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San Diego, California is a beautiful city that offers a wealth of attractions and some of the best weather you’ll find anywhere in the United States.
But it’s also expensive, with a median home value that recently surpassed the million-dollar threshold for the first time ever. And that creates challenges for home buyers, especially when it comes to making a down payment.
In this guide, we’ll explain how you could reduce some of these home-buying hurdles by using an FHA loan for a smaller down payment in San Diego.
You’ve probably heard about the 20% down payment being a standard among home buyers. This is partly true.
Some home buyers in San Diego choose to put 20% down when buying a house, in order to reduce the size of their monthly payments. They also do it to avoid paying mortgage insurance.
With a conventional (non-FHA) home loan, private mortgage insurance is usually required when the loan-to-value ratio exceeds 80%. Thus, home buyers can avoid this PMI “trigger” by making a down payment of 20% or more.
But not everyone can afford such a large investment, especially in a real estate market like San Diego where the median home price is roughly $1 million. Affordable housing in San Diego is certainly hard to come by.
A 20% down payment on a $1 million home would come to $200,000. While the math is easy, coming up with that kind of investment is anything but. In fact, it could take an average earner several years to save up for a down payment of that size.
Fortunately, most home buyers in San Diego aren’t required to put down 20% when using a mortgage loan. And if you use the FHA loan program when buying a house, your down payment could be as low as 3.5% of the purchase price.
Federal Housing Administration (FHA) loans offer an easier path to homeownership, especially for home buyers with limited savings. FHA loans are also popular options as first-time homebuyer loans in San Diego.
Here are some things you should know about this program, right off the bat:
So that’s the Federal Housing Administration home loan program in a nutshell. Now, let’s take a closer look at the minimum down payment mentioned above, and how it can help clear a path to homeownership.
The FHA loan program allows home buyers in San Diego to minimize the upfront expense associated with a home purchase—and by a lot.
Earlier, we showed how a 20% down payment for a median-priced ($1 million) home in the San Diego metro area would add up to $200,000. That creates a major obstacle for a typical buyer.
But with an FHA loan, home buyers can shrink that upfront investment by thousands of dollars. In fact, this program allows borrowers to make a minimum required investment of only 3.5%.
On a median-priced property in San Diego County, the FHA loan down payment could be as low as $35,000. (The math: 1,000,000 x .035 = 35,000.). This is one of the reasons why FHA loans are one of the more popular mortgage options in San Diego.
This calculation dispels a common and unfortunate misconception among home buyers, that a 20% down payment is always required. The truth is that most home buyers in San Diego can get by with a much smaller upfront investment, shortening the path to homeownership.
With several large Navy and Marine Corps bases, the San Diego metro area has a sizable military population. A lot of veterans live in the area as well.
If you fall into that group—and you plan to buy a home in the near future—you should take a close look at the VA loan program.
As you’ve learned, FHA loans allow San Diego home buyers to make a down payment as low as 3.5% of the purchase price. But the VA loan program takes it even further by allowing borrowers to finance the entire purchase price (with zero down).
The VA loan program is limited to active-duty military members, veterans, and certain surviving spouses. So if you’re looking for a low down payment mortgages in San Diego but don’t meet one of those criteria, the FHA loan program might be your best bet.
We conclude this article with even more good news for San Diego home buyers.
That 3.5% FHA down payment we talked about earlier? It can be gifted to you by a family member or other approved donor. This means the money doesn’t necessarily have to come out of your own pocket.
In the mortgage industry, this is referred to as a down payment gift, or simply “gift money.”
Many different types of mortgage loans allow for gift money. But the FHA loan program tends to be the most flexible, allowing for a wider variety of different donor types.
A person buying a home in San Diego with an FHA loan could receive gift money from a relative, a close friend, a charitable organization, or even an employer.
The San Diego real estate market can be a challenging one for buyers, especially those who are buying their first home. The same goes for many of California’s pricey real estate markets. After all, higher home prices lead to bigger down payments.
But by using an FHA loan for a smaller down payment in San Diego (and possibly gift money), home buyers can clear away what is often the biggest obstacle to homeownership.
To apply for an FHA loan, you’ll need to follow a series of steps:
Make you meet the basic FHA loan requirements, including your credit score, debt-to-income ratio, down payment, and employment.
Make sure the lender you choose is FHA-approved.
You’ll want to get pre-approved for a loan, which will help you determine what you can afford and will make you a more competitive buyer.
FHA loans have limits on the amount you can borrow, which vary by region. In San Diego, the FHA loan limit for 2024 is $1,006,250. So, look for homes that are within this limit.
When you’ve found a home you’d like to make an offer on, you can formally apply for the FHA loan. Your lender may ask for additional financial documents, including details about the home and its appraisal value.
If you’re approved for an FHA loan, the last step is closing. At this point, you’ll sign all paperwork, including the mortgage and closing disclosure. You’ll also need to pay closing cost and cover the upfront mortgage insurance premium.
If you’re looking for mortgage financing in San Diego, CA, we can help. At Sammamish Mortgage, we’ve been helping borrowers all over the Pacific Northwest and California since 1992. We specialize in various mortgage programs, including San Diego FHA loans. Reach out to use today to get an instant rate quote and to get the mortgage application process started!
Whether you’re buying a home or ready to refinance, our professionals can help.
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No Obligation and transparency 24/7. Instantly compare live rates and costs from our network of lenders across the country. Real-time accurate rates and closing costs for a variety of loan programs custom to your specific situation.