This article is a page out of the home buyer’s playbook, so to speak. It was adapted from our recently published Bay Area Home Buying Guide, which you can download for free. This article explains current down-payment trends and requirements for Bay Area home buyers.
Bay Area Down Payments at a Glance
When buying a home in the Bay Area, the size of your down payment will vary depending on several factors. The type of home loan you use is one of the primary factors. Different mortgage programs come with different minimum investment requirements.
Here’s an overview of Bay Area down payments for different loan programs:
- Conventional: A conventional home loan is one that is not insured or backed by the federal government. This distinguishes it from the FHA and VA programs mentioned below. When using a conventional loan to buy a home in the Bay Area, your down payment might range from 3% to 20%. Where you fall on this spectrum will partly be determined by the type of loan you use. For instance, jumbo mortgages (that exceed conforming loan limits) often have higher down-payment requirements than smaller conforming loans.
- FHA: FHA loans are insured by the government, through the Federal Housing Administration. If you use this program to buy a house in the Bay Area, your down payment will probably be 3.5% of the purchase price or appraised value (whichever is less). That’s the minimum required investment for an FHA-insured home loan.
- VA: If you are a military member in the Bay Area, you should seriously consider using the VA loan program. It’s the government’s way of giving back for honorable military service. Through this program, qualified borrowers can buy a home in the Bay Area with no down payment whatsoever. That’s because VA loans offer 100% financing, often without mortgage insurance. We are passionate about this program. Please contact us if you’d like to learn more about it.
As you can see, there’s a pretty broad range of down payments for Bay Area home buyers.
Saving Money for Your Home-Buying Expenses
If you’re planning to buy a home in 2016 or 2017, you might want to start saving money now. Having sufficient funds in the bank can help you qualify for a home loan. And don’t forget, you might have to pay closing costs on your loan as well, in addition to the down payment.
Consider creating a separate bank account for your home-buying fund. If you use your debit card on a daily basis, as many of us do, it might be wise to create a separate account for your housing fund. That way, you won’t chip away at those funds without realizing it.
Scaling back on luxury items, entertainment expenses, and other non-essentials can also help you reach your down payment goals. Practicing some fiscal restraint now could help you qualify for a loan down the road.
Using Down Payment Gifts from Family
Some mortgage programs allow home buyers to obtain down payment “gifts” from family members, or from other approved donors. This is true for FHA and some conventional loans. This is helpful for Bay Area home buyers who can’t come up with a down payment on their own. It could greatly reduce your upfront, out-of-pocket expense.
If you use a down payment gift, you’ll have to provide a letter from the person who is gifting you the funds. The letter should state that the person providing the money does not expect any form of repayment. In other words, it states that the money is truly a gift — and not a loan.
Ready to Explore Your Options?
Bridgepoint Funding serves home buyers in the San Francisco Bay Area, with an emphasis on the East Bay in particular. We offer a variety of loan programs with flexible down-payment requirements.
If you have questions about this subject, or would like to receive a rate quote for a loan, please contact us today. We look forward to helping you!