When applying for a mortgage loan, clients must indicate a proposed down payment.
Homebuyers have several options when it comes to the size of their down payment. The minimum amount required varies from one mortgage program to another. Here we’ll examine the minimum down payments required for a conventional mortgage in California.
Minimum Down Payment For A Conventional Loan
Definition: “Conventional loans” refer to mortgages that are not guaranteed or insured by the government. This distinguishes conventional mortgages from government-insured mortgage programs, such as FHA and VA loan products.
In California, the 30-year fixed-rate conventional mortgage is the most widely used type of loan today.
Freddie Mac and Fannie Mae (the government-sponsored entities that purchase home loans from lenders) allow mortgages with loan-to-value ratios to be as high as 97% for low balance loans (loan amounts up to $647,200) and 95% for high balance loans (loan amounts greater than $647,200 up to the county loan limit). This means that the minimum down payment for a conventional loan in California can be as low as 3% of the total purchase price, depending on your loan amount.
Minimum Down Payment Translated Into Real Dollars
Down payment sizes vary based on home values and other factors. For example, here is what a down payment of 3% might look like in California:
The median house value in California hovers around $734k.
A 5% conventional down payment on that home value is $36,700.
A 3.5% down payment (the minimum for FHA financing) is $25,690.
Homebuyers who pursue conventional mortgage loans to buy property in California often choose to put down 20% or more. This allows the homebuyer to avoid paying monthly mortgage insurance (generally required with a down payment of less than 20%).
Private mortgage insurance (PMI) is a cost paid by the borrower. This insurance protects the lender in case the borrower defaults and ceases to make mortgage payments. Although PMI makes monthly payments more expensive, the insurance allows many homebuyers to come in with a lower down payment.
There are financing options with a lower investment requirement for borrowers who cannot afford to put 20% down on a home. These include FHA loans, and for veterans and members of the military, there are VA loans available that offer zero down payment options.
If you’re interested in applying for a home loan or have additional questions about a minimum down payment for a home purchase in California, you can reach our team here, by phone at (855) 855-4491, or by email at [email protected].