Update on California Down Payment Requirements for 2018

With only a couple of months left on the calendar, many California home buyers are already looking ahead to 2018. And many of them share the same questions regarding mortgage loan qualification criteria. Today, we will answer one of those questions: What are the down payment requirements for a mortgage loan in California, in 2018?

California Mortgage Down Payment Requirements in 2018

Surveys have shown that many people think they need a down payment of 20% or more to buy a home in California. That’s not the case. In fact, mortgage industry statistics show that most home buyers in California make down payments below 20%.

A report from the National Association of REALTORS® published in 2017 found that 50% of home buyers (and more than 70% of first-time buyers) made down payments less than 20% during the previous five years. An even more revealing statistic: 60% of first-time home buyers in California and nationwide made down payments of 6% or less.

So that dispels one of the most common myths surrounding mortgage down payment requirements for California borrowers. A 20% investment is not always required.

A Look at Different Loan Programs

So how much do you have to put down when buying a home with a mortgage in California, during 2018? The answer will vary depending on the type of loan you use and other factors.

Here’s a look at the minimum investment requirements for the “big three” mortgage programs – FHA, VA conventional.

• Conventional home loans in California typically require at least 5% down, or as little as 3% for well qualified borrowers. (By definition, a conventional loan is one that is not insured or guaranteed by the government. This distinguishes it from the FHA and VA mortgage products below.)
• FHA loans require a minimum investment equaling 3.5% of the purchase price or appraised value. This has been the minimum down payment for a California FHA loan for the last few years, and it will remain so in 2018 (barring any unexpected changes made by HUD).
• VA loans have the most flexible down payment requirements for California borrowers 2018. Home buyers who use this program could buy a house in California with no upfront investment. The program offers 100% financing to eligible borrowers, which includes most military members and veterans.

Why Some Home Buyers Do Put 20% Down

While a 20% down payment is not necessarily required for a mortgage loan in California, it is a common benchmark for borrowers. The reason for this has to do with mortgage insurance.

Generally speaking, government or private mortgage insurance is required when the loan-to-value (LTV) ratio rises above 80%. This is what happens when a borrower using a single loan makes a down payment below 20%. Due to this standard industry requirement, some home buyers in California use conventional loans with a down payment of at least 20%. This allows them to avoid the added cost of mortgage insurance, by keeping the LTV at or below 80%.

And then there are down payment gifts. This is when a third party contributes money to a home buyer’s closing costs or down payment requirement. Most of the home loan programs available in California today allow gift money from third-party sources, such as family members or close friends.

The bottom line is that mortgage down payment requirements in California are more flexible than most people realize. That’s why it’s important to speak to a knowledgeable loan expert about your financing options. And that’s where we can help.