How much do you really need for a downpayment to purchase a home in the Sacramento area?

How much do you really need for a downpayment to purchase a home in the Sacramento area? It seems like I get this question a lot, so let’s clear this up right away because this is one of the biggest misconceptions I hear from buyers: You do NOT need 20% down to buy a home. 

I can’t tell you how many people wait years longer than they need to because they think that’s the rule. It’s not.

So…what do you actually need? It depends on the loan type, but here’s the practical real-world breakdown: 

• Conventional loans: as little as 3% to 5% down 
• FHA loans: typically 3.5% down 
• VA loans (if eligible): 0% down 
• Down payment assistance programs: In some cases, this can significantly reduce what you need out of pocket 

For example, if you are purchasing a $500,000 home: 

• 3% down = $15,000 
• 3.5% down = $17,500
• 5% down = $25,000 
• 20% down = $100,000 

That’s a big difference and for most buyers! These lower downpayment amounts are often far more realistic options for buyers than saving 20%. And Downpayments could come from places like your savings, a gift from a family member, a retirement account, or a special downpayment assistance program.

Let’s talk about down payment assistance...this is something a lot of buyers either don’t know about or assume they won’t qualify for. There are state and local programs that can help cover part of your down payment and/or closing costs. Some are structured as deferred loans, some as grants, and many are designed specifically for first-time buyers. Not everyone will qualify, and there are income limits and guidelines but it’s absolutely worth exploring. I’ve had clients who were able to get into a home much sooner because of these programs. The California Association of Realtors has a super handy downpayment assistance locator tool that you can check to see if you qualify for any programs: CLICK HERE.

What other costs should you plan for? The downpayment is just one piece. You’ll also want to budget for: 

• Transaction costs: these are negotiable, and usually in the neighborhood of 2% - 3% of the purchase price;
• Inspections: I usually recommend things like a whole house inspection, termite inspection, HVAC inspection, roof inspection, and sewer camera inspection as a baseline -- and others may be necessary depending on the property. You will want to budget $1000 - $2000 to thoroughly inspect a home;
• Appraisal: Your lender will order this, and I see these range from $700 - $1000...this is commonly lumped into your closing costs

The good news: in some situations, we can negotiate with the property seller to help offset closing costs to defray your out of pocket expenses. 

The question you should really be asking instead of “How do I get to 20% down?” is: “What’s the smartest way for me to get into a home based on my financial situation?” Because the answer is different for everyone. Some buyers should put more down. Some are better off putting less down and keeping cash on hand. Some qualify for assistance programs they didn’t even realize were available. 

So if you’re waiting because you think you don’t have enough saved yet, reach out -- it’s worth having a conversation and a real look at your numbers and your options. You might be closer than you think.