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Low Down Payment Mortgage Options in California

California home buyers sometimes view the down payment as a major financial hurdle. But it doesn’t have to be. There are several low down payment mortgage options for California buyers with limited funds, and we’ve covered some of them below.

Let’s start by dispelling a common misconception…

You Don’t Need a 20% Down Payment

Some California home buyers choose to put 20% down (or more) when buying a house with a mortgage loan. They do this for a couple of reasons:

  • It allows them to avoid the extra cost of mortgage insurance, which is usually required on loans that account for more than 80% of the home value.
  • This strategy also reduces the size of the monthly payments, since a higher amount is being paid up front.

But a 20% down payment is not required across the board. On the contrary, mortgage lenders today are offering conventional home loans with down payments as low as 3%. The FHA loan program allows borrowers to put as little as 3.5% down. And the VA program for military members offers 100% financing.

Let’s take a closer look at these low down payment mortgage options for California home buyers.

Low Down Payment Mortgage Options in California

Can’t afford to put 10% to 20% down when buying a house? You still have options. Here are some mortgage programs that offer low down payments for California home buyers.

Low Down Payment FHA Loan: 3.5%

The Federal Housing Administration (FHA) loan program has been helping home buyers in California and across the U.S. since the 1930s. Among other advantages, it offers a relatively low down payment option.

Borrowers who use this program to buy a home in California can put down as little as 3.5% of the purchase price or appraised value, whichever is less. You’ll need a credit score of 580 or higher to qualify for the low down payment option, according to current HUD guidelines.

Related: California FHA loan requirements

Low Down Payment With the HomeReady® Mortgage: 3%

The HomeReady loan is another low down payment mortgage loan option for California home buyers. It was created by Fannie Mae, one of the two government-sponsored enterprises that buy and sell mortgage loans in the secondary market (the other being Freddie Mac).

According to Fannie Mae, HomeReady is a “low down payment mortgage product designed for creditworthy low- to moderate-income borrowers, with expanded eligibility for financing homes in low-income communities.”

This type of home loan offers purchase financing up to 97%, for a down payment as low as 3% of the purchase price. Additionally, there is no minimum contribution from the borrower’s own funds. This means you could have the 3% gifted to you from a family member or other approved donor. (We will talk more about down payment gifts later.)

Low Down Payment With the “Conventional 97” Home Loan: 3%

Fannie Mae supports another mortgage product that offers 97% financing. It’s a conventional home loan, and is often referred to as the “Conventional 97” for short. Through this program, California home buyers can get a mortgage with a low down payment of 3%.

The Conventional 97 is similar to the HomeReady loan option mentioned previously, but with fewer income restrictions for borrowers. The loan must be a fixed-rate mortgage (not an ARM) with a maximum term length of 30 years.

These are not the only low down payment mortgage options for California borrowers. But they are some of the most widely used programs.

A Higher LTV Might Require Extra Insurance

When a mortgage loan accounts for more than 80% of the home value, the borrower is usually required to pay mortgage insurance. So if you use a loan program with a low down payment, like those mentioned above, you’ll probably have to pay for some form of mortgage insurance.

Nearly all home buyers who use the FHA loan program end up paying these insurance premiums, which increases the size of the monthly payments. Additionally, conventional (non-FHA) mortgage products with a loan-to-value ratio above 80% usually require private mortgage insurance, or PMI.

Side note: The VA home loan program is unique in that it allows for 100% financing, often without mortgage insurance.

Related: Buying a home with no down payment

The point is, if you use a low down payment mortgage program to buy a house in California, you’ll probably be required to pay for mortgage insurance. But there’s an upside to this. This kind of insurance is what makes low down payments possible in the first place. Without it, most home buyers would be required to put 20% down, which would be cost-prohibitive for a lot of folks. So mortgage insurance serves a purpose.

Using Gift Money from Friends and Family

These days, most home loan programs allow borrowers to use financial gifts (donations) from family members and other approved sources. The money can be used to cover some or all of the down payment. Depending on the type of mortgage loan being used, the gift money could come from a family member, a friend, an employer, or an approved charitable organization.

So this is another way to keep your down payment low, when buying a home in California. In fact, you might not have to pay anything out of pocket at all, if your gift money covers the full investment. The stipulation here is that the money being donated must truly be a gift — not a short-term loan in disguise. The donor will have to provide a “gift letter” to this effect, stating that they don’t expect any repayment.

Want to Explore Your Options?

Do you plan to buy a home in California in the near future? Do you have questions about your down payment options, mortgage insurance, or anything else mentioned above? We can help you!

Bridgepoint Funding has been serving borrowers in the state of California for more than 15 years. We offer a wide variety of loan programs and options, some with flexible criteria and low down payments. We can help you explore your financing options and make an informed choice. Please contact our friendly and knowledgeable staff today.

Get started: Please contact us if you’d like to get pre-approved for a loan, or if you’d like to receive a rate quote. Just call (925) 478-8630, or send an email to

Mike Trejo

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

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