Whether you are ready to buy your first home, a vacation home, an investment property or a move-up home or you're downsizing, the mortgage lending process can be daunting. If you want to refinance to lower your payments or pay for a remodel, you can use some expert advice on California lending conditions. Even experienced homeowners need some help sometimes navigating the maze of information and paperwork required for today's mortgage loans. This page provides a step-by-step guide to getting a mortgage in California that will meet your needs.
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Mortgage rates are driven by various factors including economic issues, but the property you intend to finance and your personal loan qualifications have the biggest impact on the rates you will pay. That said, California lenders also base their rates partly on local market conditions such as the possibility of a default and competition among lenders. When property values are rising, lenders are more willing to make concessions to borrowers than when there are concerns about declining values. Because California is a non-judicial foreclosure state, lenders can complete a foreclosure without waiting on the court system. That makes them more willing to offer loans with low mortgage rates.
Help for California First-Time Homebuyers
California residents, no matter what part of the state they live in and no matter what their budget is for a home, can benefit from homebuyer education programs. First-time homebuyers generally need extra hand-holding to alleviate their fears about such a major undertaking.
"California has more than 200 active programs that can help people buy a home," says Tia Boatman Patterson, executive director of the California Housing Finance Agency. "It is, of course, extremely important for homebuyers to be educated about this complex financial process. One of the best online education courses is through eHome America. In-person counseling is also available through NeighborWorks. Studies have shown that homebuyer education is among the most important predictors of avoiding delinquency and foreclosure, and more and more lenders are requiring it."
California homebuyers also can find programs that provide financial support in addition to educational support for homeownership.
"Cities, counties and non-profit organizations may all be sources of assistance, especially with your down payment," says Patterson. "The largest source of assistance in California is the California Housing Finance Agency, which has helped more than 190,000 Californians purchase their home with a mortgage they can afford. CalHFA offers first mortgage loans at competitive rates, in addition to loans and grants to help with your down payment and closing costs. We even have a program to help upgrade the energy efficiency of your appliances."
A lender experienced with first-time buyers can help you explore potential programs. You can also learn more yourself by checking out some of the resources on the bottom of this page.
Financial Assistance for First-Time Buyers in California
Closing cost assistance, low-interest mortgage loans and down payment assistance in the form of grants and loans are available from numerous sources in California.
Find a California Housing Counselor
Understanding Home Affordability in California
Since both home prices and mortgage rates fluctuate, it can be difficult to understand how much you can afford to pay for a house. Prices in parts of the state such as San Francisco are among the highest in the country, a reflection of the desirability of the area and salaries of local workers.
To determine what you can spend on a home, create a budget and decide how much you have for a down payment and how much you are comfortable paying for all your housing expenses, which include principal, interest, property taxes, homeowner's insurance and possibly, homeowner association fees. A lender can qualify you for a maximum loan amount, but you should carefully consider your budget before deciding how much to borrow.
How California Mortgage Rates and Home Prices Affect Monthly Payments
| Metro Area | Estimated Monthly Mortgage Payment* | Q1 2016 (Change from Previous Year) | 2015 Median Home Price | 2014 | 2013 | |
|---|---|---|---|---|---|---|
| Anaheim-Santa Ana-Irvine | $3,354 | $713,700 (+4.10%) | $707,500 | $687,900 | $651,650 | |
| Los Angeles-Long Beach-Santa Ana | $2,157 | $458,900 (+6.30%) | $476,800 | $449,500 | $405,630 | |
| Riverside-San Bernardino-Ontario | $1,400 | $297,900 (+6.00%) | $290,700 | $273,900 | $241,410 | |
| Sacramento--Arden-Arcade--Roseville | $1,399 | $297,600 (+7.90%) | $289,300 | $268,700 | $239,520 | |
| San Diego-Carlsbad-San Marcos | $2,605 | $554,300 (+8.60%) | $542,600 | $497,900 | $464,280 | |
| San Francisco-Oakland-Fremont | $3,620 | $770,300 (+7.90%) | $782,300 | $715,800 | $643,800 | |
| San Jose-Sunnyvale-Santa Clara | $4,559 | $970,000 (+7.80%) | $950,400 | $860,000 | $780,000 |
Source: National Association of Realtors Q1 2016 Metropolitan Median Area Prices and Affordability report.
*Estimated Monthly Mortgage Payment is based on median home prices for the metro area in Q1 2016 and a 30-year fixed mortgage with today's rates.
How Much Can You Borrow in California?
Conforming and FHA loans have limits set by the government that vary according to housing costs in different markets. In California, the largest state by population, housing markets vary widely and so do loan limits. FHA loan limits in some parts of the state where housing is less expensive are as low as $275,665, but are as high as $679,650 in high-cost markets like San Francisco. Similarly, conventional loan limits in California range from $453,100 to $679,650. The following table lets you search for loan limits by county.
