Bay Area Conventional Mortgage Down-Payment Requirements for 2022

This article explains the minimum down-payment requirements for conventional home loans in Bay Area. A “conventional” mortgage is one that is not insured or backed by the government.

Borrowers who use a conventional loan to buy a home in Bay Area can put down as little as 3%, depending on the circumstances. Borrowers seeking a larger mortgage product, such as a jumbo loan, may be required to make a larger down payment.

We expect this minimum requirement to remain in effect during 2022 as well.

What Is a Conventional Loan?

In simple terms, a conventional loan is one that’s not part of a specific government program. The term “conventional” is used to differentiate these mortgage products from other government-backed home loan programs, such as FHA and VA.

Government-backed programs like FHA and VA give the lender an added layer of protection, in the form of government insurance. Conventional loans do not.

Even so, the minimum down payment for a conventional mortgage loan in the Bay Area can sometimes be just as low as the government programs like FHA.

Down Payment Requirements in Bay Area

The down payment requirements for a conventional loan in the San Francisco Bay Area can vary from one lender to the next. Additionally, larger mortgage amounts (such as the so-called jumbo loan) sometimes have higher down payment requirements than their smaller counterparts.

In many cases, borrowers in the Bay Area can qualify for a down payment as low as 3% of the purchase price, for a conventional loan. That’s because Freddie Mac and Fannie Mae — the two corporations that buy mortgages from lenders — will purchase loans with an LTV ratio up to 97%.

So that’s the closest we can get to a “standard” down payment requirement for Bay Area conventional loans. Generally speaking, borrowers can put down as little as 3% on these mortgage products, as long as they meet all other mortgage-related requirements.

This has been the case for the past few years, and we expect these requirements to remain in effect throughout 2022 as well.

Using Gift Money from a Third Party

We’ve covered some of the basic requirements for down payments on conventional loans in the San Francisco Bay Area. Now for a bit of good news. Most mortgage programs available today allow borrowers to use gift money to cover the minimum required down payment.

In this context, a “gift” is money donated by a third party and put toward a home buyer’s down payment or closing costs. There are specific requirements for gift money. For one thing, the money must truly be a gift or donation. The person giving you the money cannot expect you to pay it back.

Conventional loan programs in the Bay Area usually require a third-party donor to submit a signed letter stating that they do not expect any form of repayment.

Down payment gifts are a popular strategy among home buyers who use conventional loans in the Bay Area. When it comes to home prices, our region is one of the most expensive housing markets in the country.

Consider the difference:

• As of November 2021, the median home value for the San Francisco-Oakland-Hayward metro area was $1,340,000.
• During that same month, the median price for the nation as a whole was around $308,000, according to Zillow.

Because of our relatively high home prices, some buyers have a hard time meeting the minimum down payment requirement for a conventional loan in the Bay Area. And this is where gift money can prove useful.

How Mortgage Insurance Ties into This

Borrowers who make smaller down payments usually have to pay for private mortgage insurance, or PMI. This is a unique kind of insurance that protects the lender but is paid for by the borrower.

Generally speaking, mortgage insurance is required in the Bay Area whenever a single home loan accounts for more than 80% of the property value.

PMI is not terribly expensive. According to research by Freddie Mac, borrowers can expect to pay “somewhere between $30 and $70 per month for every $100,000 borrowed” for a standard private mortgage insurance policy.

Of course, there’s an upside to this as well. PMI essentially allows buyers to purchase a home sooner and with less money down. Without PMI, many buyers would be required to invest more money up front.

The takeaway here is that mortgage insurance ties into the down payment requirements for a conventional loan in the Bay Area. If you put less than 20% down when buying a home, you could incur the additional cost of PMI. So it’s something to be aware of.

Acceptable Sources for Down Payment Funds

Different mortgage programs have different requirements when it comes to “acceptable sources” of down payment funds. For a Bay Area conventional loan, you can use money from almost any legitimate source.

Commonly accepted down payment sources include checking accounts, savings, stocks or bonds, IRAs, 401(k), trust accounts, etc.

Have mortgage questions? Bridgepoint Funding has been serving the San Francisco Bay Area for nearly 20 years. We are a local mortgage company that offers a wide range of financing options. Please contact us if you have questions or would like to apply for a loan.