Everything You Need to Know About FHA Loans in San Diego

If you are ready to purchase your first home with an FHA loan in San Diego, you could not have picked a more exciting city to move to. Here you can enjoy sunshine and warm weather all year round. You can hike in the mountains one day and go surfing the next. As you might expect, this is a competitive housing market, but with an FHA loan, you can take advantage of special benefits for first time home buyers in San Diego.

FHA-insured loans make home ownership affordable and obtainable and are the key to getting many customers in the area into the homes of their dreams.

FHA loans are an excellent mortgage option for homebuyers in San Diego, especially first-time buyers and those with limited funds for a down payment. With an FHA loan, you can purchase a home in San Diego with a down payment as low as 3.5% of the purchase price. Keep reading to learn all the details about FHA loans and how they can help you buy a home in America’s Finest City.

What are FHA Loans?

FHA stands for Federal Housing Administration. FHA loans are government-insured mortgages that allow for low down payments and flexible credit requirements. The FHA insures approved lenders against loss, so even borrowers with less-than-perfect credit have an easier time qualifying.

Some key advantages of FHA loans include:

Low Down Payments – FHA requires just 3.5% down on most loans. On a $500000 home, that’s only $17500!
Lenient Credit Guidelines – You can qualify with a credit score as low as 580 if you have good income and debt ratios.
Low Mortgage Insurance – FHA loans require mortgage insurance. However, annual premiums are just 0.85% of the loan amount – very affordable!
Flexible Debt Ratios – Debt-to-income ratios can go up to 50% in some cases. This helps more buyers qualify.
No Prepayment Penalties – You can pay off an FHA loan early without any penalty fees.
Simple Refinancing – FHA streamline refis allow you to refinance easily with minimal documents.

Overall, FHA loans offer great flexibility for qualifying first-time home buyers, especially in expensive markets like San Diego.

FHA Loan Limits in San Diego

In expensive housing markets like San Diego, FHA sets higher “loan limits” – the maximum amount you can borrow with an FHA loan.

For a single-family home in San Diego County, the 2024 FHA loan limit is $1,006,250. So you can purchase a home for up to $1 million with an FHA mortgage!

The FHA limits also depend on the number of “units” in the home. Here are the 2024 FHA loan limits for San Diego County:

Single Family Home: $1,006,250
Duplex: $1,288,200
Triplex: $1,557,150
Fourplex: $1,935,150

As you can see, the more units in a property, the higher the FHA loan limit. However, to use FHA financing, the property can have no more than 4 units, and you must occupy one unit as your primary residence.

The high FHA loan limits allow San Diego homebuyers to purchase pricier properties than in many other parts of the country.

Benefits for First-Time Homebuyers

FHA loans are extremely popular with first-time homebuyers. Here are some of the top benefits:

Low Down Payments – The 3.5% minimum down makes buying more affordable, especially in San Diego.
Gift Funds Allowed – Your down payment can come partially from gifts from family, making it easier to come up with the funds.
No Reserves Required – FHA does not require you to have months of mortgage payments in reserves.
Lower Credit Scores – Since FHA is more lenient on credit, first-timers have an easier time qualifying.
No Tax on Mortgage Insurance – Unlike conventional loans, the mortgage insurance premium on an FHA loan is tax-deductible.

Additionally, some first-time buyer programs like San Diego County’s program offer grants to help with down payments and closing costs on FHA loans. The low down payment requirements and flexible guidelines make FHA an excellent match for first-time buyers.

FHA Refinancing Options

Once you have an FHA loan, refinancing with the FHA can also be easier than conventional refinancing. Top options include:

FHA Streamline Refi – This is a simple refinance allowing you to obtain a lower rate and payment with minimal documents. You can refinance with the same terms and loan amount.
Cash-Out Refinance – This lets you take equity out of your home in cash. It requires an appraisal and full underwriting.
Simple Refinance – This type lets you refinance, change loan terms, and take some cash out if you have equity.
Rehabilitation Loan – An FHA rehab loan lets you bundle the purchase price and renovation costs into one mortgage.

Overall, FHA refinancing is simple and flexible. And mortgage insurance rates don’t increase when you refinance with the FHA.

Buying a Condo with an FHA Loan

Many first-time buyers in San Diego opt for condos since they are more affordable than single-family homes. You can buy a condo with an FHA loan, but there are some additional requirements:

The condo development must be approved by the FHA. There is a list of FHA-approved condo complexes in San Diego.
For non-approved developments, the condo association must have 10% or less of units sold to owners behind on their condo fees.
Owner-occupancy in the condo development must be at least 50%.

As long as you buy in an approved condo, or the development meets FHA condo requirements, you can purchase a condo like any other property. This expands options for buyers.

Applying for an FHA Loan

When you’re ready to move forward with an FHA loan, follow these steps:

Check your credit and income to ensure you meet FHA requirements.
Get pre-approved from an FHA lender to confirm you qualify for the maximum loan amount.
Make an offer and negotiate the purchase price if it’s accepted.
Allow the lender to order an FHA appraisal to value the property.
Finalize paperwork and set a closing date once the loan is fully approved.

