Mortgage Rates in California
Compare today's current mortgage and refinance interest rates. Popular areas include Los Angeles, Orange County, Sacramento, San Diego, San Francisco and San Jose California.
In California, mortgage rates are a reflection of the nation’s economic state. When you look closely, however, there are many factors which not only dictate advertised mortgage rates, but determine what individual borrowers can expect to be offered by lenders. Below are some of the top factors driving individual mortgage rates in the Golden State:
FICO Score: Also known as your credit score, the FICO score represents your risk as a borrower. The FICO rating scale (numbered 300-850) is broken down into four sections, designated as follows:
In California, any score above 700 is considered a good credit score, and most lenders will offer you financing. The FICO score is determined by several factors, including:
- Payment history (The most important concern for lenders—do you pay on time?)
- Amount of outstanding debt you carry (How much do you pay on debt each month?)
- Record of credit use (Have you been utilizing credit for a long period of time?)
- Amount of credit available (Are you maxing out all of your available credit?
Mortgage Use—Purchase or Refinance: In California even if a lender’s advertised mortgage rates look attractive, you are not guaranteed the same rate for a refinance. The best rates are always offered for purchases—lenders want to gain new customers to sell additional financial products. Higher rates are offered for refinancing, which comes in two types: rate/term refinance and cash out refinance. Rate/term refinances usually receive a lower interest rate, as borrowers are refinancing the existing balance with a lower loan-to-value (LTV). The highest rates are offered to cash out refinances, where borrowers increase the loan-to-value ratio by taking equity from the home (cash) to utilize elsewhere. This is riskier for the lender, proven by the reality that refinance mortgages have a higher rate of default since there is less equity if the borrower is forced to sell the home due to financial hardship.
Type of Mortgage Product: In California another factor in differing interest rates is the type of mortgage you are considering. Fixed rate mortgages (like the popular 30-year fixed) put the risk of interest rate changes on the lender. Therefore, the longer the term, the higher the interest rates offered. On the other hand, an adjustable rate mortgage (ARM) shifts some of the risk onto the borrower and usually comes with lower interest rates. Just like the fixed rate mortgage, the shorter the term, the lower the rate offered by the lender. The lender will offer you a better rate when you take the risk of future interest rate increases.
Property Use: In California interest rates offered by lenders will vary depending on the use of the property. Just like the difference in purchase and refinancing rates, the risk increases when the property is not your primary residence. The very best rates are offered for a primary residence. A second (vacation) home usually comes with a slightly higher interest rate. If you are borrowing for a rental property mortgage, you can expect to pay the highest interest rate due to the increased risk. When homeowners are faced with financial strain, a rental property payment may be the first to be missed, and the presence of tenants may devalue a home.
Loan to Value (LTV) Ratio: In California the more you borrow in relation to the cost of the property, the higher your payments (and the risk of default on the loan). Your LTV ratio is the amount your want to borrow (principal) divided by the cost (value) of the home. An 80% or less LTV is ideal for most conventional loans, with many requiring private mortgage insurance for higher LTV mortgages. One of the benefits of a physician mortgage is the opportunity to obtain a loan with less than 20% down (and even zero down!) without the need for PMI.
Conventional & Low Down Payment Programs: In California conventional loan programs are designed for the average home buyer, with good credit and a low debt-to-income ratio. Most low down payment loan programs are designed for buyers who might otherwise be unable to qualify for most mortgage loans. Therefore, they represent a higher risk to lenders and bring a higher interest rate.