Expert Advice on the California Homebuying Market
Nela Richardson is chief economist with Redfin brokerage in Washington, D.C.
Rick Sharga is executive vice president at Ten-X, an online real estate marketplace in Irvine, California.
Janet Lawless Christ is a real estate agent with Coldwell Banker Previews International in Rancho Santa Fe, California.
What was the housing market like in California before and during the housing crisis?
Prices reached all-time highs across California before the housing market crashed. Since the crash, prices in San Francisco, Los Angeles and San Diego have rebounded, experiencing year-over-year growth higher than national averages.
No state had a higher rate of home sales or price appreciation than California and no state suffered as dramatic a crash. Home values in many markets dropped by 50-60 percent, and the state had the most foreclosures in the country. The hardest-hit areas - cities in the Central Valley from Stockton and Merced in the North to Riverside and San Bernardino in the South - still haven't fully recovered.
In the high end luxury marketplace, prices decreased severely but there weren't as many foreclosures in the high end San Diego County market.
What can first-time buyers expect to find today in the state in terms of affordable homes to buy?
Affordability is a challenge in the hot Los Angeles and San Francisco markets, even for households with high incomes. First-time buyers may need to sacrifice size or location to break into the market.
Low supply of new and existing homes, combined with growing demand, drives prices higher than many first-time buyers can afford. The shortage of homes is especially severe at the low end of the market, where most first-time buyers do their home shopping.
First-time buyers in San Diego can anticipate a wider array of opportunities now.
What is the housing market like in some of the areas of the state that attract first-time buyers?
The entire Bay Area experienced record price growth and chronically low inventory, putting more upward pressure on prices. In 2016 the market is starting to ease up slightly. In Los Angeles, the number of homes for sale isn't keeping up with demand, especially in popular neighborhoods on the Eastside and near downtown.
The combination of limited inventory and prices that have escalated dramatically in San Francisco and Los Angeles - the median price of a home in San Francisco was recently as high as $1 million - makes these markets difficult for first-timers, so many choose to rent instead. The further from the coastline, the more affordable the properties - but home buyers need to be willing to trade off a longer commute in order to be able to buy a house.
In San Diego, as properties get further from the coast, prices reduce accordingly.
Closing Costs Add to the Cost of Homeownership in California
When you've got a place under contract, you may think your journey is done, but remember, you'll need to pay closing costs at settlement. Closing costs in California average $1,834 for a $200,000 home with a 20 percent down payment, slightly lower than the national average of $1,847. However, keep in mind, your costs will be a lot higher if you buy a more expensive home.
Closing costs vary from one location to another, even within California, due to county and city recording fees and transfer taxes. Traditionally, in California, sellers pay the transfer tax, but that is negotiable so be prepared to confirm what you need to pay at the closing. You don't have to hire a lawyer in California to handle your settlement, which could keep costs a little lower than in other states.
Average Closing Costs in the Golden State
Your closing costs will vary depending on the lender you choose and where you live, but here's an idea of what you might expect to pay.
Fees $937
Fees $896
Costs $1,834
Source: Bankrate's 2015 survey of closing costs.
Refinancing a Mortgage in California
Refinancing options depend primarily on your credit qualifications and the appraised value of your home. Home values vary from one part of the state to another, so it's essential to consult a lender with solid knowledge of your home type and your neighborhood to get a true picture of your refinancing choices.
"Refinancing has recently experienced an unexpected increase, as mortgage rates fell after the Brexit vote in the United Kingdom," says Sharga. "Rates are likely to dip below the historically low rates we saw a few years ago. So, for homeowners with interest rates above 4.5 percent, there should be ample incentive to at least look at refinancing. Most home prices in the state have fully recovered from the housing downturn so as a whole, the state's borrowers aren't underwater on their loans. There are some pockets, however - places like Richmond, for example - where prices haven't recovered, and may not for the foreseeable future. For those borrowers, refinancing continues to be an unavailable option."
Some California homeowners may qualify for the Home Affordable Refinance Program (HARP) through the federal government, designed to help those with little or no equity take advantage of low interest rates and refinance. Currently, that program is slated to end Dec. 31, 2018, but it has been extended in the past.
In high-cost housing markets such as San Francisco, a homeowner with a $900,000 mortgage could save substantially with even a small difference in interest rate. For example, a $900,000 loan at 4 percent has a principal and interest payment of $4,297. That same loan at 3.5 percent has a monthly principal and interest payment of $4,041, a savings of $256 per month and nearly $3,000 annually.
More Resources for California Homebuyers
are available through eHome America.
includes comprehensive information about statewide programs including low interest loans, down payment assistance and tax credits.
provides consumers with the option to check the license and complaint history of individual real estate agents.
has information about loans for veterans in the state.
has a California page on its site with links to information about homebuyer programs in rural areas of the state.
has a portal on its site with links to California homebuyer resources by county and by city.
has information about grants to help low and moderate income families buy a home.
where California buyers can find information about HUD-owned homes for sale.