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Are you moving to San Diego or ready to quit renting and buy your own home? With home prices up 11% year-over-year and hitting almost $800,000 – not to mention a highly competitive market with low inventory – buying a home in San Diego can seem like an impossible dream sometimes.
The good news? The Southern California housing market is showing signs of finally cooling and stabilizing. There are also plenty of programs available for first time homebuyers in San Diego that offer closing cost and down payment assistance to put homeownership within reach.
If it’s your first time buying property and you’re feeling a little unsure where to start, this step-by-step guide will help. Here’s how to buy a house in San Diego with advice on where to buy, how much homes cost, and how to avoid common mistakes.
Table of Contents
How to Buy a House in San Diego
Here are the steps to buying a house in San Diego with tips and advice for each step of the process.
Step #1. Create a Budget – How Much Does it Cost to Buy a House in San Diego?
With home prices rising significantly in recent years – in large part due to the COVID-19 pandemic and historically low inventory – it can be challenging to keep up with how much buying a home will cost. What you can do, however, is start with a realistic budget for buying a house in San Diego that won’t leave you house-poor.
You can get a very rough idea of what you can afford to borrow by multiplying your gross annual income by 2.5. A good place to start is using the 28/36 rule to determine the maximum debt-to-income ratio you want to take on. This is the same ratio lenders use to qualify you for a mortgage:
Your total debt payments shouldn’t exceed 36% of your gross income
Your total housing cost shouldn’t exceed 28% of your gross income
This total housing cost refers to your PITI payment. That is your principal, interest, property taxes, and insurance. It also includes any HOA fees you will pay.
The median household income in San Diego is $85,507. With the 28/36 rule, this gives you:
$23,942 for total housing costs (or $1,995 per month)
$30,783 for total debt payments (or $2,565 per month) including housing costs, car loans, personal loans, credit card payments, and more
Note that there are many factors that affect how much you can afford to spend when you buy a home:
Your credit score. The better your credit, the lower the interest rate you can qualify for which lowers your monthly payment and long-term cost of owning a home.
Mortgage rates. Even tiny changes in rates can affect your purchasing power.
Your down payment. The more you have saved to put down on a home, the lower your monthly payment. A larger down payment can also help you avoid private mortgage insurance (PMI), an unnecessary expense that may add hundreds to your monthly mortgage payment.
Closing costs, moving expenses, and miscellaneous costs of buying a house.
Long-term costs of homeownership. This includes maintenance, repairs, and HOA fees.
How Much Money Do I Need to Buy a House in San Diego?
The median home price in San Diego is $775,000. That’s up more than 10% year-over-year in fall 2021. San Diego has a very competitive housing market with homes selling in a median of just 12 days.
Average San Diego housing prices depend on the type of home you’re considering buying. Single-family homes have a median price of $860,000. Condos and townhomes are more affordable with a median price of $560,000 – a much easier entry point for first-time buyers.
Courtesy of the San Diego Association of Realtors.
Of course, how much you need to buy a house depends on the neighborhood you have in mind. Here are median home prices in a selection of popular San Diego neighborhoods plus average rent in comparison.
Your home buying budget should consider not only your down payment and purchase price but costs of homeownership you may overlook. The average homeowner pays $9,500 every year in overlooked homeownership costs like taxes, insurance, utilities, repairs, cleaning, lawn care, and home maintenance.
Here are some of the extra costs you want to consider when budgeting for buying a home in San Diego.
Condo fees. The average San Diego condo fee is $327/month, but they can be much higher. At some luxury buildings, condo fees can be more than $1,000 per month! State law allows HOA fees to increase up to 20% per year without a vote. Buildings with fitness centers, pools, elevators, and extra security have the highest HOA fees.
Property taxes. Expect to pay a little over 1% of your home’s assessed value in property taxes every year. On a home assessed at $800,000, you’ll pay about $8,000 per year. About 10% of property owners in San Diego pay an additional Mello-Roos property tax that adds anywhere from $35 to $9,000 per year. Make sure you check if you are buying a home in San Diego in a Mello-Roos district by searching here with the property address or parcel number.
Homeowners’ insurance. Expect to pay around $900 per year for homeowners’ insurance in SD, lower than the national average.
