How much money do you need to purchase a home? Find out today.
The median home price for single-family homes in San Diego is between $625,000 and $650,000, but you can still find homes in the $450,000 to $500,000 range. Though it might seem expensive, we’re actually somewhat cheaper than other places in California!
How much will you actually need in order to buy a home in San Diego?
Lenders qualify homebuyers based on their debt-to-income ratio. Their limit is a 50% ratio, meaning that if you make $4,000 a month, you must be able to afford a $2,000 monthly payment. I think that really stretches peoples’ ability to afford a home, so I recommend finding a home whose payment would be around $1,600 (using the monthly income in my example). This way, you’ll have some financial padding to fall back on.
“My rule of thumb for closing costs: Calculate about 2% of your purchase price.”
How much will you need for a down payment?
First of all, there are many ways to come up with a down payment. Many people don’t know this, but you can actually use your IRA Roth account to cover your down payment; you can also use your savings or any investments you own. Similarly, you can also use gift money provided by a family member.
The minimum down payment I recommend putting down is 3.5% of the home’s purchase price for a conventional loan or FHA loan. Mind you, when you put down a lower down payment, it’s more of a risk for the bank, so they’ll charge you for mortgage insurance. That’s nothing to be concerned about because you can always refinance and get rid of the mortgage insurance.
How much will you need for your closing costs?
The majority of your closing costs come from the fact that you have to prepare for your property tax. My rule of thumb: Calculate about 2% of your purchase price for your closing costs. If you buy a home for $500,000, your closing costs would be $10,000. Often, we ask the seller to pay for a portion of the closing costs, and then we can roll the remainder into your rate.
If you have any questions or would like more details about today’s topic, don’t hesitate to reach out to me. I’d love to help you.
