Let's face it - California can be an expensive place to live when compared to other states in the country. Unfortunately the city of San Diego is no exception. While it isn't quite as costly as living in nearby Los Angeles or San Francisco up north, most experts list San Diego among the top 10 most expensive cities in the country. California as a whole is one of the most expensive places to live - with housing costs that continue to rise. Within the Golden State, people spend the highest percent of their income on housing - an average of 25% of their income.

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For those who call America's Finest City home, the extra cost is well worth the quality of life they enjoy. In San Diego there are so many opportunities for adventures like surfing in the Pacific Ocean and exploring the mountains and beaches - it's an outdoor recreation enthusiast's dream come true. The city itself has countless world class attractions, museums, shops, and restaurants so you'll never run out of things to do.

With so many world-class attractions and all the natural beauty to enjoy, it is no wonder that so many people long to move to San Diego County. Sometimes, all it takes is one visit before people are ready to pack up and move across country. The average rent in San Diego is $2,917 per month, which can leave many wondering whether it's a good idea to simply buy a home.

There is some incredible real estate available within the city and in the surrounding neighborhoods - but before you start searching for your dream home it's a good idea to determine what kind of monthly mortgage payments are within your budget.

We've created this helpful guide to help break down the costs of buying a home in San Diego, so that you can know what kind of monthly payments to expect.

Determining how much house you can afford

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When it comes to figuring out what price point you should be looking for when buying a home, you want to take into account your annual and monthly income, as well as any debts or payments you are already paying off (such as car payments.) This is called the debt-to-income ratio.

When lenders determine how much they will loan you to buy a home, they generally use a rule called the "housing ratio" also known as "the front-end ratio." This rule basically states that your monthly housing cost - including your loan principal, taxes, and home insurance should not take up any more than 28% of your total monthly income before taxes are taken out. If it is anymore than that you will likely not be approved for the loan amount. That's why it is a good idea to use a California mortgage calculator before you even begin your search. Nothing is more heartbreaking than finding your dream home and then realizing it is way out of budget and you'll never get approved for the loan.

How a mortgage calculator helps you

Calculating your monthly mortgage payments can help you better understand what types of properties you can afford. When we look at the cost of financing a home, it's important to take into consideration all of the extra expenses that often go unnoticed - costs like homeowners insurance, closings costs, HOA fees, property taxes, and the interest rate all play a part in making up that monthly mortgage payment. It certainly isn't as simple as just dividing up the purchase price.

So what kind of mortgage loan can you afford, and what type of house does that allow you to buy? Read on to learn about how to calculate a mortgage payment.

Factors in Your California Mortgage Payment

Your mortgage payment can be higher or lower depending on how much of a down payment you have saved up when you buy your home. For some, it is possible to afford a much more expensive house if there is a large down payment up-front. Some people use an inheritance or spend years saving up before they buy their dream home. You won't have to take out as much money with your mortgage loans, and your monthly mortgage payments will be much lower. This is the best method for people who have a lower monthly income to afford a home at a higher purchase price.

The main factor that lenders will take into consideration is your monthly income and your debt-to-income ratio. To calculate your debt to income ration you simply add up all of your monthly bills like credit card payments, car payments, and loan payments along with any other expenses and divide the Toal by your gross monthly income - your income before taxes are taken out. The result of the calculation will be your DTI percentage or your debt-to-income ratio. This is going to be important when determining what kind of home price you can afford.

Costs included in a mortgage payment

Your mortgage payment isn't just your actual loan amount divided up. There are several other factors that go into calculating your monthly payment. Generally a mortgage payment has four parts: these include your loan principal, loan interest payment, property taxes, and mortgage insurance. It's actually a good thing that these extra fees are all lumped into one monthly payment, as long as you know what to expect. It makes it a lot easier to keep track of all your monthly costs when they're organized into a simple monthly mortgage payment.

Most mortgage payments will include the following:

  • Loan Principal - the amount you borrow

  • Interest - this is what the lender charges to give you the loan.

  • Property taxes: annual taxes from the government. Each month you will pay about a twelfth of the annual tax and your lender will keep it in an escrow account until taxes are due. The lender will then pay the taxes.

  • Homeowners insurance - these policy usually cover damage from fire, storms, theft, and accidents like trees falling.

  • Mortgage insurance - if you have a down payment that is less than 20% of the homes purchase price you will probably pay for mortgage insurance. It protects the lender in the event that you can't make your payments.

Current Mortgage Rates In California

As of May 2023 the current mortgage rates in California are 7.02% for a 30 year fixed mortgage and 6.31 percent for a 15 year fixed mortgage.

California Mortgage Calculator: Estimate Your Monthly Payment

There are plenty of services that will help you calculate your mortgage payments online just by punching in the numbers - but if you'd rather learn how to do the calculations yourself the formula is relatively simple and straight forward.

The calculation is: M=P [i(1+i)^n] /[(1+i)^n-1]

M=monthly mortgage payments

P= the principal amount

i= your monthly interest rate.

n=the number of payments throughout the life of the loan. For example if you have a 30 year loan n will equal 30 times 12 (months in the year) which is 360.

What is the average mortgage payment in San Diego?

The average mortgage payment on a home in San Diego California is $4,870 per month. There has been a 51.6 percent increase since May 2021.

Average Closing Costs in San Diego County

In San Diego County the average closing costs range between 2% and 3% of your total sale price for buyers. If you are selling a home, closing costs range between 5% and 8% of the selling price.

First-time Homebuyer Programs in California

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If you are a first-time home buyer without a ton of money saved up to use as a down payment on your house you can still qualify for loans to purchase a home in San Diego. There are programs in place that make home ownership accessible even for those who have less than excellent credit scores.

A few programs you can look into in California include:

  • CalHFA FHA Loan Program

  • CalPLUS FHA Loan Program

  • CalHFA VA Loan Program

  • CalHFA USDA Program

  • CalHFA Conventional Loan Program

  • CalPlus Conventional Loan Program

San Diego Property Taxes

Property tax rates in San Diego are about 1%. This does not include any bonds, fees, or other charges. The property tax rate is usually about 1.25% of the purchase price of the home. You can calculate your property taxes by multiplying the purchase price by .0125 and then dividing by 12.

Is private mortgage insurance required in California?

Private mortgage insurance is generally required in California if your down payment amount is under 20% of the homes purchase price.

Next Steps: What to Do After You Have Estimated Your Mortgage Payments

Once you have estimated what kind of mortgage payments you can afford, your next steps are to reach out to a lender. If you already have a realtor they should be able to recommend some great lenders that they have worked with in the past. You can start looking for homes in your budget, but when you find one you like it really helps to have a letter of pre-approval from a mortgage lender on hand.

Good luck shopping for your dream home! We can't wait for you to join us in beautiful San Diego!

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