How Much Do You Really Need for a Down Payment in California?

Here is what I would tell you if you were my little brother: the amount you need for a down payment depends entirely on which loan program you use. It could be zero. It could be 3 percent. It could be 25 percent. There is no single number.

The old rule that you need 20 percent down is a myth. It was never a legal requirement, just a guideline that some people treat as gospel. You can buy a home in California with as little as zero down (VA) or 3 percent down (conventional for first-time buyers) or 3.5 percent down (FHA). Let me break down each option.

Conventional loans (the kind not backed by the government) require a minimum of 3 percent down if you are a first-time buyer (no home ownership in the past 3 years). If you are not a first-time buyer, the minimum is 5 percent. If you put less than 20 percent down, you will pay private mortgage insurance (PMI), which is an extra monthly cost on top of your principal, interest, taxes, and insurance.

If you put 20 percent or more down, there is no PMI. That is where the 20 percent rule comes from. It is not a minimum, it is the point where PMI drops off. Here is what I would do if I were you: if you have 20 percent, great, use it and skip PMI. If you do not, do not wait years to save it up. Buy now with less down, build equity through appreciation and principal paydown, and remove the PMI later when you reach 20 percent equity.

FHA loans are backed by the Federal Housing Administration and require 3.5 percent down if your credit score is 580 or above. On a $800,000 home, that is $28,000. You can use gift funds from family for the entire 3.5 percent, which makes FHA very accessible for first-time buyers.

The trade-off is that FHA loans have mortgage insurance premiums (MIP) that stay for the life of the loan in most cases. So your monthly cost is a bit higher than conventional. But if your credit is in the 580 to 620 range, FHA is often cheaper than conventional because the rate is better for lower credit scores.

If you are a veteran, active duty service member, or eligible surviving spouse, a VA loan lets you buy a home with zero down payment. Zero. You finance 100 percent of the purchase price. And there is no monthly mortgage insurance, which saves you hundreds per month compared to FHA or conventional with less than 20 percent down.

There is a VA funding fee (2.15 to 3.3 percent of the loan amount) but it can be financed into the loan, so you do not pay it out of pocket. If you receive VA disability compensation, the fee is waived. If you have served, this is usually the best loan available to you. Do not leave this benefit on the table.

Jumbo loans are for homes that exceed the conforming loan limit. In Orange County, the conforming limit as of 2024 is $1,149,825. If you are buying above that, you need a jumbo loan, and those typically require 10 to 20 percent down.

Jumbo loans also require stronger credit (usually 700 or above), lower DTI, and more reserves (6 to 12 months of payments in the bank). The requirements are stricter because the lender holds the loan rather than selling it to Fannie Mae or Freddie Mac.

If you are buying an investment property with a DSCR loan (which qualifies you based on rental income, not your personal income), you will need 20 to 25 percent down. These are portfolio products with higher rates, but they let investors scale without being limited by their personal DTI.

For conventional investment property loans, the minimum is typically 15 to 25 percent down, depending on the lender and the property type.

Here is something many people do not know: California has programs that can cover your down payment for you. CalHFA (California Housing Finance Agency) offers several programs, including MyHome Assistance (up to 3.5 percent as a deferred second mortgage) and Dream For All (up to 20 percent through shared appreciation).

These programs have income limits and purchase price limits, and they require you to be a first-time buyer (no ownership in the past 3 years). But if you qualify, they can make buying a home possible with very little out of pocket. I check every program you might qualify for, because many buyers leave this money on the table without knowing it exists.

Here is what I would want you to understand: the down payment is not the only cash you need at closing. You also need closing costs (typically 2 to 5 percent of the loan amount) and sometimes reserves (2 to 6 months of payments in the bank, depending on the loan type).

So if you are buying an $800,000 home with 3.5 percent FHA down, your down payment is $28,000. But your closing costs might be another $16,000 to $24,000. And you might need 1 to 2 months of reserves in the bank. The total cash needed could be $50,000 to $60,000, not just $28,000.

The good news is that you can ask the seller to pay some or all of your closing costs (called seller credits), and some down payment assistance programs also cover closing costs. I help you plan for the total cash needed, not just the down payment.

Putting 20 percent down makes sense if you have the cash and you want to avoid PMI on a conventional loan. It also gives you a lower monthly payment and more equity from day one.

But here is when it does not make sense: if putting 20 percent down would drain your savings and leave you with no emergency fund. Or if you are in a rising market where waiting a year to save more means the home costs $50,000 more. Or if you could invest that extra cash at a higher return than your mortgage rate.

Here is what I would do if I were you: call me, tell me how much you have saved, and let me show you the real numbers for each scenario. We will look at the monthly payment, the total cash needed, and the long-term cost. Then you decide what makes sense for your life.