Jumbo vs. Conforming Loans (AKA loan amount): In California to understand the difference between conforming and jumbo (which are non-conforming) loans, one must first realize what constitutes “conforming.” The term describes any mortgage loan which follows the limits set by the government organization FHFA the (Federal Housing Financing Authority). Further, underwriting guidelines for these loans are also set by Fannie Mae and Freddie Mac. Designed for the average home owner, conforming loans have limitations based on the local housing market and economy where the property is located. Jumbo loans are non-conforming; they are mortgages meant for high dollar properties, luxury homes and larger homes in competitive markets. Since jumbo loans are designed for expensive properties (and thus riskier than conforming loans), borrowers must have excellent credit, high incomes, and low DTI ratios. Current conforming loan limits in (CA) for 2021: $356,362 – $822,375
Location—State, County, City: In California real estate markets (and mortgage rates) vary across counties, cities and mortgage rates reflect them. In some areas, the economy is more volatile and there is an increased rate of foreclosures. Where the risk is higher, rates will likely be higher. Alternatively, in California where foreclosures are low, lenders offer better rates. Other factors affecting mortgage interest rates include average wages, property tax rates, and regulations which could affect property ownership. Some of the largest cities which present favorable mortgage rates in California include Los Angeles, San Diego, San Jose, San Francisco and Fresno, and comprise Los Angeles, San Diego, Orange, Riverside and San Bernardino counties.
Buying points, AKA Buydown: In California for borrowers who want to get the most competitive rates, one may consider a buydown. The two most common methods of “buying down” a loan, include the borrower paying some money up front to lower the interest rate on the mortgage, saving thousands of dollars, and the 2-1 Buydown, where a lump sum is paid to gain two years’ of lower interest rates. A buydown is most attractive when interest rates are relatively high, but its best to discuss with your lender whether a buydown is the right choice for you.
California mortgage rates change daily. Your credit score, loan-to-value ratio, property type, property use and the mortgage product are some of the basics that determine your interest rate in California.
The Federal Reserve, U.S. Treasury notes and the banking industry’s risk assessment level each affect rates. Mortgage rates change daily, so monitor the economy of California and the nation. The law of supply and demand has an effect on rates—in slow times, lower rates attract borrowers in California to stimulate the real estate market.
Rates in California range based on several factors. California’s economy, inflation level, and job growth are out of your control, while your credit score, loan to value, down payment, mortgage product are factors you can modify. Monitoring your financial health is important to your borrowing success in California.
In California mortgage rates vary among counties and cities. Before choosing a home, you should do your research to consider locations with more competitive interest rates in California. You should also choose the best property type, mortgage product and down payment that will help reduce interest rates in California.
In California there is a slight difference between a loan’s interest rate and its APR. The interest rate is the cost of borrowing the amount of the loan (principal). The APR includes the cost of borrowing the principal and adds fees related to the transaction, including loan origination fees (paid to the lender), closing costs (paid to the lender and/or title company), and mortgage insurance, when required.
In California the difference between fixed and adjustable mortgage (ARM) rates is that the fixed rate is set when the loan is taken out and does not change for the life of the loan. An adjustable rate mortgage will fluctuate based on a particular index (i.e. Treasury bills, Cost of Funds index), often after a fixed-rate period. A fixed rate mortgage allows the borrower peace of mind that payments will not change during the life of the loan, enabling simple budgeting. However, you may consider an ARM when a low interest rate is available during the fixed-rate period and higher payments can be managed, allowing you to pay extra on the principal, and take advantage of potential lower interest rates during the adjustable periods, all while building equity quickly. Should interest rates increase, you can always refinance with a fixed rate mortgage.
In California conventional loans are the type of mortgage typically considered when purchasing a property. We take the conventional loan description a step further by introducing the term conforming/non-conforming. A conforming loan is a mortgage that meets loan limits established by Fannie Mae or Freddie Mac, government agencies which oversee mortgage loans. The limits vary by location, with most U.S. locations maxed at $548,250 and a few maxed at $825,375.
A loan higher than the government limits would be considered non-conforming, or jumbo. It doesn’t meet the underwriting guidelines for Fannie Mae or Freddie Mac. They are considered higher risk by the loan market and usually include less favorable terms, including higher interest rates and a larger down payment. However, it may be the only option for purchasing a high price point property, especially in a pricier community where average home prices are simply higher than the government-backed limitation.