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Making a Low Down Payment When Buying Your First Home in California

First-time home buyers in California often look for ways to make a low down payment when purchasing a house. While everyone can enjoy a smaller upfront investment, first-time buyers in particular benefit from these mortgage options. After all, they don’t have the proceeds from a previous home sale to put toward their purchase.

Numerous surveys have shown that the down payment is the biggest obstacle to homeownership, for many people. This is especially true in California, where the typical home price is much higher than the national average.

In this article, we will explore some of the ways you could make a relatively low down payment when buying a house in California. We will talk about the government-backed FHA and VA programs, as well as conventional loans that include mortgage insurance. These are the most popular loan options for California home buyers seeking a low down payment.

Low Down Payments Benefit First-Time Buyers

We touched on one of the biggest benefits of a low down payment mortgage already. These home loan options minimize the biggest hurdle to homeownership: the upfront out-of-pocket expense. But that’s not the only benefit.

By making a relatively small down payment on a California home purchase, you’ll be able to keep more money in your savings account. You could use those funds to help cover your first few mortgage payments, moving-related expenses, furniture, etc.

On the other hand, if you were to make a larger down payment that completely wiped out your savings, you would be going into homeownership with the financial tank on empty.

Low down payment mortgage options can also help you qualify for a loan, since you don’t have to save up as much money to meet the required investment. These are some of the biggest benefits of putting less money down when buying your first home in California.

The question is, how do you enjoy these benefits? What kinds of home loans offer a low down payment for first-time buyers with limited funds in the bank? Here are three options to consider.

Conventional Loans with PMI

Eligible borrowers in California can qualify for a conventional mortgage loan with as little as 3% down. But there’s one important caveat. If you make a lower investment like this, you will have to pay for private mortgage insurance, or PMI. This cost is added on to your monthly payments.

The upside is that you can buy a home sooner rather than later, since you don’t have to save up for a 20% down payment (which is the threshold needed to avoid PMI). Homeowners often grumble about having to pay private mortgage insurance. But the truth is it makes homeownership available to a lot more people, including many first-time buyers.

The FHA Loan Program

The Federal Housing Administration (FHA) home loan program allows borrowers to put down as little as 3.5% on a home purchase. Because of this feature, FHA loans are particularly popular with first-time buyers in California.

To be clear, you don’t have to be a first-time buyer to qualify for this program. You could get a VA loan even if you have owned a house in the past. But this program is especially well-suited to California first-time buyers seeking a low down payment financing option. In fact, that group makes up the bulk of borrowers we use this program.

The VA Mortgage Program

Are you a military member in good standing, or a veteran with an honorable discharge? If so, there is a good chance you are qualified for a VA loan

This is another way for first-time buyers to make a low down payment on a California home purchase. In fact, eligible borrowers who use this program can finance up to 100% of the purchase price. That means they could avoid making a down payment entirely.

It’s Important to Explore Your Financing Options

This article underscores the importance of exploring all of your financing options, when buying your first home in California. And we’ve really only scratched the surface here.

As a home buyer, you have many different loan options and features to choose from. The important thing is to choose the right financing option for your particular needs.

As a mortgage broker, we work with many different lenders who offer a broad range of home loan options. So, if you are seeking a low down payment mortgage program to buy your first home in California, there’s a good chance we can help you.

Please contact our staff if you have questions or would like to apply for a loan. We are located in the San Francisco Bay Area but serve borrowers all across the state of California!

Mike Trejo

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

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