Home maintenance & repairs. Budget about 1% of your home’s value per year to put toward repairs and maintenance.
Step #2. Get Pre-Approved for a Home Loan
Once you have a good idea of what you can afford to pay for a home and an affordable housing payment, the next step is getting pre-approved for a mortgage. This is one of the most important steps in the process of buying a house in San Diego that you shouldn’t skip before house hunting.
Pre-approval gives you a letter from your lender that states you are pre-approved to borrow a specific amount to buy a home. To get pre-approved, you will need to submit a mortgage application with plenty of paperwork that verifies your income, debts, credit, and more.
What Is Needed to Buy a House in San Diego?
You will need to meet the following requirements to get approved for a home loan and buy a house in San Diego.
Ability to repay. Have a debt-to-income ratio of 36% or less with a PITI payment/housing costs of 28% or less of your gross income.
Stable employment. You should have been with the same employer for at least one year.
Satisfactory credit. In most cases, you must have a credit score of at least 620. Lower credit scores are acceptable with some lenders and mortgage programs.
Cash reserves for closing costs.
Proof of on-time rent payments for the last year.
Down payment. Not all loan programs require a down payment, but most do. You usually need to put down at least 3%, but at least 20% is best to avoid costly PMI.
Gift letter if you are going to use a gifted down payment from a family member.
Choosing the Right Mortgage
Your mortgage broker or lender can help you choose the best type of mortgage for your situation. It’s still a good idea to understand your loan options and have an idea of which loan is best for you depending on how long you will stay in the home, your credit, and more.
There are five general types of home loans:
Conventional mortgages are not government-backed. They have the strictest requirements, but usually the lowest interest rates and best terms.
FHA mortgages are the most popular option for first time homebuyers in San Diego. You need a down payment of at least 3.5%. FHA loans tend to have high costs with upfront and annual mortgage insurance premiums (MIP) for most borrowers.
VA mortgages are the best mortgage program available for qualifying military members, families, and veterans. They require no down payment and no mortgage insurance.
USDA mortgages are for buyers purchasing a home in a designated rural area. San Diego does not qualify.
Jumbo mortgages allow you to get a loan that exceeds the conforming limit to sell to Freddie Mac and Fannie Mae. In San Diego, jumbo loans are mortgages over $753,250.
Step #3. Hire a Buyer’s Agent
With a pre-approval in hand, you’re ready to hire a real estate agent. While this isn’t necessary to buy a home in San Diego, it’s absolutely recommended because the seller generally pays for the buyer’s agent. That means you )benefit from the insight and representation of an expert at no cost.
Your buyer’s agent will help you find homes that fit your needs, choose a neighborhood, submit an offer, negotiate on your behalf with the seller, and protect your best interests. They can also help you avoid common first time homebuyer mistakes!
Step #4. Start House Hunting in San Diego
You’re finally ready for the most exciting part in the process of buying real estate in San Diego: house hunting.
As excited as you may be to start going to open houses and finding the home of your dreams, just make sure you’re prepared. As much as possible, set your emotions aside to avoid falling in love with a home and overpaying – only to realize later that it doesn’t quite fit your needs or needs substantial repairs.
Before you start house hunting, make a list of your needs and wants. Your needs are the things you must have, such as a location, good schools, a specific number of bedrooms, or a yard for a dog. Next, think about what you would love to have. These are things that aren’t essential or could be added later like a large lot, hardwood floors, or a spare bedroom.
Your real estate agent can help you narrow down neighborhoods and homes based on important things like:
Home type (Condo or detached home? New construction or established neighborhood)
Crime
Schools
Commute
Street noise
Walkability
Amenities nearby
Mello-Roos district
New or established neighborhood
Best Neighborhoods to Buy in San Diego
What is the best place to buy a house in San Diego? That depends on what you’re looking for. You may be looking for affordable neighborhoods for real estate, neighborhoods that will make a good investment, or upscale communities for a larger budget.
If you’re a first time homebuyer, you may already be struggling with how to afford a house in San Diego and looking for the most affordable neighborhoods. If you’re a parent, your priority may be the best schools in safe neighborhoods.
Here’s where to buy a house in San Diego if you’re looking for the best value with home prices below the city median.
