California First-Time Home Buyer Down Payments: 7 Things to Know

Are you a first-time home buyer in California? Do you have questions about down payments on mortgage loans? Then you’ve come to the right place. This guide offers important information relating to California first-time home buyer down payments. It’s a great place to begin your research, and you can follow up by contacting us with any questions you have.

California First-Time Home Buyer Down Payments

There are a lot of myths and misconceptions when it comes to down payments. As a first-time home buyer, it’s important to educate yourself on this subject before applying for a loan. With that in mind, here are seven things you should know about down payments when buying your first house in California.

1. A down payment of 20% is not necessary.

You might have heard that first-time home buyers in California need a down payment of 20% or more, in order to buy a house. This is a common misconception. While the 20% down payment might have been the “gold standard” in the past, it’s not a hard-and-fast requirement anymore.

In fact, there are a number of mortgage loan programs that offer down payments as low as 3% — or even 0%, if you’re a military member. We’ve covered some of these options below.

The key takeaway here is that California first-time home buyers don’t necessarily need a down payment of 20%. There are many options available that allow you to put less money down. Learn more about these options.

2. Conventional loans with down payments as low as 3% are now common.

These days, it’s entirely possible to obtain a conventional (non-government-insured) home loan with a down payment as low as 3%. That’s because both Freddie Mac and Fannie Mae, the government-sponsored corporations that buy and sell mortgages, currently allow these low down payments.

And the money doesn’t necessarily have to come out of your own pocket. As you’ll learn in point #5 below, the funds can be gifted from someone else.

3. FHA loans allow for a down payment of 3.5% of the purchase price.

The Federal Housing Administration (FHA) loan program is another good option for California first-time home buyers seeking a low down payment. This program, which is built around governmental insurance of mortgage loans, has been helping people buy homes since the 1930s.

With an FHA-insured loan, first-time home buyer down payments can be as low as 3.5% of the purchase price or appraised value (whichever is less). This makes it a good option for buyers with limited funds saved up.

4. Most California military members are eligible for VA loans with no down payment. 

California first-time home buyers who are military members or veterans should seriously consider using the U.S. Department of Veterans Affairs (VA) loan program. With this program, eligible borrowers can qualify for 100% financing. This means the loan will cover the entire purchase price. A California first-time home buyer loan with no down payment? It’s hard to beat that!

5. Your down payment funds could be gifted from someone else.

Many types of mortgage loans allow for down payment gifts. This is when a family member, friend, employer, or other approved donor contributes money toward your down-payment expense. These donated funds can greatly reduce, or eliminate, the home buyer’s out-of-pocket expense. Learn more about gifts.

6. Low down payments sometimes require mortgage insurance, but it’s avoidable.

First-time home buyers in California who make down payments below 20% are sometimes required to pay mortgage insurance on their loans. Private mortgage insurance, or PMI, is generally required whenever the loan-to-value ratio rises above 80%. But there are ways to avoid this extra cost.

For example, one common strategy is to combine a first and second loan and pay the remainder out of pocket, as a down payment. The 80/10/10 mortgage strategy is an example of this. Please contact us if you would like to learn more about this.

7. Some home loans are more flexible than others, when it comes to down payments.

As a first-time home buyer in California, you have many mortgage financing options available to you. Some are more flexible than others, when it comes to the minimum down-payment requirements. We’ve touched on some of them above. But there’s more to learn on this subject.

The truth is, there are more home loan varieties and options than we could cover in one article. That’s why it is so important to speak to a knowledgeable mortgage professional who can help you choose the right kind of loan based on your unique situation. Being informed is the first step to making a sound decision.