California FHA Down Payment Requirements, Explained

This article explains the FHA down payment requirements for California home buyers in 2016 – 2017. It is based on HUD’s Single Family Housing Policy Handbook, and other official program guidelines.

Contact our staff if you would like to apply for a California FHA home loan, or continue reading below to learn more about this unique program.

FHA Down Payment Rules for California Home Buyers

The Federal Housing Administration (FHA) loan program is a popular mortgage financing option for California home buyers. It is especially popular with first-time buyers who don’t have much money saved for a down payment. That’s because the minimum down payment for a California FHA loan is just 3.5% of the purchase price, which is lower than some mortgage programs.

Additionally, borrowers who use this program can obtain a down payment “gift” from friends, family members, employers, or other approved donors. This means the buyer can purchase a home in California with no out-of-pocket expense whatsoever.

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Maximum Loan-to-Value (LTV) Ratio: 96.5%

As mentioned above, the minimum FHA down payment for California home buyers is 3.5%. That’s 3.5% of the home’s purchase price or appraised value, whichever is less.

According to HUD Handbook 4000.1: “the Borrower must make a Minimum Required Investment (MRI) of at least 3.5 percent of the Adjusted Value.”

The adjusted value, in this context, is the lesser of the purchase price (less any inducements to purchase) or the appraised property value.

Inversely, this means that the maximum loan-to-value (LTV) ratio for most FHA-insured mortgages in California is 96.5%. In nearly all cases, that’s the maximum amount of financing available through this program.

Related: Low down payment mortgage options

Credit Score Considerations

The minimum down payment for California FHA loans is 3.5%. But there are some overlapping credit score requirements that play a role here as well:

• Borrowers who want to take advantage of the 3.5% down payment option must have a credit score of 580 or higher, according to current HUD guidelines.
• California home buyers with credit scores that fall between 500 and 579 are required to put down at least 10%, when using an FHA loan to buy a house.
• Borrowers with scores below 500 are generally not eligible for this program.

Down Payment Gifts from Family Members, Employers, etc.

A down payment of at least 3.5% is required for most FHA purchase loans in California. But the good news is that HUD allows the funds to be gifted from a third party.

This means California home buyers can use money donated from friends, family members, or employers to cover part or all of their FHA down payment. It doesn’t necessarily have to come out of the borrower’s own pocket.

Family members are a common source of gifted funds, but there are others as well. HUD guidelines allow down payment gifts from friends, family, employers, and approved nonprofit agencies, among others. For a complete list of approved funding sources, refer to the Single Family Housing Policy Handbook (HUD Handbook 4000.1), or contact us with your questions.

View other requirements for this program

Want to Apply for the Program?

Do you want to use an FHA loan to buy a home in California? Have questions about the down payment requirements and guidelines mentioned above? We can help.

Bridgepoint Funding has been helping California home buyers for more than 15 years, and we can help you as well. We offer a variety of mortgage options for borrowers, including the FHA loan program.