📌 Key Takeaways
- You do not need 20% down — conventional loans go as low as 3%, FHA 3.5%, and VA or USDA can be 0% for eligible buyers.
- Putting less than 20% down means mortgage insurance, but on conventional loans it can be removed once you reach 20% equity.
- Down payment assistance programs and your 1% cash-back rebate can meaningfully reduce the cash you bring to the closing table.
The 20%-down rule is the single biggest myth that keeps Southern California buyers renting longer than they need to. Here is what you actually need.
How much do you really need?
The right down payment depends on the loan program you qualify for, not a one-size-fits-all rule.
Conventional (3–5% down)
Conventional loans are the most common path. First-time buyers can qualify with as little as 3% down; many repeat buyers put down 5–10%. These loans use private mortgage insurance when you're below 20%.
FHA (3.5% down)
Backed by the Federal Housing Administration, FHA loans allow 3.5% down with more flexible credit requirements, making them popular with first-time and credit-rebuilding buyers.
VA and USDA (0% down)
Eligible veterans and active-duty service members can buy with no down payment through a VA loan and no monthly mortgage insurance. USDA loans offer 0% down in designated rural areas.
Jumbo loans for high-cost SoCal
Many homes in Los Angeles and Orange County exceed conforming loan limits and require a jumbo loan, which typically asks for 10–20%+ down and stronger credit and reserves.
The 20% myth and mortgage insurance
Putting 20% down lets you skip mortgage insurance, but it is not required. On a conventional loan, private mortgage insurance (PMI) is added when you're below 20% equity — and it can be removed once you reach that threshold through payments or appreciation. FHA loans carry their own mortgage insurance premium (MIP) that often stays for the life of the loan. The tradeoff is simple: a smaller down payment gets you in sooner but adds a monthly cost until you build equity.
Where the money can come from
Your down payment doesn't have to come entirely from savings. Common sources include documented gift funds from a family member, certain retirement-account withdrawals or loans, and the proceeds from selling another asset. Lenders will want a clear paper trail, so keep your funds "seasoned" in your account and document any gift with a signed gift letter.
How assistance and the rebate stack
California offers down payment assistance through programs such as CalHFA, often structured as a second loan or forgivable assistance for qualifying first-time buyers. On top of any program you qualify for, Portfolio Home Realty's 1% rebate puts real cash back in your pocket at closing — money you can direct toward your down payment cushion or closing costs.
Get 1% cash back when you buy in SoCal
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Get my free rebate estimate →Frequently Asked Questions
No. It's a common misconception. Conventional loans start at 3% down, FHA at 3.5%, and VA/USDA at 0% for eligible buyers. Twenty percent simply lets you avoid mortgage insurance — it's an option, not a requirement.
Yes. Funds gifted by a family member are widely accepted, but the lender will require a gift letter stating the money is not a loan, plus documentation of the transfer.
Often, yes. A larger down payment lowers your loan-to-value ratio, which lenders view as less risky and may reward with a slightly better rate — and it reduces or eliminates mortgage insurance.
Mike Basti founded Portfolio Home Realty to give Southern California buyers full-service representation and real cash back at closing. Licensed California broker serving LA County and Orange County. Call (949) 379-5320.