How Much Money Do I Need for a Down Payment?

A lot of buyers believe they need 20% down to buy a home. That's not true for many loan programs. Twenty percent can be a smart target, but it's not always the requirement, and waiting to save it in California can take years.

General minimums by loan type

These are general guidelines. Exact requirements depend on the lender, your credit and the property.

• Conventional loans: as low as 3% down for eligible buyers on certain programs, commonly 5% or more. See conventional loans explained.
• FHA loans: generally 3.5% down with qualifying credit. See FHA pros and cons.
• VA loans: no down payment for eligible veterans and service members in many cases. See VA home loans.
• Jumbo loans: down payment requirements are usually higher and vary by lender.
• Investment properties: typically require more down than a primary residence.

The trade-offs of putting less down

Advantages

• You can buy sooner rather than waiting years to save more.
• You keep more cash for reserves, repairs or furnishings.

Disadvantages

• A larger loan means a higher monthly payment.
• You'll usually pay mortgage insurance, which adds to your payment. More on mortgage insurance.
• Less equity at the start gives you less cushion if values dip.

The trade-offs of putting more down

Advantages

• A lower payment and less interest over time.
• With conventional loans, 20% down generally avoids private mortgage insurance.
• Your offer may look stronger to some sellers.

Disadvantages

• It takes longer to save.
• Tying up most of your savings in the house can leave you without a safety net.

An example

These numbers are for illustration only. On an $800,000 home:

• 5% down is $40,000, for a loan of $760,000
• 10% down is $80,000, for a loan of $720,000
• 20% down is $160,000, for a loan of $640,000

The difference in monthly payment between these depends on the rate, but the jump in cash needed is large. Try it yourself in the mortgage calculator.

Don't forget closing costs and reserves

Your down payment isn't the only cash you'll need. Plan for closing costs, and some programs require reserves: savings left over after closing, often measured in months of payments.

Where the money can come from

• Savings and checking accounts
• Investment or retirement accounts (rules vary on how these are counted)
• Gift funds from family, usually with a signed gift letter and documentation of the transfer
• Down payment assistance programs, depending on eligibility. See down payment assistance in California.

Lenders need to verify where funds came from. Large, unexplained deposits usually need a paper trail, so it helps to keep money where it is once we start.

Questions?

There's no single right down payment. It depends on your savings, your goals and how long you plan to stay. If you'd like to compare a few options side by side, contact me, or start your pre-approval to get a clearer picture.