When it comes to financial security, purchasing a condo, loft or penthouse in Downtown San Diego can provide a wealth of short and long-term benefits. The average San Diego renter spends approximately 40% of his or her income on rent and this means that it many instances, it can be cheaper to buy. One large part of the purchasing process, however, is finding the right funding solution and determining how much money to put down. Whether or not a loan entails a feasible down payment is one of the many important considerations that must be made when shopping mortgage loans.
How a Down Payment Will Impact Your Ownership Costs
Many lenders are highly concerned with the loan-to-value (LTV) ratios for the properties that they are funding. This is the amount of money that is being loaned in comparison to the overall value of the property. A high loan-to-value ratio means that the borrow will be paying less upfront costs in the form of a down payment and that he or she will be borrowing more and taking a bit more time to pay down the loan. A conventional mortgage, or a mortgage that meets specific underwriting requirements, necessitates the LTV to be 80% or lower. Thus, when borrowers appeal to conventional lending institutions, they must be willing to put down 20% or more of the total purchase price.
There are two types of government-backed loans that buyers may be able to secure if targeting properties that are approved for this type of funding. VA loans, or loans for veterans, do not entail down payments and thus, buyers can fund their entire purchase with borrowed monies, so long as they remain within the VA loan funding limits for the counties in which they are purchasing. In certain parts of San Diego County, qualified buyers can borrow up to $562,350 without making a down payment. You’ll want to check with your Downtown San Diego real estate broker about what downtown neighborhoods qualify.
FHA loans, or loans that are backed by the Federal Housing Administration, have lenient credit requirements and can entail down payments as low as 3.5%. These loans, however, are only available for FHA-approved properties. This makes it important for buyers who want this funding to work closely with their real estate agents in order to ensure that the properties they are targeting are FHA-approved.
San Diego County’s Down Payment and Closing Cost Program
San Diego buyers may be able to get help with their down payments and closing costs. Closings costs are administrative fees that are remitted for loan underwriting and other expenses. A low-income, first-time buyer may be qualified to borrow up to 33% of a condo’s purchasing price or up to $70,000 in order to cover the closing costs and down payment for his or her purchase. Like VA and FHA loans, however, these funds are only available for specific properties and specific consumer demographics.
In addition to the down payment and closing costs that mortgage loans entail, buyers will also have to pay for mortgage insurance. This is coverage that protects the lender from loss should the buyer experience dramatic changes in his or her financial circumstances after the loan has been issued. Mortgage insurance is a separate expense from home insurance, which is bound to protect the actual property and its aesthetic and structural integrity. Mortgage insurance usually costs between .5% and 1% of the total loan amount. Fortunately, this extra expense can often be written directly into the loan, so that mortgage insurance costs are reflected in the monthly loan payment rather than charged as a separate bill.
A good mortgage loan will give buyers the best ability to manage their ownership costs and retain their property throughout the years. When shopping for condos, although the estimated monthly mortgage might seem doable, keep in mind the size of the down payment (up to 20%), closing costs, insurance, and—of course—an emergency fund for personal expenses and a contingency fund if your condo needs repairs.
If you’re ready to start looking for penthouses, condos or lofts in Downtown San Diego Columbia District, Core, East Village, Gaslamp, Marina, or Little Italy neighborhoods, you’ve come to the right place. Give the Downtown San Diego real estate brokers at 92101 Urban Living a buzz at (619) 649-0368 and get your search started today! ')}