Can I Use an FHA Loan to Buy a Home in Carmel or Pacific Grove?

What to Know About FHA Loans (and Whether They Make Sense on the Monterey Peninsula)

The letters “FHA” get tossed around a lot in real estate, usually in the same breath as “first-time buyer” or “low down payment.” But few people actually understand what an FHA loan is, or how it really works in a market like Monterey County, where a “starter home” can easily cost close to a million dollars.

FHA loans were created to help more Americans become homeowners, especially those with modest savings or less-than-perfect credit. But their usefulness depends heavily on where you’re buying. In some parts of the country, FHA financing can make a dream home possible. On the Monterey Peninsula, the realities of the market create nuances that can impact the buyer's journey.

Let’s take a closer look at how FHA loans really work, what they do well, where they fall short, and how they fit (or don’t fit) within local markets like Seaside, Marina, Pacific Grove, and Carmel.

What Exactly Is an FHA Loan?

An FHA loan is a mortgage insured by the Federal Housing Administration. It’s not a loan from the government. It’s a loan from a bank, credit union, or mortgage company that’s backed by the government in case the borrower defaults.

That government backing allows lenders to approve buyers with lower credit scores, smaller down payments, and higher debt-to-income ratios than they might otherwise accept.

At its simplest: the FHA takes on some of the risk so more Americans have a shot at ownership.

Who Qualifies for an FHA Loan?

Qualification depends on several factors, but here’s what’s typical:

• Credit score: Minimum of 580 for a 3.5% down payment.

• Down payment: 3.5% of the purchase price (or 10% if your credit score is between 500–579).

• Debt-to-income ratio: Generally no higher than 43%.

• Loan limits: Capped by county and property type.

In Monterey County, the 2025 FHA loan limit for a single-family home is $970,600. That sounds high, but in a market where median home prices hover near or above that number in many communities, it does create a ceiling.

Can I Buy a Home in Carmel or Pacific Grove with an FHA Loan?

Technically, yes. Practically, it’s rare.

Let’s say you’re eyeing a $1.2 million cottage in Pacific Grove. Even if you’re approved for the maximum FHA loan of $920,000, you’d need to bring $280,000 in cash to close the gap. That’s not the buyer profile the FHA program was designed for.

In Carmel, where single-family homes often start around $2 million, FHA financing simply doesn’t reach far enough.

That said, in Seaside, Marina, or parts of Salinas, FHA loans can make a lot of sense. A $750,000 home in Seaside, for example, could be purchased with about $26,000 down. That’s a meaningful difference compared to the 20% down conventional buyers often aim for.

So it’s not that FHA loans don’t work on the Monterey Peninsula. They just work best where prices stay below the county limit.

What Are the Benefits of FHA Loans?

FHA loans exist to widen the path to homeownership. Their biggest advantages are:

• Lower down payments. As little as 3.5%, which opens the door for first-time buyers or those rebuilding after life changes.

• More flexible credit requirements. FHA loans allow scores down to 580, while conventional loans typically require 620 or higher.

• Assumable loans. If you sell later, a qualified buyer can “assume” your FHA loan and its interest rate, which could be attractive if today’s rates fall again in the future.

• Refinancing options. FHA “streamline” refinances can make lowering your rate or payment easier down the road.

In short, FHA loans help good people who may not have perfect financial resumes (e.g. teachers, hospitality workers, military families, new graduates) enter the housing market sooner.

What Are the Drawbacks?

The trade-offs are real.

• Mortgage insurance premiums. FHA borrowers pay both an upfront fee (1.75% of the loan) and monthly mortgage insurance. This adds hundreds of dollars per month and can’t be removed until you refinance into a conventional loan.

• Stricter property standards. The home must meet FHA safety and livability requirements. This can complicate purchases of fixer-uppers or older homes with deferred maintenance.

• Loan limits. As mentioned, Monterey County’s $970,600 ceiling excludes many local homes.

• Seller perceptions. Although unfair, some sellers mistakenly believe FHA loans mean “risky buyers."

A useful analogy: an FHA loan is like a reliable compact car. It’ll get you where you need to go, but it’s not built for every kind of terrain.

Can an FHA Loan Be Used for Any Type of Property?

Not quite. The property must be your primary residence. No second homes or investment properties. Condos and townhomes can qualify, but only if the development is FHA-approved.

For example, if you’re looking at a condo near Cannery Row, it’s essential to check the HUD-approved condo list before falling in love. Many charming older buildings in Monterey and Pacific Grove are not FHA-certified, which means traditional FHA financing won’t work without extra steps.

Multi-unit properties can be eligible, too, as long as you live in one of the units. For example, a duplex in Seaside could qualify, allowing you to rent one unit and live in the other, offsetting your mortgage with rental income.

What About Home Maintenance and Location Factors?

Here’s where local knowledge really matters. The Monterey Peninsula’s microclimates can influence whether a property passes FHA inspection or how easy it will be to maintain.

• Monterey and Pacific Grove: The salty marine air accelerates exterior wear. Expect more frequent paint jobs, rust on fixtures, and attention to windows and decks. All these are factors FHA appraisers notice.

• Carmel and Pebble Beach: The mist can be charming but unforgiving. Wood rot, moisture intrusion, and moss on roofs can delay FHA approval unless corrected.

• Seaside and Marina: These areas get more sun and wind, which helps with maintenance but can be tough on landscaping.

• Carmel Valley and Highway 68 Corridor: Dry, sunny conditions are easier on siding and roofs but introduce wildfire and water concerns that require diligent insurance and upkeep.

When using FHA financing, it pays to get ahead of these issues. A pre-inspection, local contractor quote, or simple maintenance record can make all the difference in approval.

Are FHA Loans Right for You?

If you have strong credit, a solid down payment, and plan to buy in the mid-to-upper market, a conventional loan might serve you better.

But if you’re a first-time buyer or a household with stable income and limited cash savings, FHA loans can be a stepping stone, especially in Seaside, Marina, Prunedale, or southern Salinas Valley, where prices align with FHA caps.

The key is understanding what you’re optimizing for: affordability today or flexibility tomorrow.

A Local Perspective

In Monterey County, every community tells its own financial story. An FHA loan that’s perfect for a two-bedroom in Marina might not reach a bungalow in Pacific Grove, and that’s okay. The goal isn’t just to buy, it’s to buy smartly.

At The Ruiz Group, we’ve seen buyers use FHA loans strategically to build equity faster than they thought possible, later refinancing into conventional loans as their income and credit improved.

Having the right team in place to guide you through the process makes all the difference.

Final Thoughts

FHA loans are just a tool, designed for a specific purpose: helping people cross the threshold into homeownership when conventional financing might keep the door closed.

In Monterey County, that purpose still holds, just within certain price ranges and property types. Whether you’re dreaming of a starter home in Marina or planning a move closer to the coast, the key is matching the right financing with the right home.

That’s where local expertise matters most.