How much do you really need?
Many families believe they need 20% down. For most first-time buyers, that isn’t true. Here are common minimums:
| Type of financing | Typical minimum down | Good to know |
|---|---|---|
| FHA loan | 3.5% | With a credit score of 580 or higher. Includes mortgage insurance. |
| Conventional, first-time buyer programs | 3% | Under 20% down usually means private mortgage insurance (PMI). |
| VA loan | 0% | For eligible U.S. military veterans and service members. |
| USDA loan | 0% | Only in eligible rural and outer areas, with income limits. |
| Halal financing providers | Varies, often 3% to 10%+ | Each provider sets its own minimum. See the halal path lesson. |
Remember that the down payment is not the only cash you need. Plan for closing costs (often 2% to 5% of the price), a few months of payments in savings, and moving costs. On a $500,000 home, 3.5% down is $17,500, and closing costs might add $10,000 to $25,000. Sellers can sometimes be asked to contribute toward closing costs.
Gifts from family
Most loan programs allow some or all of your down payment to be a gift from a relative. In our community this is often how homes are bought, and it is completely acceptable when it’s documented properly:
- A signed gift letter saying the money is a gift and does not have to be repaid. Your lender will give you their form.
- A paper trail: a bank statement showing the money leaving the giver’s account, and one showing it arriving in yours.
- Timing: ask your lender before the money moves. Some prefer to see the gift arrive early; others handle it at escrow.
If several relatives are helping, each gift needs its own letter and records. Tell your lender early: it’s routine for them, and surprises late in the process are what cause delays.
Cash saved at home, and money from overseas
This is the most common reason families in our community get delayed.
Lenders are required to confirm where your down payment came from. Cash kept at home can’t be traced, and a large cash deposit shortly before you apply will usually need to be explained and documented, and may not be usable at all.
What to do instead:
- Talk to a lender before you deposit a large amount of cash. They will tell you exactly what records they need.
- Deposit savings early. Lenders usually review your last two months of bank statements. Money that has been in your account longer than that is simpler to use.
- Keep every receipt for money sent from abroad. Transfers from family overseas, including through money transfer services, may need proof of where the money came from and how it arrived. Rules vary by lender and program.
- Keep business and personal money separate. If you are self-employed, moving money out of a business account may need extra paperwork.
Help from employers
Some employers, hospitals, school districts, and unions offer homebuying grants or low-cost help to their workers. Ask your HR department directly whether a housing benefit exists. It’s one of the most overlooked sources.
Down payment assistance programs
State, county, and city programs help first-time buyers with the down payment or closing costs. They come in a few forms:
- Grants that never have to be repaid.
- Forgivable loans that disappear if you live in the home for a set number of years.
- Deferred-payment loans that you repay when you sell, refinance, or pay off your first loan. CalHFA’s MyHome Assistance program works this way.
- Shared-appreciation help, where you repay the original amount plus a share of the home’s increase in value. California’s Dream For All program has used this model in funding rounds.
Many counties and cities, including in Riverside, San Bernardino, San Diego, and Orange counties, run their own programs with income limits and waiting lists. Funding opens and closes, so the best way to hear about current rounds is through a HUD-approved housing counselor or by joining the Academy.
If you want to avoid interest
Many assistance programs are structured as loans, and some carry interest or a share of your home’s value. Before you apply, ask how the help is structured and whether it can be combined with the halal financing you are considering. Often it can’t, and it’s better to know early.
Mistakes that delay closing
- Moving money between accounts without keeping records.
- Buying a car or opening a new card before you close.
- Changing jobs in the middle of the process without telling your lender.
- Large, unexplained deposits in the months before you apply.
Sources you can check
- CalHFA homebuyer programs: California’s state housing finance agency.
- CFPB: Buying a house: tools for estimating costs and understanding your Loan Estimate.
- Find a HUD-approved housing counselor: free or low-cost help, often required for assistance programs.