How Much Deposit Do You Need for a House in California?

The term “deposit” for a home in California primarily refers to the down payment. This upfront financial contribution is a significant component of homeownership, influencing mortgage terms and overall cost.

Understanding Down Payment Basics

A down payment is the initial portion of a home’s purchase price a buyer pays directly, rather than borrowing through a mortgage. This direct cash contribution reduces the loan amount needed from a lender, decreasing the total interest accrued over the life of the mortgage. A larger down payment also contributes to immediate equity, establishing a stronger financial position for the homeowner.

The size of a down payment also impacts whether private mortgage insurance (PMI) is required for conventional loans. Lenders typically require PMI when a borrower puts down less than 20% of the home’s purchase price, as this coverage protects the lender in case the borrower defaults. While a 20% down payment is a common benchmark for avoiding PMI, it is not a universal minimum requirement for all loan types. Many loan programs allow for significantly lower down payments, making homeownership accessible to a broader range of buyers.

Loan Types and Required Down Payments

Different mortgage loan types come with varying minimum down payment requirements. Conventional loans typically offer down payment options from 3% to 5%, though 20% is advised to avoid private mortgage insurance. The specific percentage required can depend on the borrower’s credit score and debt-to-income ratio.

Federal Housing Administration (FHA) loans are government-insured mortgages. These loans typically require a minimum down payment of 3.5% of the purchase price. FHA loans involve a Mortgage Insurance Premium (MIP), which includes both an upfront fee and annual premiums, regardless of the down payment amount.

For eligible veterans and active-duty service members, Department of Veterans Affairs (VA) loans often require no down payment. While there is no monthly mortgage insurance, VA loans include a funding fee, which can be financed into the loan amount. United States Department of Agriculture (USDA) loans, designed for properties in eligible rural areas, also allow for zero down payment for qualified borrowers.

Additional Upfront Costs

Beyond the down payment, homebuyers face other upfront costs. One expense is the earnest money deposit (EMD), a good faith gesture from the buyer to the seller. In California, EMDs typically range from 1% to 3% of the purchase price, though this can be higher in competitive markets. This deposit is held in an escrow account and usually applied towards the buyer’s down payment or closing costs at the close of the transaction.

Closing costs are another category of upfront expenses paid at the conclusion of a real estate transaction. Buyers in California can expect these costs to range from 2% to 5% of the home’s purchase price. These fees cover services and expenses associated with finalizing the mortgage and transfer of ownership.

Common closing costs include:
Lender fees, such as loan origination and underwriting fees, for processing the mortgage.
Title insurance fees, covering both the lender’s and owner’s policies, protecting against defects in the property’s title.
Escrow fees, compensating the escrow company for managing transaction documents and funds.
Appraisal fees, paid to a professional who assesses the home’s value.
Inspection fees.
Prepaid expenses like property taxes and homeowner’s insurance premiums due at closing.
Recording fees for officially registering new ownership.

California Down Payment Assistance Programs

California offers various down payment assistance programs for eligible homebuyers. The California Housing Finance Agency (CalHFA) offers programs structured as second mortgages or grants. These programs, combinable with CalHFA’s first mortgage loans, help with down payments and closing costs.

CalHFA’s MyHome Assistance Program provides a deferred-payment junior loan, offering up to 3.5% of the purchase price for FHA loans and up to 3% for conventional loans. Eligibility for CalHFA programs includes being a first-time homebuyer (not having owned a home in the last three years) and occupying the purchased property as a primary residence. Borrowers must also meet specific income limits, which vary by county and program, and often need to complete a homebuyer education course.

Many cities and counties across California also offer their own down payment assistance programs with unique eligibility criteria and terms. Programs from entities like the Golden State Finance Authority (GSFA) can provide assistance as grants or deferred loans. These local programs may offer grants that do not require repayment, or deferred-payment junior loans where payments are not due until the first mortgage is paid off, the home is sold, or refinanced. Some assistance programs may be forgivable after a certain period of occupancy.