How Does an FHA Loan Work for San Diego Home Buyers?

FHA Loans: Lower Barrier to Entry in San Diego

FHA loans — insured by the Federal Housing Administration — make homeownership accessible to buyers who may not qualify for conventional financing. In San Diego's expensive market, FHA loans allow buyers with lower down payments and less-than-perfect credit to purchase their first home.

FHA Loan Requirements

• Minimum down payment: 3.5 percent with a credit score of 580 or higher
• Minimum credit score: 500 with 10 percent down — most FHA lenders require 580+
• Debt-to-income ratio: Up to 43 percent standard, some lenders allow 50 percent with compensating factors
• Primary residence only — FHA loans cannot be used for investment properties
• Property must meet FHA minimum property standards — appraisal may require safety or livability repairs

FHA Mortgage Insurance (MIP)

FHA loans require two types of mortgage insurance: an upfront MIP of 1.75 percent of the loan amount — typically rolled into the loan — and an annual MIP of 0.55 to 1.05 percent. For buyers putting less than 10 percent down, MIP is required for the life of the loan. This ongoing cost is FHA's most significant disadvantage compared to conventional loans where PMI cancels at 20 percent equity.

FHA Loan Limits in San Diego

FHA loan limits in San Diego County are set significantly above the national standard given the area's high home values. Confirm the current San Diego County FHA loan limit with a local FHA lender — these limits adjust periodically and affect the maximum purchase price you can finance with FHA.

When FHA Makes Sense vs. Conventional

FHA makes sense when your credit score is below 700, when you have limited down payment funds, or when your DTI is higher. Conventional loans with PMI become advantageous when you have a 680+ credit score and can put at least 5 to 10 percent down — because conventional PMI can be canceled at 20 percent equity, whereas FHA MIP for under 10 percent down cannot.

Related Reading on RiederHomes.com:

→ Blog #3: Types of Home Loans

→ Blog #4: Down Payment Requirements

→ Blog #2: Mortgage Pre-Approval

→ Blog #10: VA Loans San Diego

— Mance Rieder, Broker Associate | Rieder Homes Group | REAL Broker | riederhomes.com | 858-295-0556