The single most expensive belief in California real estate is that you need 20% down.
It costs people years. A buyer in San Diego decides they need $180,000 before they can start, spends four years saving toward it, and watches prices and rents move the entire time. Meanwhile the same buyer could very likely have purchased in year one.
Twenty percent is not a requirement. It is a threshold that avoids mortgage insurance. Those are different things, and the difference is worth understanding before you commit years of your life to a savings target.
What the programs actually require
Real minimums, by program:
- VA — 0% down. For eligible service members, veterans, and surviving spouses. No down payment and no monthly mortgage insurance. More on VA loans.
- USDA — 0% down. For properties in eligible rural and suburban areas, subject to household income limits. More of California qualifies than people assume, though most of urban San Diego County does not. More on USDA loans.
- FHA — 3.5% down. Flexible credit guidelines, gift funds permitted. More on FHA loans.
- Conventional — 3% down for qualified borrowers, and 5% is very common. More on conventional loans.
On a $700,000 purchase, 3% is $21,000 and 3.5% is $24,500. That's a materially different problem than $140,000.
So what does 20% actually buy you
Three things, and it's worth being honest that they have real value:
- No mortgage insurance. The main one.
- A smaller loan, so a lower payment and less interest over the life of the loan.
- A stronger offer in a competitive situation, because a larger down payment reduces the chance of an appraisal gap sinking the deal.
What it does not buy you is a meaningfully better interest rate in most cases. Pricing improves as you cross certain loan-to-value thresholds, but the difference between 20% down and 10% down on rate alone is usually small compared to the mortgage insurance.
Mortgage insurance, and how it goes away
This is the part that changes the math, and it's where a lot of advice is out of date.
On a conventional loan, private mortgage insurance is not permanent. You can request removal once you reach 20% equity, and it terminates automatically at 78% loan-to-value based on the original amortization schedule. In an appreciating market you can often get there faster than the schedule via a new appraisal.
PMI is also risk-priced — better credit means a lower premium — and it can sometimes be paid as a one-time upfront amount or absorbed into the rate instead of a monthly line item. Which structure is cheapest depends on how long you plan to keep the loan. That's a calculation worth doing rather than defaulting to monthly.
On an FHA loan, mortgage insurance behaves differently. There's an upfront premium plus an annual one, and with the minimum down payment the annual premium generally stays for the life of the loan. The usual path off it is refinancing into a conventional loan once you have enough equity — which is a normal, planned step, not a failure.
The practical read: on a conventional loan, PMI is a temporary cost of buying sooner. On FHA, treat it as a cost you'll refinance out of later.
Gift funds
Down payment money does not all have to be yours.
Conventional and FHA loans both allow gift funds from family members, and FHA is somewhat broader about who qualifies as an acceptable donor. What matters is documentation: a signed gift letter stating the money is a gift and not a loan, and a clear paper trail from the donor's account into yours.
The paper trail is where files get stuck. Move the money in one traceable transfer, don't split it into cash deposits, and don't move it at all until you've asked your lender how they want it documented.
California down payment assistance
CalHFA, the California Housing Finance Agency, runs first mortgage and down payment assistance programs specifically for buyers in this state, generally aimed at first-time buyers within income limits, with a homebuyer education requirement.
The important caveat: CalHFA's programs change, and some of the higher-profile ones have operated on limited funding with application windows rather than continuous availability. Anything you read about a specific California assistance program — including this article — should be verified against what is actually open right now.
There are also city and county programs in San Diego with their own criteria, and some employers and unions offer assistance that people forget they have.
The general shape holds: if you're a first-time buyer in California within income limits, there is likely more help available than you think, and it's worth asking before you assume you're on your own.
Closing costs are a separate number
A point that catches people out: the down payment is not the only cash you need.
Closing costs — lender fees, title, escrow, appraisal, recording, and prepaid items like property taxes and homeowners insurance — typically run a few percent of the purchase price on top of the down payment.
They can often be reduced or covered:
- Seller credits, negotiated as part of the offer. How realistic that is depends entirely on the market at that moment.
- Lender credits, where you accept a slightly higher rate in exchange for the lender covering costs. On a shorter expected hold, this is frequently the right trade.
- Assistance programs, some of which cover closing costs as well as down payment.
Ask for a full estimate of cash to close, not just the down payment, early enough to plan around it.
What matters more than the down payment
Having sat on a lot of these files, the down payment is rarely what decides whether someone qualifies. These usually matter more:
Debt-to-income ratio. Your total monthly obligations against gross monthly income. A car payment can reduce your purchasing power by more than another $10,000 in savings would increase it. If you're twelve months out, paying down installment debt often does more than saving harder.
Credit score. It drives your rate and your mortgage insurance premium simultaneously, so it compounds. Moving up a tier can be worth more per month than a larger down payment.
Reserves. Money left over after closing. Some programs require it, and all underwriters like seeing it. Draining every account to hit a larger down payment can make a file weaker, not stronger.
Stable, documentable income. Two years of history in the same field is the standard. If you're self-employed, that's a different conversation — we've written about it separately.
Where to start
Not with a savings target. With an actual number.
Get pre-approved before you decide what you can afford, not after. A real pre-approval tells you the purchase price you qualify for, the cash you'd need at each down payment level, and what the payment looks like with insurance and taxes included. It also tells you what to fix if the answer isn't what you wanted.
It costs nothing and it takes a short conversation. Let's run your numbers.
This article is general information, not a commitment to lend or personalized financial advice. Program terms, income limits, and assistance availability change — confirm current details before making decisions.