I recommend getting quotes from multiple FHA lenders to find the best rates and closing costs. Having a large down payment and strong credit scores will also help you qualify for a lower interest rate.

Buying a home with an FHA loan involves many steps, but a good lender will guide you smoothly through the entire process.

Alternatives to FHA Loans

While FHA loans have excellent benefits, you may also want to consider:

Conventional 97 Loan – This allows 3% down with private mortgage insurance. Requirements are stricter than FHA.

VA Loan – For veterans and military members, VA loans offer 0% down and no mortgage insurance.

USDA Loan – For properties in rural areas, USDA loans provide 0% down mortgages to low-income buyers.

Down Payment Assistance – Local programs could help provide funds for a larger down payment on a conventional loan.

Talk with your lender about the different programs available and the best mortgage option for your situation.

The Bottom Line

Hopefully you now understand the basics of FHA loans and their benefits for homebuyers in San Diego. The low down payments, flexible credit guidelines, high loan limits, and ease of refinancing provide major advantages. For eligible buyers, especially first-timers, an FHA loan can be the right solution to buy a home. Connect with a top FHA lender to explore your options for purchasing or refinancing property in San Diego.

San Diego FHA Loan Benefits and Features

Your down payment could be as low as 3.5%.
There is no limit on borrower income, and there is also more flexibility when it comes to your credit score.
A higher debt-to-income ratio which might stand in your way with conventional financing may be acceptable with an FHA loan in San Diego.
FHA loans usually have lower interest rates than conventional loans.
You may obtain an FHA loan not just for a home purchase, but also for renovation, a cash out refinance, reduction in interest rate, reduction in term, or even a reverse mortgage.
If you have filed for bankruptcy, two years from the date of your discharge, you may qualify for an FHA loan with re-established credit.
If you have foreclosed in the past or had a short sale, three years after the final date of the foreclosure or short sale, you may be eligible for an FHA loan provided you have maintained good credit.

All of this means you may have an easier time qualifying for an FHA loan, and the terms of the loans may be more favorable than what you would qualify for with a conventional loan.

Do You Qualify for an FHA Loan in San Diego?

If you are interested in a San Diego FHA loan, you will need to meet these eligibility requirements:

To buy a home using FHA financing, you must not currently have an already existing FHA loan. FHA loans are not only available for first time home buyers.
Your back end debt-to-income ratio (that includes the new housing payment plus all other debt showing on credit, must not exceed 56%.
If you wish to qualify for a 3.5% down payment, you must have a FICO score which is 580 or higher. If your scores are 640 or higher, you would be eligible for much more favorable terms.
The home must fit the qualification requirements for an FHA loan.

Finding Out if You Pre-Qualify for an FHA Loan in San Diego is Easy

Not sure whether you are eligible for an FHA loan in San Diego, or whether it is the most suitable option for you? Maureen Martin has helped many home buyers in San Diego move into their first homes, and can close in as little as 15 days. Call Maureen at (619) 857-7191 to quickly and effortlessly discover how FHA Loans may help you purchase your first home.

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Benefit of FHA Loans in San Diego

FAQ

What is the FHA loan limit in San Diego?

The high-balance FHA loan limit for 2024 in San Diego County is $1,006,250. The “low-balance” FHA loan limit for 2024 in San Diego County is $766,550. Both loan limits above are based on a 1-unit property.

What do you need to qualify for an FHA loan in California?

Here are some general FHA loan requirements for California. A credit score of 580 or higher: A lender may accept credit scores of 500-579 under certain conditions. A credit score lower than 580 will require a larger down payment. Minimum of two years employment: Must have verifiable, steady, and consistent income.

Is it hard to get approved for a FHA loan?

Credit score requirements are low compared to most other. Your lender can accept a low down. Qualifying for an FHA loan can still be possible even if you have a bankruptcy or other financial issues in your financial history.

Why is FHA loans difficult?

Unfortunately, sellers often perceive the FHA loan approval process as risky because of the FHA’s relatively lenient financial requirements and stricter appraisal and property standards.

What is an FHA loan in San Diego County?

An FHA loan in San Diego County is a federally insured mortgage. The loan amounts for these mortgages may not exceed the specified limits. FHA loans differ from conventional mortgages, which require a 20% down payment, high credit score, and other stringent requirements. These loan limits in San Diego County are higher than FHA limits, enabling you to purchase a larger home if you qualify.

Should I get an FHA loan in San Diego?

A higher debt-to-income ratio that might stand in your way with conventional financing is acceptable with an FHA loan in San Diego. FHA loans usually have lower interest rates than conventional loans.

What are the FHA loan limits in San Diego?

Properties with over 4 units are considered commercial and do not quality for regular FHA loans. These loan limits signify the max loan amount not purchase price. For example, the loan amount for a 1 unit in San Diego cannot exceed $977,500, after the FHA funding fee has been added, and the down payment deducted.

Does community mortgage offer FHA loans in San Diego?

At Community Mortgage we routinely arrange FHA loans for borrowers in the greater San Diego area. Whether you are a first time buyer who may not qualify for a conventional loan or looking to refinance your current loan, our dedicated team will help you explore all your options.