How to Buy a California House with Less Than 20% Down

When it comes to the mythical down payment for purchasing a house, the number that comes up a lot is 20%. And while it’s a good number to shoot for, it’s by no means a hard, universal rule. In fact, it’s actually extremely common for people to buy homes with far lower down payments. So, you’re in luck—we’re going to go over the different ways you can buy a California house with less than 20% down.

You should also watch our recent YouTube episode where we cover everything here—and more—about how to buy a California house with less than 20% down.

Depending on the kind of loan(s) you’re eligible for, you could have a down payment in the single digits. If you’re really lucky, some home loans require absolutely 0% down. So, if you’ve been wondering how you’re going to save up enough for that big 20% down payment, we’re here to bust that myth with some other options.

1. Private Mortgage Insurance

If you’re planning on going with a conventional loan—which is any kind of loan not obtained through some sort of government program—there’s a pretty easy option that allows you to go with a smaller down payment. And that’s by including private mortgage insurance—or PMI—in your loan. PMI is required by most lenders if you’re putting less than 20% on a conventional loan.

Paying PMI can be done in a lump sum at closing or as a recurring payment included in your monthly mortgage payments. The closer you get to 20% down, the lower the monthly payment. Once you’ve paid the loan down to 78% of the home’s value, PMI automatically falls off the loan.

2. Federal Housing Administration Loans

For many first-time homebuyers, there is no better option for a mortgage than FHA loans, available through the U.S. Department of Housing and Urban Development’s Federal Housing Administration. These government-backed loans have a lot of advantages, including that they require lower minimum credit scores and low minimum down payments. And when we say low, we mean your down payment can be as little as 3.5% of the home’s sale price.

FHA loans also include relatively low closing costs, lower credit score requirements, and the possibility of using gift funds for your down payment. So even considering that an FHA loan requires an upfront PMI premium and a monthly PMI premium, it’s no wonder that so many people take advantage of these loans.

3. VA Loans

We’ve extolled the many upsides of VA home loans for eligible veterans and military families before, and with good reason. They really are amazing opportunities for those who served or who are active-duty to buy homes as easily as possible. And one of those upsides is that the minimum down payment is absolutely nothing as long as the purchase price of the home is under $1.5 million. That’s right, there is 0% down payment required to qualify for a VA loan for any home below that price. What’s more, if you’re a veteran with at least a 10% disability rating you’re also exempt from the potential funding fee, which can be up to 3.6% of the sales price. 

4. USDA Loans

When people hear the letters “USDA,” they tend to think of the ratings on fine steaks or big swaths of midwestern farmland. But the U.S. Department of Agriculture has a program for extending home loans to people in rural areas all over the country, including here in California. Their rural development program offers a variety of loans and financing options for those looking to live in unincorporated areas. The regions they apply to are surprisingly vast, though they are typically outside the more populous, urban areas of the country. But if you’re shopping for homes in eligible regions, this is a great option. And, just like VA loans, they require a minimum of 0% down payment.

5. Down Payment Assistance Programs

Down payment assistance—sometimes abbreviated as DPA—is sort of an umbrella term covering a wide array of programs and services that help people cover down payments when purchasing a home. Government programs, charitable organizations, special grants, and more all fall under this category. They usually vary state by state, and there are plenty of options to choose from here in California.

A particularly useful and popular one is the program run by the state government’s California Housing Financing Agency, or CalFHA. It’s a wonderful option for people hoping to keep their down payment low, but it is limited to $11,000 for most people. Employees of schools or fire departments can borrow up to 3.5% of the home’s purchase price, regardless of how expensive the home is.

Ready to Buy a California House with Less than 20% Down?

Have we convinced you yet that you don’t have to save up 20% to buy a home? Becoming a homeowner has a lot of benefits, both personal and financial. So maybe you shouldn’t wait too long to get into a home, regardless of how much you’ve got in the bank for that down payment. If you can make the payments on your projected monthly, why hold off until you have 20% saved? The equity you start building by owning your home may wind up offsetting whatever additional monthly costs a lower down payment may incur.

So if you’re considering buying a home, reach out to us here at New Way Mortgage. We’ll go through all your options with you and help you find the loan that works best for your unique situation.