Overview of California Mortgages
California is known for its majestic redwoods, world-famous wine country and Hollywood glamour. As the country’s most populous state, California has a large mortgage market. California mortgage rates tend to hover around the national average. Some expensive California counties have above-average conforming loan limits.
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California Mortgage Rates Quick Facts
Historical Mortgage Rates in California
California mortgage rates are traditionally fairly close to the rates in the rest of the country. 2016 California mortgage rates are on average higher than 2015 California mortgage rates.
California Historic Mortgage Rates
|Year||California Rate||U.S. Rate|
California Mortgages Overview
Getting a mortgage in California can be different from shopping for a mortgage in other states. For one thing, prices are high in California, which means borrowers will need more money for a down payment and will have higher monthly housing costs than in states with more affordable real estate.
California Mortgage Rates
|Percentage of Homes||83.70%|
|Average Property Value||$382,312.09|
|Percentage of Homes||11.80%|
|Average Property Value||$276,409.60|
|Percentage of Homes||3.30%|
|Average Property Value||$400,553.22|
|Percentage of Homes||1.30%|
|Average Property Value||$372,823.24|
Several California counties have conforming loan limits that are higher than the standard $417,000. These counties are Alameda, Alpine, Contra Costa, El Dorado, Los Angeles, Marin, Mono, Monterey, Napa, Nevada, Orange, Placer, Sacramento, San Benito, San Diego, San Francisco, San Luis Obispo, San Mateo, Santa Barbara, Santa Clara, Santa Cruz, Sonoma, Ventura and Yolo counties. That long list of counties with higher conforming loan limits gives you an idea of how expensive homes in California are.
Conforming and FHA Loan Limits by County
|County||Conforming Limit||FHA Limit|
|San Luis Obispo||$561,200||$561,200|
Another notable feature of the California mortgage market is that when you take out a mortgage in California you’ll most likely get a “deed of trust” instead of an actual mortgage. Under California law, lenders who issue mortgages have to go through the judicial process to foreclose on the home that the mortgage applies to. But if the lender instead offers a trust deed, the lender can foreclose without the time and expense of going to court. The lender can initiate a “power of sale” foreclosure by hiring a third party to auction the home it wants to foreclose.
That faster, easy-on-the-lender foreclosure process may sound like a borrower’s nightmare, but it’s worth noting that California is a “non-recourse state.” Translation? Say you take out a mortgage and then your financial circumstances change, leaving you unable to pay back that mortgage debt. Your home goes into foreclosure. And say your foreclosed home is now worth less than the amount you owed on your mortgage. That would leave a “deficiency,” the difference between what you owe the lender and what the lender now stands to gain by selling your home to someone else.
In some states, the lender has “recourse” to go after you for that deficiency. For example, the lender could go after other assets of yours like your savings account or your wages. A deficiency can also affect what you owe on your taxes. But because California is a non-recourse state, you generally won’t be liable for the deficiency if you experience foreclosure in the Golden State (note that this only applies to first mortgages on a home).
The lack of borrower liability for deficiency in California holds true in the case of a power of sale foreclosure. In the case of a judicial foreclosure (which is very rare in California residential real estate) there is a chance a judge would issue a deficiency judgement, but this too is rare and could be discharged in bankruptcy. California judges do not issue deficiency judgments on purchase mortgages for primary residences. Long story short - if you have to go through the pain of foreclosure, California and the other non-recourse states in the Union are relatively good places to do so.
30-Year Fixed Mortgage Rates in California
30-year fixed-rate mortgages are the most common type of home mortgage. You can also get a fixed-rate mortgage with a 15-year term and pay a lower interest rate. However, your monthly payments will be higher because you have half as much time to repay the same amount of borrowed money.
The average California mortgage rate for fixed-rate 30-year mortgages is 4.62%.
California Jumbo Loan Rates
Homes in California tend to be pricier than in most other states. That means that more California mortgages are “jumbo loans,” a.k.a. loans that exceed the conforming loan limit. This limit is $417,000 in most U.S. counties, though as mentioned above several California counties have higher conforming loan limits in recognition of the high real estate prices in those counties. If you plan on getting a jumbo loan for your home mortgage, brace yourself for paying a higher interest rate.
When a lender issues a homebuyer a jumbo loan the lender is taking on more risk. There’s more money that could be lost if the homeowner defaults. For that reason, lenders generally charge a higher mortgage interest rate on jumbo loans to compensate for the added risk.
The average jumbo loan rate in California is 4.38%.
California ARM Loan Rates
An ARM is an adjustable-rate mortgage. With an ARM you generally pay a lower interest rate than you would with a fixed-rate mortgage – at first, anyway. That lower rate prevails for an initial, introductory period that may last for 1, 3, 5, 7 or 10 years, depending on the terms of the loan. After that initial period, the mortgage interest rate can “adjust”, which generally means it will rise.
The amount by which an adjustable-rate mortgage’s interest rate can jump is capped in the loan terms, so your lender can’t suddenly slam you with a 20% interest rate after your introductory period ends. But even so, the maximum allowed interest rate on an ARM might still be out of reach financially.
Before committing to an ARM it’s a good idea to calculate whether you could afford to pay the maximum interest rate allowed under the proposed loan terms. We’re guessing you wouldn’t want to be stuck with unaffordable monthly payments after your mortgage rate adjusts.
The average rate for an ARM in California is 3.75%.
