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October 22nd, 2020 at 11:00 am

first-time-home-buyer-san-diego

Buying your first home is a massive milestone in your life, so it’s definitely not something to be taken lightly. There are plenty of complexities involved with buying a home before you ever even get the keys and walk through the door. This gets even more complicated when you have your sights set on a home in San Diego, a city that is known for sandy beaches, good weather all year round, and a burgeoning restaurant scene, all of which come with a competitive real estate market.    

Thankfully, we have put together our own helpful guide to help you on your journey to San Diego home ownership. Learn more about becoming a homebuyer in San Diego below and contact a San Diego real estate agent to help make your buying process a breeze.

Mortgages and home loans

Much of the home buying experience starts with figuring out your budget and looking into mortgages. Mortgages are essentially a type of home loan, and while there are a variety of different loan options that you can take advantage of, mortgages are the most preferred when it comes to homes. This is because:

In rare cases, you may be able to cover the entire purchase of your home with a mortgage loan, but most people start with a down payment. This is the cash that you pay out of pocket, usually a percentage of the total cost of the home. The mortgage then covers the rest of the payment.

The good news is that there is a huge range of mortgage programs that cater to the first-time home buyer in San Diego. These include national loan programs and programs run by the California Housing Finance Agency (CalHFA). It may be a good idea to talk with a mortgage broker about your loan options and potential mortgage rates before buying a home to identify your budget and buying options beforehand. 

National programs for first-time homebuyers

Many conventional mortgage lenders have first-time buyer programs. Conventional mortgage programs allow for down payments as low as 3 percent of the total cost. Conventional mortgages also allow borrowers to cancel mortgage insurance or to bypass mortgage insurance altogether if they put down a higher down payment.

However, FHA loans tend to be the go-to national program for first-time buyers, especially those with lower credit scores. Federal Housing Administration loans allow for down payments as low as 3.5 percent for borrowers with credit scores of 580 or higher. For those with credit scores of 500 or below, the FHA will insure loans but require a down payment of at least 10 percent. Unlike conventional loans, mortgage insurance is required for the extent of the loan.

Veterans, service members, and spouses of veterans living in San Diego can benefit from VA loans from the Department of Veterans Affairs. These loans offer competitive interest rates that usually do not require mortgage insurance or a down payment. There is no stated minimum credit score, but most VA lenders will require a score of 640 or higher.

CalHFA programs

In California, if you haven’t owned or occupied a home of your own for at least three years, you are considered a first-time homebuyer, which may allow you to take advantage of the CalHFA first-time homebuyer programs. The exact eligibility requirements can vary from lender to lender, but general requirements include:

The MyHome Assistance Program is a deferred-payment subordinate loan. This home loan program is usually suited for low- to moderate-income borrowers and can be used for down payments or closing costs. A subordinate loan is one that does not have to be paid off until the home is sold or refinanced. These loans are limited to just 3.5 percent of purchase price or appraised value (whichever value is lower), and they cap out at $10,000. Still, this program can be useful for borrowers who are having trouble with closing costs or down payments, and the MyHome Assistance Program can be combined with other grants and assistance programs.

The CalHFA Zero Interest Program offers up to 3 percent of the total loan amount via a no-interest second loan. This amount is designed to go toward closing costs, and any payments on the loan are deferred for the entire time you live in the home. However, you will be required to pay it back if you sell, refinance, default on the loan, or transfer the title.

CalHFA does not review any applications itself. Any decisions on your mortgage are made by approved loan officers or lenders, and each of these lenders may have their own rules and requirements. As a first-time home buyer in San Diego, try to talk to at least three different lenders to get the lowest rate and terms that fit your specific needs.

And, our mortgage lending partner Prosperity Home Mortgage, provides a vast menu of home financing products  and the convenience of a one-stop source for fast, efficient service. They are knowledgeable in purchase and refinance products, investment properties, and vacation homes.

Determine your monthly budget

Once you have looked into which mortgage program would work best for you, consider your monthly budget and determine how much you can actually afford. A typical mortgage payment comprises four components: principal, interest, taxes, and insurance.

Principal and interest make up your basic mortgage payment. This is your loan amount, the interest rate, and the length of the loan. On top of this, you need to budget for any annual real estate taxes, which usually go up to 2 percent of the home’s value. Lastly, there’s insurance. Most lenders will require insurance for your home, which usually is anywhere from 0.2 to 0.5 percent of the home’s value.

Factoring in other costs

The down payment and monthly payment fees are just part of the costs of buying a house. It’s important to factor in all of the other costs that are a part of the home buying process.

Earnest money

Think of earnest money as a security deposit. It shows that you are interested in purchasing the home and helps the seller understand that you don’t plan to back out of it. There are no true standards for earnest money, but you can typically expect to pay about 1 to 5 percent of the home’s price. The good news is that, much like a security deposit, this money will usually go back to you, or it can go toward your home payments.

Home inspection fees

Before signing on the dotted line, it’s important to undergo a professional home inspection to make sure that the house is indeed safe. Home inspectors can check for termites, asbestos, lead, mold, or floods. In California, a home inspection will usually cost about $350.

Home appraisal fees

Home appraisals provide a professional estimate of your home’s value to make sure that you are spending the right amount. Some mortgage lenders will actually require you to have the home appraised. Exact prices can vary, but expect to pay $300 to $400.

Closing costs

Closing on a home is a big deal, and it comes with plenty of costs on its own. Along with any fees owed to your lender, closing costs will usually include:

Depending on the final deal, the seller may actually cover some of the closing costs, even some monthly fees. This can help to ease the burden of the annual property tax bill.

Right home, right location

San Diego is a huge and diverse county with various pockets and neighborhoods. While San Diego, on the whole, has a fairly high cost of living, some neighborhoods may cost more than others. A price tag is by no means a complete judgment of any single neighborhood, and considering how incredible San Diego County is, you can generally live a fun, carefree life on your own terms wherever you live. San Diego neighborhoods and popular suburbs can be easily identified by their individual niches. Understanding each neighborhood can help make the buying process that much easier! 

Some of the most expensive neighborhoods in San Diego include La Jolla, North City, Del Mar Heights, Carmel Valley, and Torrey Pines. Most of North County, including areas like Carlsbad, San Marcos, and Encinitas, are also relatively pricey.

On the other hand, some of the most affordable neighborhoods in San Diego include:

Each neighborhood also has its own perks, from high walk scores and easy access to good food to proximity to beaches and natural attractions. As a first-time home buyer in San Diego, going for the more affordable neighborhood can help you save money, but you may also be saving money now, knowing you’ll just move again later. Consider your long-term needs to determine if you can stay with a starter home or move into your forever home. There are plenty of personal considerations involved outside of just your budget. For example, if you plan to expand your family soon, you may want to find a home with an extra bedroom. A good tip for San Diego specifically: test out the commute from any potential home to your work during rush hour. 

Still not sure if San Diego is the right city for you? Compare it to Santa Barbara, Orange County, and Los Angeles.

Buying a home comes with plenty of complications that can be intimidating for anyone, first-timers or seasoned investors. The Southern California REALTORS® at Berkshire Hathaway HomeServices California Properties can guide you through the process of finding the right home and preparing for a purchase. Contact us to begin your journey to San Diego homeownership today. 

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