Diego’s growth is based on the fact that it is such a desirable place to live.
  • Beverly Hills is one of the most affluent cities in the United States. It attracts people with well above average income, and there are a lot of large stately homes, and a life style suited to those of a higher income. The downturn in the economy has had little effect on the city or its growth.
  • Hollywood, the entertainment capitol of the world attracts people with high hopes, and often little money, from all over the world. Some make it in the entertainment industry, the majority, however, do not. Some go home disappointed, while most stay because they are attracted to the California lifestyle. Hollywood has always had a huge growth rate, despite the economic trends.

Recourse and Non-recourse loans and the Foreclosure Process

A refinanced loan is a recourse loan, whereas, a purchase loan is a non-recourse loan. The type of loan will be noted on your mortgage paperwork.

Under California law, if a homeowner purchases a home with one loan it is considered a non-recourse loan. If the homeowner fails to make the monthly payments, the mortgage holder has no recourse against the borrower. The mortgage holder is allowed to seize the property in a foreclosure process, but, is not allowed to place any claims on the borrowers other assets to satisfy the loan. The lender can also add foreclosure to the homeowner’s credit. This will cause the FICO score to drop by 80 points.

Should the homeowner then refinance the property, the second mortgage becomes a recourse loan. Most of the time with a refinance there is a “cash out” withdrawal on the equity. Now the mortgage holder has recourse against the borrower.

The second lender has legal recourse and can force the homeowner to pay the loan or may decide to settle by selling the debt to a collection agency. The homeowner is wise to get a release from the mortgage holder to negotiate the loan repayment for a fraction of the original obligation.

The collection agency can get a judgment against the homeowner to garnishee his/her wages, put a lien on other assets such as a car, or other real property.

Foreclosure by Deed of Trust (often called a non-judicial foreclosure) is typical in California. This means that the recourse is not usually followed in California and the foreclosure is handled outside the courts. Because the Deed of Trust carries power of sale clause which allows the trustee to, upon default of the loan, sell the property. The trustee acts as a representative of the lender. In most states, the trustee is appointed by the lender, however, in California, the title company acts as the trustee.

California has a requirement known as the one-action rule. When foreclosure is finished by non-judicial resources, a subsequent action to recuperate a deficiency ruling is not allowed. Whenever a judicial foreclosure is used, a lender may recover a deficiency judgment in certain circumstances. But since this process takes longer than non-judicial foreclosure, it is rarely used. California’s non-judicial remedies have rigorous notice requirements and the mortgage documents are obligatory to contain the power of sale speech in order to use this category of foreclosure method. Judicial foreclosures are permitted in California and these usually occur when no power of sale language is included in the loan documents.

In California, the court must issue a final judgment of foreclosure if the lenders also go to court for judicial foreclosure proceedings. If the deed of trust does not enclose the power of sale communication, the lender may pursue judicial foreclosure. The property is then sold as part of an openly noticed auction. A complaint is filed in county court along with what is known a lis pendens which is a recorded document that provides public notice that the property is being foreclosed upon.

The Types Of Mortgages Offered In California

  • Fixed rate mortgages are completely amortized and come in ten year, fifteen year, twenty year, thirty year, forty and even fifty year loans. The money applied to the loan goes first to reimburse the interest then to pay the principal. This means that a loan of $200,000 with a mortgage of 6% over thirty years the homeowner will pay $231,676 in INTEREST over the course of the loan.
  • FHA (Federal Housing Administration) mortgage loans are insured by the federal government. FICO scores are not a factor and required down payments are minimal. First-time home buyers are ideal candidates for these loans.
  • VA (Veteran’s Administration) Loans are available to people who have served in the United States Armed Forces. Sometimes the spouse of a deceased veteran is eligible for a V.A. loan. The number of years of service, and whether the discharge was honorable or dishonorable, are factors that are considered. The Veteran’s Administration guarantees the loan to the mortgager and does not require a down payment.
  • Interest-only mortgage loans the borrower has the opportunity to make payments only on the interest. A large balloon payment is required at the end of the mortgage to pay off the principal.
  • Combo/Piggyback Mortgage the financing consists of two loans: a first mortgage and a second mortgage. The mortgages can be adjustable-rate mortgages or fixed-rate or a combination of the two. To avoid paying private mortgage insurance borrowers obtain two loans when the down payment is less than twenty percent.
  • Adjustable Rate Mortgages are flexible and can change monthly, semi-annually, annually, or stay at the same rate for an extended period of time before it adjusts.
  • Mortgage Buy downs are an option for borrowers who want to pay a lower interest rate. fees are paid to lower the rate which then causes the interest rate to be is reduced, which is why it’s called a buy down. The interest rate can be bought down for the borrower by buyers, sellers or lenders.

Conclusion

It is always a good idea to hire an experienced real estate agent with a good reputation to help you through the confusing maze of California mortgage rates. The search for, and purchase of a new home is exciting, but, can be confusing without the proper advice.

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