San Diego Home Loans - Tips for Home Buyers

Your Guide to Getting a Home Mortgage Loan in San Diego, CA

When talking about San Diego from a real estate investment standpoint, the hardest is thing is deciding where to begin. That's because there are so many great things about San Diego. The weather, the lifestyle, the beaches, the entertainment activities ... where do you start?

But the point of this article is not to convince you that San Diego is a great place to buy a home. If you're reading this article about home loans in San Diego, you've probably already made that first decision. The decision now is, "What type of home loan is best for my situation?"

This is a question that only you, as the home buyer / borrower, can answer for yourself. But I'll do my best to help you by explaining the different types of San Diego home loans and the various pros and cons of each.

San Diego skyline at night. © 2006, T. R. Ross. Licensed under Creative Commons 2.5.

For the vast majority of home buyers, obtaining a home loan is a necessary step in the path to homeownership. This is especially true in San Diego, California, where the average home price is much higher than most other cities in the U.S. Unless you've won the lottery recently, you will probably need a San Diego home loan to purchase that new house.

This first step in this process, before shopping around for the best mortgage deal, is to decide which type of home loan best suits your home-buying situation. So let's talk briefly about the two major types of home mortgage loans.

The Primary Types of Home Loans

In truth, there are many different types of San Diego home loans. But most of these loans can be categorized in one of two ways — as either (A) an adjustable-rate mortgage or (B) a fixed-rate mortgage. So when you start shopping for a home loan in San Diego it's important that you understand the differences between these types of loans. Because within the differences, you will also find the pros and cons.

Adjustable-Rate Mortgage (ARM) Loan: Pros & Cons

The ARM loan will normally start off with a fixed (unchanging) interest rate during the first few years. During this initial phase, the interest rate on the home loan will stay the same, regardless of what the economy does. This phase will typically last for three, five or seven years. This is why you hear the phrase "three-year ARM" or "five-year ARM."

However, the critical stage of an ARM loan comes after this initial period. That's when the adjustable-rate mortgage will live up to its name by adjusting, or "resetting," to a new interest rate. Because interest rates generally rise over time, this adjustment usually means that you'll face a higher interest rate on your home loan.

So we have just identified the primary disadvantage of an adjustable home loan — it will adjust in the future to a different (and often higher) interest rate. On top of that, you cannot predict how much higher the newly adjusted interest rate will be.

So what's the appeal of the ARM loan? Why do so many San Diego home buyers choose adjustable-rate mortgages in the first place? They do it because they typically pay a lower interest rate during the initial years of the loan, than what they would pay for a fixed-rate mortgage (next topic).

Many San Diego home shoppers find the ARM loan appealing because of the relatively low interest rate it provides during the first few years. Typically, the interest rate on this type of San Diego home loan will be lower than the interest rate on a fixed-rate mortgage — at least in the initial phase.

Learn More About ARM Loans

• Consumer Handbook on Adjustable-Rate Mortgages
• Adjustable Rate Mortgages 101

Fixed-Rate Mortgage Loan: Pros & Cons

Now that we've discussed the adjustable-rate mortgage, you probably have a good idea of what a fixed-rate mortgage loan is all about. This type of San Diego home loan has a fixed / unchanging interest rate for the entire life of the home loan. This is significant, because it means that your mortgage payment (and the interest rate that's part of that payment) will never change, regardless of what the prime interest rate does over the years.

Therein lies the primary advantage of the fixed-rate home loan. It gives the homeowner certainty that the mortgage payment will never increase (hence the term "fixed rate").

Are there disadvantages to this type of San Diego home loan? Of course there are. Every type of home loan has its pros and cons, and the fixed-rate mortgage is no different. The downside of a fixed-rate mortgage is the fact that you'll pay a premium for the long-term certainty it offers. This comes in the form of a higher interest rate (than what you would pay during the initial years of an ARM loan).

Learn More About Fixed-Rate Loans

• Which Fixed-Rate Mortgage Do I Want?
• Fixed-Rate Mortgages: Pros and Cons

Choosing the Best Home Loan for You

So now that we've outlined the pros and cons of the adjustable and fixed mortgage loans, you'll be better able to decide which one is right for you. For example, if you think you'll be staying in your San Diego home for many years, then a fixed-rate home loan is a good way to have predictability over the years ahead. However, if you'll only be living in the home for a few years, an ARM loan could help you save money by paying a lower interest rate — provided you sell the home (or refinance the loan) before the adjustment period comes along.

San Diego Mortgage Lenders vs. Brokers

The last thing I'd like to discuss is the difference between a San Diego mortgage lender and a mortgage broker. When shopping for a home mortgage loan in San Diego, you are likely to encounter both of these terms. So it's important to know the difference.

When you deal with a mortgage professional in San Diego, it's wise to find out whether they represent the lender directly, or if they represent multiple lenders. In other words, you'll want to know if the person is a primary lender or a mortgage broker.

Here is the difference between them:

• A primary lender represents a single lending institution, and therefore can only offer home loan products from that particular lending institution.
• A mortgage broker, on the other hand, can represent multiple lending institutions. So by working with a San Diego mortgage broker, you will likely have more options available to you.

Continue Your Education

This brief tutorial is not intended to be a complete education on the subject of San Diego home loans and mortgage lenders. Obviously, there is much more to learn about this topic, given the importance it has in your life. So take the knowledge you've gained by reading this article and continue to build on it.

I hope this guide to San Diego mortgage loans helps you choose the home loan that's right for you, and I wish you all the best in your home buying experience!

Related articles: Buying San Diego Foreclosures | Choosing a Mortgage Loan