City Heights: $618,000 (Popular neighborhood for first-time buyers looking for a central, urban community with detached homes starting in the $500s.)
North Park: $702,000 (Condos start in the $400s and homes in the $700s in this popular neighborhood for millennials known for its breweries and walkable downtown area.)
El Cerrito: $588,000 (Quiet hillside neighborhood near universities and jobs offering a great value with a swim center and country club. It’s one of the best places to buy a house in San Diego with larger, 3+ bedroom detached homes starting in the $400s!)
University City: $620,000 (Popular with UC San Diego faculty, millennials, and outdoor enthusiasts, University City offers several public golf courses, beaches less than four miles away with condos starting in the $500s.)
Gaslamp: $413,000 (Exciting downtown neighborhood and epicenter of the city’s nightlife with studio condos starting in the mid-$200s.)
Hillcrest: $663,000 (Neighborhood next to Balboa Park with condos starting at $500k and homes usually over $1 million.)
Found a home that checks off everything on your needs list? The San Diego real estate market is competitive, so be prepared to put in an offer quickly. Your real estate agent will help you look at comparable home sales, discuss contingencies, and submit the strongest purchase offer you can.
Once your offer is submitted, you simply need to wait for a response from the seller. They can reject your offer outright (uncommon), make a counteroffer, or accept your offer as-is. It’s common for a seller to make a counteroffer to ask for a higher purchase price, reduced seller assistance, or fewer contingencies.
Step #6. Close on Your New Home & Move in!
You are under contract once the seller accepts your offer. Closing will take about 60 days. Before closing, many things need to happen including:
Finalizing your home loan
Having the home inspected
Conducting a home appraisal
Completing a title search
Meeting any contingencies such as repairs to the home
You will do a final walkthrough of the house before closing. Once all the paperwork is signed, you’ll get the keys to your new home!
San Diego First Time Homebuyer Grants & Down Payment Assistance Programs
As a first time home buyer in San Diego, you can qualify for a down payment and/or closing cost assistance that makes homeownership within reach.
The San Diego Housing Commission offers a range of first time homebuyer programs including deferred loans, grants, and mortgage credit certificates. These programs are designed for low- and moderate-income homebuyers:
3% interest, deferred payment down payment assistance of up to 17% of the purchase price
Closing cost grant of up to 4% ($10,000)
Forgivable loan for closing cost assistance of up to 4% ($10,000)
Mortgage credit certificate for a federal tax credit of 20% of the annual mortgage interest paid
Buying a home outside the city of San Diego? The County of San Diego partners with the SDHC to offer a Downpayment and Closing Cost Assistance (DCCA) Program. First time homebuyers who meet income guidelines can get a deferred loan of up to 17% of the purchase price to use for a down payment. Borrowers can also receive up to 4% or $10,000 in closing cost assistance.
You can qualify for the program if you buy a home in an unincorporated part of the county and many cities like Coronado, Carlsbad, Encinitas, Poway, Solana Beach, Del Mar, and Vista.
The steps of buying a house in San Diego aren’t complicated and you’ll have a mortgage broker and real estate agent at your side to help you. The biggest challenges you will face are saving up for your down payment and competing in the city’s competitive housing market!
Are you under contract already or preparing to buy a home? Call Republic Moving & Storage once you’re ready for a free moving estimate. We’re here to help you settle into your new home without the hassle so you can enjoy homeownership in Southern California!
Bill Lovejoy
Bill Lovejoy is the president of Republic Moving and Storage. Purchasing the assets of Republic Relocations in May 2008. In 2008, Republic did $700K of business and today is over $15 Million. Republic was named AMSA’s 2010 Agent of the Year for Service Excellence after only two years in business.
Bill is proud that he grew up doing every facet of the business from a local mover, over the road driver, salesperson, operations manager, and general manager. (and just about everything else in between) Before purchasing Republic, Bill was with Bekins Moving and Storage where he served as a Senior Vice President and was a partner. He was responsible for three HHG companies as well as two logistics companies.
A proud Father of six children, and a lovely wife, Carol, Bill constantly works to keep a balance between work and family Life. Bills “stress relieving” hobbies include racket ball, basketball, tennis, and golf.
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