If you are a retail buyer, that is, you are not a real estate investor, then it would be helpful to develop a relationship with a real estate broker that has years of experience in San Diego. They can recommend good areas of town, better school districts, and hopefully find homes available for sale as soon as they come on the market. The real estate commission is usually paid by the seller of the home so buyers are not liable for any fee of this type.
Appraisal
The appraisal will determine the amount of the loan a lender will be willing to offer. In San Diego’s hot market we are often seeing appraisals lag the galloping price increases in home values. So for example, a home may appraise at $200,000 but the seller is asking for $220,000. It is common to see this situation because buyers are willing to pay above appraised value and sellers know they have a number of buyers who will pay the asking price, or above. If the lender is only willing to lend 80% of the appraised value ($200,000 x 80%) then the buyer must pay $60,000 to buy this home. But there may be another option – owner financing.
Owner Financing
Final selling prices are often determined by the financing structure. If the seller is asking for a price considerably above appraised value then the buyer may ask the seller to finance a portion of the price. The seller might accept this arrangement because it would mean the seller receives a higher selling price and probably a higher interest rate on the portion being owner financed. So in the example above, if the buyer only has a $40,000 down payment then the seller may finance $20,000 for a moderate time period. Both parties achieve their goals. It never hurts to ask.
Pre-Approval for Financing
Unless you are a cash buyer, you will have to borrow money to purchase your house. Traditional lenders such as banks, credit unions, and mortgage brokers will require a down payment of between 10% to 20% of the appraised value of the home. The buyer can enhance his or her negotiating position by being pre-approved by the lender and this will reduce the seller’s concern about the buyer not being able to close the transaction because of a failure to finance.
Monthly Payment Calculation
The buyer should follow the guidelines as to what percentage of his or her income can be allocated to the home purchase. Traditional lenders for the San Diego area typically will not lend if this figure is above 40%. So the buyer should carefully calculate the costs of home insurance, real estate taxes, mortgage payments, mortgage fees, and any owner financing.
Good Neighborhood
Lastly, buy in as good a neighborhood as you can afford. San Diego has a variety of neighborhoods in all income levels but the old real estate manta of “location, location, location” is very true. Most real estate professionals suggest buying the worse home in a good neighborhood rather than the best home in a lesser neighborhood.
Remember these tips for buying a house in today’s hot market in San Diego and you will improve your odds of success.