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California Conventional Loan Down-Payment Requirements

This article provides an overview of the minimum down-payment requirements for conventional loans in California. We’ve covered this subject in the past. But mortgage trends and requirements can change over time. So we thought it was time to revisit the topic for 2020.

Note: this article specifically applies to conventional mortgage loans, as opposed to FHA and VA. As explained below, a conventional mortgage is one that is not insured by the government.

At a minimum, you’ll probably have to put down 3% of the purchase price when using a conventional loan in California. But depending on the amount being borrowed, the down-payment requirement could be higher than that.

Conventional Loan Down-Payment Requirements

The down payment is the amount you pay upfront toward a home purchase. It comes from your own bank account or some other approved source.

You make a down payment so that you have some level of financial investment in the home. It’s one of the key requirements for a standard conventional mortgage loan.

So that’s the first thing you should know. Home buyers in California typically have to make a down payment of some kind, when using a conventional loan to buy a house.

There is an inverse relationship between the amount of money you put down, and the size of your monthly payments.

  • If you make a bigger down payment, you are financing a smaller portion of the house and will therefore end up with a lower monthly payment.
  • On the other hand, if you put less money down, you’ll end up with a bigger loan and therefore higher monthly payments.

There aren’t many hard-and-fast rules or requirements for conventional loan down payments in California. It can vary depending on the situation. With that being said, most borrowers who use conventional loans to buy a house in California have to put down at least 3% of the purchase price.

Using a Jumbo Loan to Buy a Higher-Priced Home

As mentioned earlier, larger loans sometimes require a higher down payment. That’s often the case for jumbo loans in California.

Definition: A “jumbo” loan is a conventional (non-government-backed) mortgage that exceeds the conforming loan limits for the county where the home is being purchased.

Because there’s a larger amount being borrowed — and therefor a higher level of risk — California home buyers who use jumbo loans often have to put more money down.

Related: Jumbo limits for the major metros

How Mortgage Insurance Factors into All of This

It’s also important to understand the relationship between the down payment on a conventional loan and private mortgage insurance.

Home buyers in California who use a conventional loan with a low down payment usually have to pay for private mortgage insurance, or PMI. Basically, if a single loan accounts for more than 80% of the home’s value, private mortgage insurance will probably be required. This is an industry-wide requirement that does not come from the lender.

That’s not to say PMI is a bad thing. On the contrary, mortgage insurance opens homeownership up to a much wider audience. Without it, borrowers would be required to put more money down – perhaps even 20% across the board. That would shut out a lot of would-be home buyers, especially with the high cost of living in California.

So the mortgage insurance requirement for low-down-payment conventional loans could be viewed as a good thing. Yes, it will increase the size of your monthly payment over the long-term. But it also helps you buy a home sooner and with less money down.

Putting 20% Down on a California Home Purchase

We talked about the relationship between (A) the down payment for a conventional loan in California and (B) the requirement for mortgage insurance. This is why some home buyers choose to make a larger down payment.

Borrowers who can afford to do so often put down 20% or more. They do this because it allows them to avoid the mortgage insurance “trigger,” avoiding that extra cost entirely. But that’s not a hard-and-fast requirement for all mortgage scenarios.

As you can see, the amount you are borrowing toward a home purchase is a key factor in all of this.

Recap of Key Points

We’ve covered a lot in this article. Let’s do a quick recap:

  • Down payment requirements for conventional mortgage loans in California are not standard across the industry. They can vary based on a number of factors. So there is no single or standardized requirement for all borrowers.
  • Larger loans sometimes require more money down, to offset the higher level of risk. This is often the case with California jumbo mortgages.
  • Conventional loans that fall within the conforming limits mentioned earlier offer down payments as low as 3% of the purchase price, in some cases.
  • Making a smaller down payment will probably require you to pay for private mortgage insurance. That’s an industry-wide standard.
  • Mortgage insurance allows home buyers in California to buy a house sooner and with less money down. So there’s a clear upside to PMI.

Questions? Bridgepoint funding has been serving the mortgage needs of Californians for going on 20 years. Please contact us if you have questions about the down-payment requirements for conventional loans, or other mortgage-related questions.

Mike Trejo is a Bay Area mortgage broker with 20+ years of knowledge and experience.

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