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 in California, 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 your use, the amount you need to borrow, and other factors.

In this article, we will examine the minimum down payments for different types of loans, and what they might add up to based on California home prices.

How Much Do You Need for a Down Payment?

Different types of mortgage loans have different minimum requirements for the down payment amounts. So this is a good place to begin your research.

The conventional mortgage loan is by far the most popular financing option among home buyers in California. The “conventional” label means that the loan is not insured or guaranteed by the federal government. This label distinguishes conventional loans from government-backed mortgage programs like FHA and VA.

In most cases, the minimum down payment for a conventional loan is 3% of the purchase price. But a person seeking a jumbo loan that exceeds the loan limits for their county might have to invest as much as 20%.

The Federal Housing Administration (FHA) home loan program requires borrowers to put down at least 3.5% of the purchase price or appraised home value. FHA loans are popular among first-time buyers and also those who have had credit issues in the past.

The VA loan program—which is limited to military members, veterans and certain qualifying spouses—allows borrowers to finance all of the purchase price. A borrower using this program might not have to save any money for a down payment, though they will still encounter closing costs.

So, how much money would you need to save up for these mortgage options, based on home prices in California?

As of fall 2023, the median home value in the state was around $744,000. Here’s what the minimum down payment might look like, based on that price point:

• Conventional loan with 3% down = $22,320
• FHA loan with 3.5% down = $26,040
• VA home loan with 0% down = $0

Of course, the actual amount you have to put down could be significantly more or less than these numbers, based on the home price. The median price represents the midpoint for the real estate market. This means half of all home sales are priced above that level, while the other half are priced below it.

Still, this gives you a general ballpark as to how much money you might need for a down payment in California, for a typical home purchase.

Start Saving Sooner Rather Than Later

When it comes to saving up for a down payment, there’s no better time like the present.

As you can see from the numbers presented above, even the minimum down payment for a conventional or FHA loan can add up to many thousands of dollars. After all, California is the most expensive state in the country when it comes to real estate market values.

The sooner you start saving for your down payment and closing costs, the sooner you can start house hunting and make an offer on a home.

Here are some time-tested tips and strategies to help you save up for a down payment on a California home purchase:

1. Create a monthly budget to track your expenses.
2. Cut unnecessary spending and prioritize saving.
3. Set up an automatic transfer from checking to savings.
4. Consider downsizing or renting a more affordable place.
5. Increase your income through a part-time job or freelancing.
6. Look for additional sources of income or side gigs.
7. Reduce high-interest debt to free up more funds.
8. Open a high-yield savings account for better returns.
9. Save windfalls, like tax refunds or bonuses.
10. Stay patient and committed to your savings goals.

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.

Have questions? We have been helping home buyers across the state of California for nearly 20 years. We can answer any questions you have about using a mortgage loan to buy a house, including the amount of money you might have to put down.