Can I Buy a House in the Bay Area With Less Than 20% Down?

Down payments tend to generate a lot of questions among home buyers in the San Francisco Bay Area. And that’s understandable, given the expensive nature of our real estate market.

Today, we’ll address a common question among first-time buyers in particular:

Can I buy a house in the Bay Area with less than 20% down?

The short answer is yes, it’s possible to purchase a home in the San Francisco Bay Area with a down payment below 20%. It’s actually fairly common. But there are some things you should know before moving forward, and that includes the pros and cons of a lower down payment.

Buying in the Bay Area With Less Than 20% down

Many first-time home buyers believe they have to put 20% down in order to qualify for a mortgage loan and buy a house. But that’s not entirely true.

In fact, there are several ways you could buy a home in the Bay Area with a much smaller down payment. We’ve explained some of those options in a separate article. Here’s a quick recap:

The Federal Housing Administration (FHA) home loan program allows borrowers to put down as little as 3.5% of the appraised value or purchase price. This makes it a popular option among first-time buyers who don’t have a lot of money saved up for a down payment.

As an alternative to the FHA program, a Bay Area home buyer could use a conventional mortgage loan with a down payment as low as 3%. Just know that with both of these options, you might have to pay for mortgage insurance. More on that later!

Are you a military member or veteran? If so, you might qualify for the VA loan program. This is another way to buy a home in the Bay Area with less than 20% down. But it gets better. Through this program, borrowers can finance up to 100% of the purchase price!

The main point here is that a 20% down payment is not always necessary when buying a home in the San Francisco Bay Area. There are other financing options available that allow borrowers to make a smaller upfront investment, including those mentioned above.

Here’s something else worth knowing. According to a 2022 report from the National Association of REALTORS (NAR), the typical down payment was 6% for first-time buyers and 17% for repeat buyers. Repeat buyers tend to invest more up front (on average) because they usually have profits from a previous home sale to put toward their next purchase.

What a 20% Down Payment Might Look like

The truth is, a lot of home buyers in the Bay Area simply cannot afford to put 20% down when buying a home. This applies to both first-time and repeat buyers. The reason is somewhat obvious. We live in one of the most expensive real estate markets in the country, and that makes it hard to come up with 20%.

According to a July 2023 report California Association of REALTORS, the median sale price within the San Francisco Bay Area region was around $1.3 million. A 20% down payment at that price point would come to around $260,000. That’s a lot of money to invest up front, and many home buyers just can’t afford to do it.

Fortunately, you probably don’t have to. We just talked about some of the ways buyers can purchase a home in the Bay Area with less than 20% down. Both conventional and government-backed mortgage loans allow for a much smaller investment.

A 6% down payment on the other hand (which is the average for first-time buyers, according to NAR) would come to around $78,000 on a median-priced home in the Bay Area. That’s still a sizable investment, but much more manageable than the $260,000 investment amount mentioned above. The 3% minimum for a conventional loan would result in a down payment of around $39,000.

Granted, there are some cases where a 20% down payment might be necessary. Jumbo mortgage loans, for example, often require a larger upfront investment from the buyer. A jumbo loan is one that exceeds the conforming loan limits for the county in which the home is located.

But those borrowers who stay within the conforming range can often get by with a much smaller down payment.

The Pros and Cons for Borrowers

There are some pros and cons to buying a home in the Bay Area with less than 20% down. The obvious advantage is that you could buy a house sooner, since you wouldn’t have to save up as much money for the down payment.

If all borrowers were required to put 20% down, there would be far fewer home buyers in the housing market. So being able to make a smaller upfront investment is a major plus.

The downside of making a smaller down payment is that it typically requires borrowers to pay mortgage insurance. This is true for both conventional and FHA home loans.

Mortgage insurance is required for nearly all FHA-insured home loans, and it increases the size of the monthly payments. When it comes to conventional mortgage loans (i.e., those that are not insured by the government), private mortgage insurance is usually required in cases where the loan-to-value ratio exceeds 80%.

This is why some home buyers in the San Francisco Bay Area choose to make down payments of 20% more. In addition to qualifying for a lower interest rate, an investment in this range would help the borrower avoid paying mortgage insurance.

But for a lot of home buyers in the Bay Area, mortgage insurance is a “necessary evil” that allows them to purchase a house sooner and with less money down. And that’s a pretty significant benefit, from a borrower’s perspective.

Have financing questions? Bridgepoint Funding is a mortgage broker serving the entire San Francisco Bay Area (and the rest of California). We can review your current financial situation to help you determine the best mortgage strategy. We offer many loan options, including some with low down payment requirements. Contact our staff with your questions!