Do You Need 20% Down to Buy a House?

Let's Bust the Biggest Myth in Home Buying

If you've been dreaming of owning a home in California but quietly wondering whether you'll ever save up "enough," you're not alone. The idea that you need a full 20% down payment before you can even think about buying a house is one of the most persistent myths in real estate — and it's keeping a lot of people on the sidelines who don't need to be there.

Here's the truth: you almost certainly do not need 20% down to buy a home. In fact, most California home buyers — including first-timers — purchase with far less. Let's walk through your real options, break down what that looks like in the Golden State, and help you figure out what the right down payment strategy looks like for you.

So Where Did the "20% Rule" Come From?

The 20% figure has real roots. When you put less than 20% down on a conventional loan, lenders traditionally require you to carry Private Mortgage Insurance (PMI) — a monthly premium that protects the lender (not you) if you were to default. For decades, this made 20% the "magic number" to avoid that extra cost.

But here's the thing: PMI isn't permanent, it's not outrageously expensive for most buyers, and for many people — especially in high-cost California markets — waiting years to save 20% means watching home prices climb further out of reach. The math often works against waiting.

Your Low-Down-Payment Loan Options

FHA Loans — As Low As 3.5% Down

Backed by the Federal Housing Administration, FHA loans are a go-to for first-time buyers. If your credit score is 580 or higher, you can put just 3.5% down. Credit in the 500–579 range? You may still qualify with 10% down. FHA loans are flexible about credit history and debt-to-income ratios, making them one of the most accessible options on the market.

In California, where median home prices often exceed $700,000 in many metro areas, FHA loan limits have been raised significantly to keep pace — so this isn't just for modest markets. Check your county's FHA limit to see how much purchasing power you'd have.

Conventional Loans — As Low As 3% Down

Fannie Mae's HomeReady® and Freddie Mac's Home Possible® programs offer conventional financing with just 3% down for qualifying buyers. These programs are designed with moderate-income buyers in mind and include features like reduced PMI rates compared to standard conventional loans.

Even a standard conventional loan can be obtained with as little as 5% down, and if your credit is strong, your overall costs may actually be lower than with FHA — it depends on your individual scenario, which is why working with a knowledgeable mortgage broker is so valuable.

VA Loans — 0% Down for Veterans and Active Duty

If you've served in the military or are currently on active duty, a VA loan may be one of the best financial tools available to you — full stop. VA loans require zero down payment, no PMI, and come with competitive interest rates. California has a large veteran population, and this benefit is dramatically underutilized.

If you or your spouse have military service, make sure your mortgage advisor is asking about VA eligibility before anything else.

USDA Loans — 0% Down in Qualifying Areas

Contrary to what you might think, USDA-eligible areas aren't limited to farms in the middle of nowhere. Parts of California's Central Valley, Inland Empire, and Northern California qualify for USDA Rural Development loans, which offer 100% financing with no down payment for income-qualified borrowers. If you're open to a home outside of a major metro center, this is worth exploring.

California Down Payment Assistance Programs

California offers some of the most robust down payment assistance programs in the country. Here are the big ones every home buyer (and real estate professional) should know:

CalHFA MyHome Assistance Program

The California Housing Finance Agency (CalHFA) offers the MyHome Assistance Program, which provides a small secondary loan of up to 3.5% of the purchase price or appraised value to cover down payment and/or closing costs. It's paired with a CalHFA first mortgage, and repayment is deferred until you sell, refinance, or pay off the first mortgage.

California Dream For All Shared Appreciation Loan

The Dream For All program is one of the most talked-about in recent years — and for good reason. It offers eligible first-time buyers up to 20% of the home purchase price as a loan. In exchange, when you sell or refinance, you share a portion of the home's appreciation with CalHFA. It's not free money, but it can be a genuine game-changer for buyers who are credit-qualified but cash-short.

Demand for this program has been extraordinarily high, so check for current availability and application windows through CalHFA's website or with a CalHFA-approved lender.

Local County and City Programs

Many California counties and municipalities offer their own down payment assistance — some with very favorable terms. Programs exist in Contra Costa, Alameda, Sacramento, San Diego, and Los Angeles counties, among others. These are often income-based and can stack on top of state programs for even greater assistance. A local mortgage broker who knows your market is your best resource for uncovering these.

What About PMI — Is It Really That Bad?

Let's talk honestly about Private Mortgage Insurance. On a conventional loan with less than 20% down, PMI typically costs between 0.5% and 1.5% of your loan amount annually — so on a $600,000 loan, that's roughly $250–$750 per month added to your payment.

That's real money. But consider the alternative: if you're waiting to save $140,000 (20% of a $700,000 home) while California home values keep rising, you might be paying rent for years, building no equity, and chasing a target that keeps moving. For many buyers, getting into the home now — even with PMI — is the smarter long-term financial move.

And the good news? PMI doesn't last forever. Under the Homeowners Protection Act, lenders are required to cancel PMI automatically when your loan balance reaches 78% of the original purchase price. You can also request cancellation when you hit 80% LTV through appreciation and paydown — sometimes faster than you'd think in a rising California market.

The California Math: Why Waiting Isn't Always Wise

Let's look at a realistic scenario. Say you're eyeing a home priced at $700,000. A 20% down payment would be $140,000. If you need two more years to save that, and California home prices in your target area appreciate at even 4% per year, that same home will cost approximately $757,000 by the time you're "ready." Now you need $151,400 to hit 20%.

Meanwhile, a buyer who purchased today with 5% down (just $35,000) has spent two years building equity, locking in a purchase price, and potentially benefiting from that same appreciation.

That's not to say everyone should rush in before they're ready. But it's a real illustration of why "wait until you have 20%" isn't automatically the financially conservative choice in a market like California.

Tips for California Buyers Ready to Make a Move

Get pre-approved early. In competitive California markets, sellers expect buyers to come in with a solid pre-approval letter. The earlier you work with a lender, the more time you have to optimize your credit, explore assistance programs, and understand your true budget.

Work with a local mortgage broker. An independent broker has access to dozens of loan programs — including FHA, VA, USDA, CalHFA-approved loans, and specialty products you won't find at a big bank. They can compare options side by side and match you with the program that best fits your situation.

Factor in closing costs. Down payment is just one piece of the upfront cost puzzle. Closing costs in California typically run 1%–3% of the purchase price, and many down payment assistance programs can help cover these as well.

For real estate professionals: Understanding your clients' mortgage options makes you a more valuable partner. When a buyer says "I can't afford to buy yet," the right response isn't to wait — it's to connect them with a mortgage expert who can show them a realistic path forward. Buyers who felt priced out often discover they were closer than they thought.

The Bottom Line

The 20% down payment myth has kept far too many California families renting longer than they needed to. The reality is that there are more pathways into homeownership than most people realize — with programs designed specifically for buyers in high-cost markets like ours.

If you've been on the fence because of the down payment question, let's talk. There's a good chance you're closer to ready than you think.

Ready to explore your options? Reach out today for a no-pressure conversation about what buying a home in California could look like for you.