How much money do you need to buy a home in San Diego, CA?

Is it really expensive to buy a home in San Diego right now?

It’s not surprising that home prices and home sales are increasing all across Southern California; with excellent, year-round weather, plenty to do and a fun yet relaxing lifestyle, living in San Diego is a coveted goal for many future homeowners. With a high desire to live here comes a big demand with a not so big housing market in the area… and, of course, equally high home prices.

Our biggest piece of advice – have a set budget in mind for how much you want to spend overall and how much you want to spend monthly. You definitely don’t want to overextend yourself or run yourself into debt over a home here. So, we’re going to walk through the major items you need to consider and know about before you purchase a San Diego home.

How much San Diego home can I afford?

The question of how much and what kind of San Diego home you can afford will depend on a few things, but the major ones to keep in mind are:

• Your ideal minimum downpayment
• How much of a monthly payment can you afford
• What type of home loan you can get

We’ll cover these major topics below, but we challenge you to take a guess at what you could afford as a down payment and a monthly payment right now. Then after reading this post, see if your budget will align with the area of San Diego that you are looking into. If you have questions at the end, you can always reach out to us directly!

Learn More: What is the cost of living in San Diego?

San Diego Down Payments on a home

If you don’t already know, a down payment is the initial money you give to pay for your house. It’s paid to whomever is providing you with the mortgage loan.

Deciding on what you can afford for your down payment will help determine what kind of mortgage loan you’re eligible for and which one you want to go with. Borrowers (you, the home buyer, who is borrowing money from the mortgage lender) who can afford to pay a higher, upfront down payment, will most likely take on a smaller loan. Higher down payments also typically mean the borrower can afford homes in a higher price range.

Here’s an example:

If you are looking to purchase a home valued at $700,000 and you can put $70,000 as your down payment, then your down payment would be 10% of the purchase price.

Now, there is a general standard across the nation of a 20% down payment on a home, however, in San Diego, homes do not come cheap so often we see lower down payments than what you may have heard standard elsewhere in the USA.

The minimum down payment will depend on the type of mortgage you receive. A benefit to putting at least 20% down is that it will increase your chances of getting approved for a better mortgage rate and avoid having to get mortgage insurance. Here are additional benefits to applying a higher down payment on a home purchased in San Diego:

• Lower mortgage interest rate
• Lower upfront costs and lower ongoing fees
• Higher equity invested into your home from the start
• Lower monthly mortgage payments

Don’t be dismayed by example numbers, we know it can read like a lot of money for a home. And we feel for you if you’ve been working to pay off debt and may not have a stellar credit score. Even without a high credit score or a big down payment, you can still afford your perfect home here. There are plenty of mortgage lenders, grants and other programs that will help you purchase your home without emptying your bank accounts. 

Learn More: The Best Suburbs to live in San Diego

Monthly Mortgage Payments in San Diego

San Diego continues to be both a buyers and sellers real estate market, and it’s in part due to low mortgage rates in San Diego. With low mortgage rates, home buyers are able to afford more than they originally thought possible. Here are a few other things you should know about the San Diego real estate market:

• Home inventory is low
• The average cost of homes for sale in San Diego continues to rise
• With more millennials entering the market, there is a greater demand for rentals over purchasing a home (thanks to student debt)
• You are more likely to receive a low mortgage rate

With all of that in mind, we’re seeing a San Diego housing market flooded with homebuyers.

Depending on the home price and your mortgage rate, your monthly mortgage payment on a home in San Diego will have a range, but most often the average we see is around $2100/month.

Types of Home Loans available in San Diego

More often than not, you will need some type of home loan when purchasing a home in San Diego. As we said above, the first thing you need to do is figure out how much home you want to pay for, and then how much of a down payment you can afford based off of that. From there, you should be able to narrow down how much of a loan you should aim for.

Now, lenders will review a multitude of factors about you, your income and current lifestyle when they make a decision about a loan; i.e. debt-to-income ratio, your credit history, your anticipated down payment, and more.

Here a few of the more popular loan types that are available to you:

• FHA Loans: FHA loans are backed by the Federal Housing Administration. They are often more popular with first-time home buyers because they allow lower credit scores, and require as low as 3.5% for a down payment.

• VA Loans: VA loans are guaranteed by the U.S. Department of Veterans Affairs. A VA loan typically won’t require a downpayment and have competitive interest rates. 

• USDA Loans: USDA loans are issued through the USDA loan program (aka by a Loan Program from the U.S. Dept of Agriculture). USDA loans are great for those who cannot afford a traditional mortgage and who are looking to own a home in a rural or suburban area. There is no down payment requirement for a USDA loan.

• Conventional Mortgage Loan: A conventional mortgage loan has a much wider range of options when it comes to buyers and properties. While qualifying for a conventional loan can be more difficult than government loans, and they aren’t federally guaranteed, you have the opportunity to get a lower interest rate.

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Learn More: 11 Reasons to move to San Diego

Documents you need when you buy a house in San Diego

When it comes to buying a home in San Diego you want to make sure you are overly prepared. Why? Because oftentimes homes will sell quite quickly here; we’re talking people showing up with cash in hand, ready to buy a home (remember we said the housing market here is HOT). You don’t want to pass up on your perfect home because you don’t have your paperwork ready to go.

Here are the documents that you need when you go to purchase a home and file for a loan:

• Recent pay stubs
• Proof of employment
• Employer contact information
• Business documents (if you are self employed)
• Tax documents
• Bank statements
• Debt information
• Residential History
• Proof of any additional income
• Stocks, Bonds and Savings state
• Your Earnest Money source

Will you always need all of these when you’re applying for a home loan? Maybe not. But it’s better to be prepared with it all to create a seamless process for you.

Looking to purchase a home in San Diego?

Whether you have questions about the real estate market in San Diego or are ready to purchase your dream home ASAP, we have your back. Connect with us today and we’ll schedule a zoom call with you to get started.