How Much to Save for a Down Payment on a California Home Purchase

How much money do I need to save up for a down payment when buying a house in California?

This is one of the most common questions among first-time buyers in the Golden State, and it’s easy to understand why. For a typical home buyer, the down payment represents the biggest obstacle along the path to homeownership.

The amount of money you need to save for a down payment will depend on the type of mortgage loan you use, the amount you need to borrow, and other factors.

How Much Do You Need for a Down Payment?

Different types of mortgage loans have different minimum requirements for the down payment amount. We’ve covered those minimum requirements in a separate article.

Here’s a quick recap for the main mortgage programs:

• Conventional loans typically require a down payment of 3% or more, but it can be higher for jumbo mortgages (10% to 20%).
• FHA home loans require a minimum down payment of 3.5% with a credit score of 580 or higher.
• VA loans offer 100% financing for eligible military members and veterans, allowing them to avoid the down payment.
• USDA loans also allow for 100% financing, but they’re mostly limited to rural borrowers within a certain income range.

So, the amount of money you need to save for your down payment in California will largely depend on the type of home loan you use.

Other factors can determine the minimum required investment as well. These include the size of the loan, the borrower’s credit score, the loan-to-value ratio, and more. But it mainly comes down to the loan type.

Don’t Forget About Your Closing Costs

The minimum down payment for a traditional mortgage loan in California could range from 3% to 20%, depending on the situation. For a median-priced home, even the minimum investment of 3% could add up to more than $20,000.

But that’s just one of the expenses you could encounter when buying a home. Most buyers also encounter closing costs, and these can also amount to tens of thousands of dollars with a typical purchase.

On average, closing costs in California usually range from 1.5% to 5% of the home’s purchase price.

This isn’t meant to discourage you from buying a home — but to help you prepare for that process.

15 Ways to Save for a Down Payment in California

There’s really no secret to saving up for a down payment on a house. Basically, anything you can do to spend less and save more will get you closer to your target.

Even so, you can benefit from the following tips and strategies. They might help you reach your down payment goals sooner rather than later.

1. Set a budget: Create a basic budget to understand your income, expenses, and potential savings. This will help you identify areas where you can cut back on expenses and increase your savings.
2. Set a target amount: Down payments can be as little as 3% for a conventional loan, and 3.5% for FHA. Military members can qualify for VA financing up to 100% of the purchase price.  A larger “jumbo” loan might require more money down. Finding out what kind of investment you need to make will help you establish a goal for your savings.
3. Automate savings: Set up automatic transfers from your checking account to a separate savings account for your down payment. This will help you save consistently without having to think about it. Best of all, you’ll have the comfort of knowing you’re moving closer to your goal each and every month.
4. Maximize savings: Look for high-interest savings accounts or other investment vehicles that can help you earn more interest on your savings.
5. Separate your savings: Keep your down payment savings separate from your other savings or checking accounts to avoid spending it accidentally. Think of it as a special fund to help you reach your dream of homeownership.
6. Reduce expenses: Review your monthly expenses and look for ways to reduce them. For example, you could cut back on dining out, cancel unused subscriptions, or reduce your utility bills. Every little bit helps.
7. Boost your income: Consider ways to increase your income, such as taking on a part-time job or starting a side hustle. The extra income can go towards your down payment savings.
8. Rent out a room: If you have a spare bedroom, consider renting it out to generate extra income that can go towards your down payment savings. Check local laws to see if this is a viable option, based on your current living situation and occupancy.
9. Negotiate bills: Try to negotiate with your cable provider, cell phone company, and others to get a lower rate. This can help you save more money each month.
10. Consider a less expensive home: The down payment is a percentage of the home price. Buying a more expensive home will require you to save more money over a longer period of time. If you are struggling to do that, consider buying a less expensive home or condo.
11. Use windfalls: If you receive a bonus at work, a tax refund, or any other unexpected money, put it towards your down payment savings.
12. Avoid unnecessary debt: Avoid taking on unnecessary debt, such as credit card debt, which can limit your ability to save for a down payment.
13. Ask for help: Ask family members for assistance. Most of the mortgage programs available in California allow for gift money to be used for the down payment. This means you can obtain funds from a third party to put toward your investment.
14. Monitor progress: Keep track of your savings progress and adjust your budget or savings plan as needed to reach your goal on time.
15. Stay motivated: Saving for a down payment on a California home purchase requires time and discipline. So stay focused on your goal and celebrate small milestones along the way. Remember that homeownership is a worthwhile investment in your future.

Leverage Gift Money if Possible

Let’s wrap up by talking about gift money and the benefits it can bring for California home buyers.

In a mortgage lending context, “gift money” refers to funds provided by an approved third-party to help a home buyer cover their down payment and/or closing costs. Most mortgage programs allow for gift money, and it can help pave the way to homeownership.

If you’re having a hard time saving up enough money for the down payment on a California home purchase, explore the possibility of using gift money.

For example, a family member or relative might be willing to contribute money toward your down payment expense. This in turn would reduce the amount of money you have to come up with out of your own pocket.

The one caveat here is that the money must truly be a gift, with no strings attached. It cannot be an interpersonal loan. In fact, the person donating the money must sign a letter to this effect.

Let’s Explore Your Options

Do you want to buy a home in California but aren’t sure if you meet the down payment requirements? We can help.

Bridgepoint Funding serves home buyers all across the Golden State. We offer a broad range of financing options, which allows us to match the right product to each individual client.

If you have questions about down payment requirements or guidelines in California, or would like to apply for a loan, please contact our staff. We look forward to helping you pursue your dream of homeownership!