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How Much Down Payment Do I Need for a Bay Area Home Purchase?

The San Francisco Bay Area is one of the most expensive real estate markets in the country. (No surprise there.) Because of this, home buyers tend to have a lot of questions about down payments and the other upfront costs relating to a home purchase.

One of the most common questions is: How much of a down payment do I need to buy a house in the Bay Area?

Below, we’ve explained the minimum investment requirements for different mortgage programs available to Bay Area home buyers.

Minimum Down Payment Needed in the Bay Area

Let’s start with the good news. The minimum required down payment for a Bay Area home purchase is less than you might think. There’s a widespread misconception that home buyers have to put 20% on a purchase, regardless of the loan type. But that’s inaccurate.

Here are two important points to keep in mind:

  • You might need to put 20% down if you want to avoid mortgage insurance.
  • But it’s possible to qualify for a mortgage loan with a lot less than 20%.

In fact, some mortgage loan options allow Bay Area home buyers to make a down payment as low as 3%. This is true for conventional loans, the kind that are often acquired by Fannie Mae and Freddie Mac. The government-backed FHA mortgage program requires just 3.5% down.

Additionally, the VA loan program available to military members and veterans allows for 100% financing in most cases. That means an eligible home buyer could avoid the down payment expense altogether.

The bottom line is, not all Bay Area home buyers have to put 20% down. In fact, the average investment made by first-time buyers is closer to 6%, according to a survey conducted by the National Association of REALTORS®. The average down payment across all home buyers (according to the their study) was 12%.

So, how much money will you have to put down on a Bay Area home purchase? That will depend on the size of your loan and other factors. Just know that there’s a lot of flexibility in this area, and that some mortgage programs offer down payments as low as 3%.

Leveraging the “Bank of Mom and Dad”

Here’s something else Bay Area home buyers should know. All of the loan programs mentioned above permit borrowers to use gift money provided by an approved third party.

This is a big deal for home buyers nationwide, but especially here in the Bay Area where houses tend to be priced well above the national average.

Here’s how it works: The home buyer / borrower uses money provided by a family member or other approved donor, to cover some or all of the down payment. The donor provides a signed letter stating that they do not expect repayment on the money. The home buyer then completes the purchase, and with less money out of pocket.

This financing strategy can help certain home buyers overcome the hurdles associated with a down payment, when buying a house in the Bay Area. This becomes especially helpful if you start off with a lower investment requirement, such as the 3% down payment option mentioned earlier.

The point is, you might be able to buy a home in the Bay Area with a smaller down payment than the commonly cited 20% threshold. And you might be able to get some of that money from a family member or other provider.

Your Best Bet: Start Saving Money Early

The down payment is usually the biggest upfront expense Bay Area home buyers encounter. But it’s not the only one. Buyers typically have to pay for closing costs as well, and those can add up to thousands of dollars.

For these and other reasons, it’s wise to start saving money as soon as possible. This is one of the best things you can do to prepare for the home-buying process. So why not start today?

You could even create a separate savings account for this purpose, so you’re not as tempted to use the money you’ve put aside. You can also set a specific goal for your savings, based on the amount you might need for the down payment and closing costs.

Our blog offers a wealth of information related to average closing costs, down payments, and similar topics. And it’s all geared toward Bay Area and California home buyers! Use the search tool located above to continue your research.

Mike Trejo

Mike Trejo is a Bay Area mortgage broker with 20+ years of knowledge and experience.

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