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Are You Ready To Buy in San Diego?

As with any major purchase, it pays to be informed prior to making any decisions. As experienced buyers already know, buying a home is a complicated process, so it’s important to start at the beginning and thoroughly understand each step. Whether you’re buying your first home or your third, make sure you have the necessary financial resources and have explored all your options before you purchase a new home.

If you’re a first-time buyer, you should weigh the pros and cons of homeownership versus renting. There are many advantages and disadvantages to consider. For example, renters have the freedom of mobility if they choose to move, but their monthly rent checks do not establish long-term equity or produce any other benefits. And while homeowners’ mortgage payments accumulate equity, these payments are generally higher than rent payments and come with the responsibility to manage the care and upkeep of the property.

Both new and experienced buyers have their own sets of financial considerations when it comes to buying a home. Move-up buyers should evaluate their financial situation to ensure they’re prepared to meet the higher mortgage payments involved with relocating. Likewise, first-time buyers should determine if monthly mortgage payments fit in their budgets. In addition, you’ll need to be prepared to cover the downpayment and closing costs. And, you should consider whether you meet the basic criteria to qualify for a mortgage; lenders prefer that applicants offer a stable job history and a good credit record.


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Record-Low Mortgage Rates. How to Take Advantage of Refinance Market in San Diego

Low mortgage rates sparked a refinance frenzy at the beginning of 2020, overburdening many lenders who simply couldn’t meet the demand. Now, a new report released Monday by data analytics company Black Knight shows just how much demand there was: More than 1.3 million homeowners refinanced during the first three months of 2020, hitting a seven-year high. 

Homeowners enjoyed record levels of home equity while facing economic uncertainty as the pandemic began rattling the country earlier this year, prompting folks to line up for lower rates. This trend has persisted into July as current refinance activity is 74% higher than this time last year, according to the latest Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey.

Rates on the 30-year fixed mortgage have steadily dropped from 3.5% in late March to 3.07% last week, Freddie Mac’s lowest recorded level, while the 15-year fixed-rate slid to 2.56%, the lowest in seven years. A recent Fannie Mae forecast pegs rates at 3% during the last three months of the year and 2.9% by early 2021. 

“The spread between the 10-year Treasury and mortgage rates is still wide, so there’s room for mortgage rates to fall. We could see rates drop to 2.7, 2.8, 2.9%,” says Ralph B. McLaughlin, chief economist and senior vice president of analytics at Haus, a co-investment platform for home ownership. “If we get a vaccine for the virus or the effects are lessened and people pull their money out of bonds, we’ll see increased yields which will drive up rates.”

Although today’s ultra-low rates give borrowers a chance to save money on a mortgage refinance, lenders have made it more difficult to qualify. We’ll tell you how to improve your chances of getting a low rate. 

Homeowners Have More Equity, but They’re Not Using it

Borrowers’ appetites for saving money via refinancing is strong, but they are not as interested in withdrawing cash from their homes, confounding some experts. 

“We are not seeing an increase in cash-out refinances, which surprised us. With the COVID impact, we thought there would be more interest in home improvement and upgrades, but that’s not the case,” says Glenn Brunker, mortgage executive at Ally Home.

In the first quarter of 2020, homeowners received an 8% boost in home equity, according to Black Knight. Propelled by an 11% hike in home values during the same quarter, the total amount of home equity in the U.S. hit a new high of $6.5 trillion.

However, homeowners were not tapping it, despite the surge in refinancing. The number of cash-out refinances decreased, bringing the cash-out refi share of total refinancing to 42% in Q1. This is the lowest volume since the beginning of 2016. 

“The decline seen in Q1 cash-out refinance lending is likely the result of a combination of factors. Credit tightening, more acutely seen among cash-out refinances, is certainly one such factor,” says Andy Walden, economist and director of market research at Black Knight. “There’s also the unfortunate reality that the homeowners most in need of tapping their equity—due to loss of income or unemployment—may now also be the least likely to qualify for the same reasons.”

It’s Tougher to Qualify for a Mortgage Refinance

Many lenders have tightened borrower requirements, trimming things like the required loan-to-value (LTV) ratio from 80% to 70% in cash-out refis and boosting FICO score minimums on all refinanced mortgages, Walden says. Black Knight reported a dramatic rise in credit scores among cash-out refinance rate locks, zooming 24 points—from 720 to 744— from January through June.

Both Fannie Mae and Freddie Mac, the two biggest buyers of mortgages on the secondary market, have stiffened requirements for self-employed borrowers, as well. They now require a current audited profit-and-loss statement, showing revenue, expenses and net income as well as the last two business depository statements.

The credit crunch is a direct result of a still murky economic outlook. The Department of Labor reported there were 1.4 million unemployment claims during the last week of June, as the unemployment rate took a surprising 2.2 percentage point dip to 11.1%. Lenders likely will keep credit tight as they try to mitigate risk until the economy is on solid ground.

How To Get the Lowest Mortgage Rate

The most powerful tool borrowers have in snagging a low mortgage rate is their FICO score. This is good news, as controlling your credit score is easier than doing things like improving your disposable income by jumping income brackets. Since rates are expected to stay low, you’ll likely have time to punch up your score.