California Mortgage Resources
Need help with your California mortgage? There are resources available to you. If you need help buying your first home you can visit the State of California’s Consumer Home Mortgage Information site. You’ll find a wealth of resources there. The California Housing Finance Agency (HFA) offers below-market interest rate programs for low- and middle-income first-time homebuyers applying for their first mortgages. There is also down payment assistance available to first-time homebuyers.
If you’ve fallen behind on your mortgage and you’re at risk of foreclosure, you can visit the same site for resources for existing homeowners. You can also reach out to Keep Your Home California™. If you qualify, you can get unemployment mortgage assistance, mortgage reinstatement assistance, principal reduction or transition assistance. This help is available fee-free through the California HFA’s Mortgage Assistance Corporation.
|Resource||Problem or Issue||Who Qualifies||Website|
|California Housing Finance Agency||Offers home loans with below-market interest rates, down payment assistance and a mortgage credit certificate tax credit program.||Low- and middle-income homebuyers; Down payment programs require homebuyers to be first-time buyers.||http://www.calhfa.ca.gov/|
|State of California Consumer Home Mortgage Information||Offers links to resources for homebuyers and homeowners who need help paying their mortgages, credit counseling and more.||Qualifications vary by program.||http://www.yourhome.ca.gov/|
|Keep Your Home California||Offers unemployment mortgage assistance, mortgage reinstatement assistance, principal reduction and transition assistance.||Homeowners who have experienced a financial hardship.||http://keepyourhomecalifornia.org/|
|Home Affordable Modification Program||Lowers monthly mortgage payments so that they're more affordable.||Homeowners who have experienced a financial hardship who took out a mortgage on or before January 1, 2009.||https://www.makinghomeaffordable.gov/steps/pages/step-2-program-hamp.aspx|
|CalHFA Mortgage Insurance Services HARP Eligible Program||Refinancing.||Homeowners must have mortgage loans insured by CalHFA Mortgage Insurance on or before May 31, 2009.||http://www.calhfa.ca.gov/harp/guidelines.pdf|
You may also be able to avoid foreclosure by applying for help from a federal program such as the Home Affordable Modification Program (HAMP), or by applying for hardship assistance or loan modification through the bank that holds your mortgage.
If foreclosure does happen, it will look a little different in California than in other states. As we mentioned above, California has both judicial and non-judicial foreclosure. In other words, lenders can either go to through the court system to get approval to foreclose on your home, or bypass the courts and hold a public auction on the home. Because bypassing the courts is faster and cheaper, lenders generally choose this option. This is possible as long as you signed a deed of trust, which most people with California mortgages do.
California Mortgage Taxes
A famous perk of homeownership is that you can deduct the mortgage interest you pay when you file your federal income taxes (up to $1,000,000). But can you deduct your mortgage interest on your California state income taxes, too? Yes.
California’s state mortgage tax rules are the same as the federal rules, meaning you can get a double deduction for the qualifying mortgage interest payments you make in each tax year.
Because California’s state income taxes are the nation’s highest (in the top brackets) and California homes tend to be expensive, those in California stand to save a sizable amount by deducting their mortgage interest.
Remember that all tax deductions are more valuable to you the higher your tax bracket. If you’re paying California’s top income tax rate of 13.3%, deducting $20,000 in mortgage interest will save you more than it would for someone paying California’s 6% tax rate for middle-income residents.
California charges real estate transfer taxes – taxes on the transfer of the title to real estate property. Cities, counties and states can all impose a transfer tax. California’s state real estate transfer tax rate is 1.1% per $1,000 of transferred value, but some cities add their own real estate transfer tax on top. It’s a good idea to consult your lawyer or accountant about this tax before you sell your home so you’re not surprised by the tax bill that follows. In California, the seller generally pays the transfer tax but this can sometimes be negotiated.
California Mortgage Refinance
Ready to refinance your California mortgage? You can see if you qualify for the CalHFA Mortgage Insurance Services HARP Eligible Program, which links homeowners who have CalHFA-insured mortgages with the federal government’s Home Affordable Refinance Program (HARP). Even homeowners who owe more than their home is worth (i.e. are underwater on their mortgage) may qualify to refinance through this program).
If you don’t qualify for HARP or a similar program you can shop around for a refinance mortgage from the lender who issued your original mortgage and compare refinance mortgage rates from other lenders as well. Note that refinance loans in California are also non-recourse loans, unless you opt for a cash-out refinance to get cash out of your home equity for something like a vacation or to pay off debt.
Best Places To Get A Mortgage
SmartAsset’s interactive mortgage map highlights the best counties in the country (and in each state) for securing a mortgage. Hover over counties and states to see data points for each region, or use the map’s tabs to view the top counties for each of the factors driving our analysis.
Methodology For many people buying a house means securing a mortgage. To determine the best places in the country to get a mortgage we looked at four factors: overall borrowing costs, ease of securing a mortgage, cheap property taxes and cheap annual mortgage payments.
To calculate the overall borrowing costs, we looked at the expected costs over the first five years of a $200,000 mortgage with a 20% down payment, including closing costs. We calculated the ease of getting a mortgage as the ratio of mortgage applications to actual mortgage originations (secured mortgages) in each county. We based annual mortgage payments on the annual principal and interest payments for a $200,000 loan in that location, using average mortgage rates in each county.
Finally, we ranked locations based on these four factors, and then averaged those rankings, giving equal weight to each factor. The areas with the lowest average rankings are the best places to get a mortgage.
Sources: Mortgage Bankers Association, US Census Bureau 2016 5-Year American Community Survey, Informa, Bankrate, government websites, SmartAsset