How to Qualify for a Mortgage in San Diego

With its stunning beaches, strong economy, and cultural diversity, it’s no surprise that San Diego is one of the most desirable places to live in the United States. But does the popularity of this Southern California city make qualifying for a mortgage even more competitive?

Not necessarily! As long as you understand the key factors that lenders consider, current mortgage rates, what to look for when choosing a lender, and when to start your real estate search, the odds of securing a mortgage are in your favor.

Let’s cover how to qualify for a mortgage in San Diego so that you’re ready to make an offer when your dream home comes along.

4 Key Factors to Qualify for a Mortgage

1. Credit Score

One of the most critical factors when it comes to qualifying for a San Diego home mortgage is your credit score. As it speaks to your ability to repay debt, it’s important to protect and improve your score whenever possible. You can boost your credit score in many ways, including:

• Paying down existing debt
• Ensuring all bills are paid on time and in full
• Avoiding new credit inquiries

Lenders typically look for a credit score of at least 620, so aim for at least that when building your credit and gearing up to buy a house.

2. Income and Employment History

While your credit score speaks to your ability to manage debt, it’s your income that provides the means to do so, making it an important part of qualifying for a mortgage.

You’ll need to prove you have stable income that can support mortgage payments. Lenders tend to prefer applicants with at least two years of consistent employment in the same industry.

In an area like San Diego, where living costs can be high, your income will need to sufficiently cover the mortgage and other living expenses. Before applying for a mortgage, be sure to get your financial documents in order so you can easily prove your income stability.

3. Debt-to-Income Ratio

Your debt-to-income ratio, or DTI, is just that; your monthly debt compared to your monthly income.

It’s another crucial factor that lenders consider when determining your eligibility for a San Diego mortgage. While there’s no hard and fast rule, many lenders like to see a DTI ratio of 36% or lower. However, if you have great credit and a hefty down payment, lenders may accept a higher ratio.

To calculate your DTI, add up all your monthly debt payments, such as car loans and credit card balances, and divide that total by your gross monthly income. If your DTI is high, consider paying down some debt before contacting lenders.

4. Down Payment

The size of your down payment impacts your mortgage terms; the larger the payment, the lower the loan amount you need. Depending on the area of San Diego you’re interested in living, home prices can be high. A substantial down payment can make you a more attractive client to a lender.

How much you should ideally have for a down payment varies widely, but conventional loans typically require a minimum of 3% of the home’s purchase price. However, it’s important to note that if you can afford a down payment of at least 20%, you can avoid having to pay for private mortgage insurance. That savvy move could save you hundreds of dollars each month!

Understanding Mortgage Rates

As a potential homebuyer, you’ll want a thorough understanding of San Diego mortgage rates, as they can significantly impact the cost of a home over time. Mortgage rates are influenced by several factors, including:

• Your credit score
• The economy
• The type of loan you qualify for
• Lender policies

Paying attention to trends and locking in a low rate can save you a considerable amount of money. Consider whether an adjustable-rate mortgage (ARM), which starts with a lower rate but can increase over time, or a fixed-rate mortgage, one that offers stable payments over the loan term, is better suited to your needs and financial situation.

What to Look for in a Mortgage Lender

Some argue that finding the right lender is as important as finding the right home! That’s because a reliable lender can mean the difference between closing on your dream home or losing out to another buyer.

What should you evaluate when looking at mortgage lenders in San Diego? Consider:

• Their reputation
• The range of loan products they offer
• Fees
• Customer service

And be sure to inquire about their pre-approval process, as having a pre-approval letter in hand can give you a competitive edge when you’re ready to attend open houses.

When to Look at Real Estate

Speaking of open houses, when is the right time to start looking at real estate? In a hot market like San Diego where homes sell fast, you should start looking for homes once you’ve secured your mortgage pre-approval letter.

Why wait until then? That letter will give you a clear understanding of your budget while showing sellers you’re serious about buying.

When You’re Ready to Buy, Turn to The Selby Team

While our real estate pros can’t help you secure a mortgage, we can help get you into your dream home. When you’re ready to explore San Diego neighborhoods and find the perfect place to start a new chapter in your life, get in touch with our realtors! We can't wait to help welcome you home.