FICO scores are made up of five credit factors, and they are not weighted evenly: 

  • Payment history (35%)
  • Amounts owed (30%)
  • Length of credit history (15%)
  • Type of credit (10%)
  • New credit lines (10%)

You can improve in some of these areas more quickly than others. Here’s what to do:

Straighten your payment history over time. If you sometimes or usually pay your credit card, mortgage, auto loan bills late, this will have a negative impact on your score. The moment you begin making on-time payments, however, you’ll be on your way to a better score—it just won’t happen right away. 

Pay down debt. You can impact the amount you owe more quickly than you can improve your payment history, provided you have cash on hand. Keep in mind, FICO treats debt types differently. For example, installment loans (such as car loans) don’t have the same negative impact as high credit utilization on credit cards. You should keep your credit card balances below 30%. Maxing out your credit, even if you make on-time payments, can hurt your score.

Don’t close your credit accounts. This applies to accounts you don’t use, too, unless there’s an annual fee and you’re not reaping any benefits. Keeping accounts open will help you build a credit history, which is 15% of your FICO score. 

Shop around. Make sure you compare quotes from multiple lenders. Be sure to look at the APR, not just the interest rate. The APR is the all-in cost of borrowing, which includes lender fees as well as the rate. Lender fees vary, so comparison shopping can definitely save you money.


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San Diego Home Prices Keep Increasing – Despite COVID-19

The Case Shiller Indices show home prices keep going up, despite COVID-19.

San Diego home prices continued to increase into COVID-19’s second month and grew at a quicker pace than other California cities. 

Home prices in the San Diego metropolitan area had risen 5.8 percent in a year, the S&P CoreLogic Case-Shiller Indices reported Tuesday. It was the highest annual increase since July 2018. 

Across the United States, home prices in April were up an average of 4.7 percent with experts attributing the rise to a shortage of homes for sale, low mortgage interest rates and high demand from before the crisis continuing. 

“The price trend that was in place pre-pandemic seems so far to be undisturbed, at least at the national level,” said Craig Lazzara, managing director and global head of index investment strategy at S&P Dow Jones Indices.ADVERTISING

Phoenix had the biggest annual increase of the 19 cities covered by the index at 8.8 percent. It was followed by Seattle at 7.3 percent and Minneapolis at 6.4 percent. One city normally on the index, Detroit, was left off because its recording office was closed as a result of the pandemic. Chicago had the smallest gains at 1.4 percent. 

Other California cities were behind San Diego’s nearly 6 percent gain, with Los Angeles at 4.1 percent and San Francisco at 2.8 percent. 

Selma Hepp, deputy chief economist for CoreLogic, said a lot of factors that pushed up demand in the months before COVID-19 have continued, and may even have accelerated. 

“Supply headwinds, such as declining for-sale inventories, will continue to keep a lid on the number of transactions but also push up home price growth,” she wrote. 

National homebuilding slowed considerably during the Great Recession, as the population continued to grow, which many analysts say created a lack of homes for sale. More recently, a drastic increase in sellers pulling homes off the market to wait for the virus to go away have been attributed to price wars for a limited number of properties. 

In San Diego County last year, the smallest number of housing units (apartments, single-family homes and condos) were built since 2014. The 8,053 homes constructed represented a 16 percent drop in construction, said the Real Estate Research Council of Southern California, and was the biggest homebuilding drop in Southern California. In April, the same time as the Case Shiller report, there were about 5,160 homes listed for sale, said the Redfin Data Center, a drop of 27 percent from the same time last year.

Zillow economist Matthew Speakman wrote that the April index illustrates how low mortgage interest rates fueled demand even as there were fewer homes to choose from and drove up prices. 

The mortgage rate for a 30-year, fixed-rate loan was 3.31 percent in April, according to Freddie Mac, down from 4.47 percent at the same time last year.

“Substantial risks remain and the longer-term outlook for home prices is still very much unclear, but at least for now,” Speakman wrote, “the housing market continues to cruise through this historic downturn more or less unscathed and prices seem poised to continue their ascent for the coming months.”

The Case-Shiller indices take into consideration repeat sales of identical single-family houses as they turn over through the years. Prices are adjusted for seasonal swings. The San Diego County median home price for a resale single-family home in April was $650,250, according to CoreLogic data provided by DQNews.

S&P CoreLogic Case-Shiller Indices: Yearly increase by metropolitan area:

  • Phoenix: 8.8 percent
  • Seattle: 7.3 percent
  • Minneapolis: 6.4 percent
  • Cleveland: 6 percent
  • San Diego: 5.8 percent
  • Tampa: 5.8 percent
  • Charlotte: 5.6 percent
  • Las Vegas: 4.7 percent
  • Atlanta: 4.5 percent
  • Boston: 4.3 percent
  • Portland: 4.3 percent
  • Los Angeles: 4.1 percent
  • Denver: 4 percent
  • Miami: 3.9 percent
  • Washington, D.C.: 3.8 percent
  • Dallas: 2.8 percent
  • San Francisco: 2.8 percent
  • New York: 2.5 percent
  • Chicago: 1.4 percent
  • Detroit: N/A
  • NATIONAL: 4.7 percent