Top 4 Factors to Consider When Choosing Your Mortgage in San Diego's Housing Market

With home prices and interest rates in San Diego remaining relatively high, securing a mortgage can feel intimidating, even for seasoned borrowers. However, don’t let high costs deter you. Many local homeowners have successfully navigated the mortgage market, often finding loans that suit their financial situation.

Recent surveys indicate that most U.S. homeowners are satisfied with their mortgage choices, with a noteworthy 69% stating they would buy their current home again if given the chance.1

Finding the right mortgage that complements your lifestyle is crucial, especially in a diverse and dynamic market like San Diego. As you compare loan options, consider how various factors will impact your overall comfort and financial planning.

Here are four essential factors to keep in mind when navigating the San Diego housing market:

1. Your Credit Score

Your credit score plays a significant role in determining the interest rate and type of mortgage you can secure. In San Diego, where the median home price is notably higher than the national average, a good credit score is particularly crucial. 

To qualify for a conventional mortgage with a major lender in the area, a FICO score of at least 620 is typically required. For jumbo loans—common in San Diego given the high property values—you may need a score as high as 700.2 If your credit score is low, don’t despair. FHA loans are available for borrowers with scores as low as 580 (or even lower with a larger down payment), while VA loans may also be an option for military members with scores in the 580 range.3

 2. Your Income and Expenses

Understanding your income and expenses is essential in San Diego’s competitive housing market, where cost of living is high. Lenders generally expect you to spend no more than 28% of your income on housing, and a maximum DTI (debt-to-income) ratio of 36%.4 Given the region's rising property taxes and insurance rates, evaluating your budget is key. 

San Diego's homeowners often have unique expenses such as HOA fees for condos or community pools in suburban neighborhoods. It's advisable to keep your DTI ratio below 36% for better mortgage approval odds. If your ratios are high, you may need to consider non-conforming loan options or work on reducing your debts. 

3. Your Expected Down Payment

In San Diego, the average home price can be daunting, making the down payment a significant factor in your mortgage decision. While putting down 20% is no longer a strict requirement for conventional loans, it may open doors to better mortgage options.

The median down payment in 2023 was around 14% nationally, with younger buyers typically putting down about 8%. In San Diego, where home values are high, aiming for a larger down payment can help you secure a mortgage with more favorable terms. FHA loans require only a 3.5% down payment, and VA loans may allow zero down payment for eligible borrowers.5 Keep in mind that lower down payments can lead to higher monthly payments, including PMI (private mortgage insurance), which can add significant costs. 

4. Your Lifestyle and Risk Tolerance

Lastly, consider your lifestyle and risk tolerance. A mortgage typically lasts many years, so it’s essential to choose one that aligns well with your financial goals and future plans. Fixed-rate mortgages are popular among San Diegans because they offer stability in monthly payments, allowing for easy budgeting amid fluctuating rental prices and potential cost increases.

If you're considering an adjustable-rate mortgage (ARM), be prepared for potential increases in payments after an initial fixed period. Given the competitive nature of the San Diego market, such a strategy might work if you plan on selling or refinancing within a few years, but careful planning is essential to avoid financial strain.

Bottom Line

Choosing the right mortgage in San Diego requires careful consideration and a clear understanding of your financial situation. Given the area’s unique housing market dynamics, it's essential to shop around and compare loan terms to find the best fit for your needs. 

We are here to help you navigate your options and connect you with vetted mortgage professionals who can provide guidance tailored to your situation. Reach out when you're ready to get started!

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The information provided is for informational purposes only and not intended as financial, legal, or tax advice. Consultation with appropriate professionals is recommended for specific advice. 

Sources:
1. Bankrate - [Homeownership Satisfaction](https://www.bankrate.com/mortgages/home-affordability-report/)
2. Bankrate - [Credit Score Requirements](https://www.bankrate.com/real-estate/what-credit-score-do-you-need-to-buy-a-house/)
3. U.S. News & World Report - [VA Loan Information](https://money.usnews.com/loans/mortgages/va-loans)
4. Bloomberg - [Budgeting for a Home Mortgage](https://www.bloomberg.com/news/articles/2024-05-17/how-much-income-do-you-spend-budget-for-home-mortgage-in-us)
5. Bankrate - [No Down Payment Options](https://www.bankrate.com/mortgages/no-down-payment-mortgage/)