How Much Money Do You Need to Buy a Home in California?

One of the most common questions I hear from home buyers is:

"How much money do I actually need to buy a home?"

The answer is more than just the down payment.

Before I want a buyer seriously shopping for homes, I want three numbers to be solid:

1. The maximum loan amount the buyer is personally comfortable with
2. The total monthly housing payment
3. The estimated Cash to Close

Those three numbers tell us far more than simply hearing:

"You are preapproved for $700,000."

A lender may tell you the maximum amount you qualify to borrow.

That does not automatically mean borrowing that amount makes sense for your budget.

And once a lender starts quoting a specific interest rate, payment, and costs for a particular property, I strongly encourage buyers to review those numbers on the official Loan Estimate.

Quick Answer: How Much Money Do You Need?

A California home buyer may need money for:

• Down payment
• Earnest-money deposit
• Closing costs
• Appraisal
• Inspections
• Prepaid taxes and insurance
• Moving costs
• Immediate repairs
• Emergency reserves after closing

The Consumer Financial Protection Bureau says closing costs commonly range from approximately 2% to 5% of the purchase price, separate from the down payment.

That is useful for early planning.

Once you have a specific property and loan, however, your actual Loan Estimate should replace generic estimates.

Frank's Three Numbers to Know Before You Shop

Number 1: What Is the Maximum Loan Amount You Are Comfortable With?

There is an important difference between:

"How much will the lender approve?"

and:

"How much am I comfortable borrowing?"

Those numbers are not always the same.

A lender evaluates factors such as income, debt, assets, credit, and loan-program requirements.

But a lender does not know all of your financial priorities.

You may also want money available for:

• Retirement
• Travel
• Children
• Education
• Vehicles
• Home improvements
• Recreation
• Savings
• Emergencies

Before seriously shopping, I want buyers to identify a loan amount that makes financial sense for their lives — not simply the maximum amount a lender will approve.

Number 2: What Is Your Total Monthly Housing Payment?

Do not shop based only on principal and interest.

Understand the total monthly payment.

Buyers commonly hear the term PITI:

• P — Principal
• I — Interest
• T — Property taxes
• I — Homeowners insurance

But even PITI may not include every housing expense.

Depending on the home and financing, also consider:

• Mortgage insurance
• HOA dues
• Mello-Roos
• Special assessments
• Supplemental insurance
• Other recurring property expenses

A lower-priced home can sometimes have a higher monthly cost because of property taxes, insurance, HOA dues, or assessments.

The important question is:

"What will this home actually cost me each month?"

Number 3: What Is Your Cash to Close?

Cash to Close is the amount of money you are expected to bring to complete the purchase after accounting for items such as:

• Down payment
• Closing costs
• Earnest-money already deposited
• Seller credits
• Lender credits
• Other transaction adjustments

This number is critical.

A buyer may be comfortable with the monthly payment but not have enough available cash to comfortably complete the purchase.

I also want buyers to ask:

"How much money will I still have after closing?"

Buying a home should not leave you without a reasonable financial cushion.

Use the Required Federal Loan Estimate

One of the most important mortgage documents a buyer receives is the official Loan Estimate.

The Loan Estimate is not simply a lender-created worksheet.

For most standard residential mortgages covered by federal mortgage disclosure rules, lenders are legally required to provide the standardized federal Loan Estimate after receiving the required application information.

All lenders use the same standardized form, which makes comparing loan offers much easier.

I frequently see buyers receive:

• Verbal rate quotes
• Payment estimates
• Lender worksheets
• Fee worksheets
• Emails showing estimated costs

Those documents can help with early planning.

But once a lender is quoting a specific loan, rate, payment, and closing-cost structure for a specific property, I encourage buyers to ask for the actual Loan Estimate.

My advice is simple:

Ask for the Loan Estimate.

Buyers should not feel uncomfortable requesting the federal form.

Ask:

"Please send me the official Loan Estimate so I can review the complete loan costs."

Why the Loan Estimate Matters

The Loan Estimate shows important information including:

• Loan amount
• Interest rate
• Principal and interest payment
• Estimated total monthly payment
• Mortgage insurance
• Estimated property taxes and insurance
• Origination charges
• Discount points
• Lender credits
• Estimated closing costs
• Estimated Cash to Close
• Rate-lock information

The form helps buyers verify two of my three important numbers:

Total monthly payment and Cash to Close

It also makes comparing lenders much easier.

When Is a Loan Estimate Required?

For mortgages subject to the federal Loan Estimate rules, a lender is generally legally required to provide the form after receiving six pieces of information:

1. Your name
2. Your income
3. Your Social Security number so the lender can obtain credit
4. The property address
5. An estimate of the property's value
6. The desired loan amount

The lender generally must provide the Loan Estimate within three business days after receiving these six items.

A signed purchase agreement is not required merely to receive the Loan Estimate.

However, a property address is required.

That means a buyer who has not selected a home yet may appropriately receive preliminary worksheets, rate quotes, and payment estimates.

Once there is a property address and the required information has been supplied, I want the buyer reviewing the official Loan Estimate.

How Much Down Payment Do You Need?

A 20% down payment is not automatically required.

Different loan programs have different requirements.

Conventional Loans

Some conventional programs allow qualified buyers to purchase with considerably less than 20% down.

A buyer putting less than 20% down may have mortgage-insurance requirements.

FHA Loans

Qualified FHA borrowers may be able to purchase with a down payment as low as 3.5%, subject to FHA and lender requirements.

VA Loans

Eligible Veterans, active-duty service members, and certain surviving spouses may qualify for VA-backed financing with no down payment, provided program and lender requirements are satisfied.

VA-backed purchase loans generally do not require monthly private mortgage insurance.

A VA funding fee may apply unless the borrower qualifies for an exemption.

The right question is not simply:

"What is the minimum down payment?"

A better question is:

"What down payment gives me the right combination of monthly payment, Cash to Close, and money left after closing?"

Earnest-Money Deposit

The earnest-money deposit is money placed into escrow after the buyer and seller enter into a purchase agreement.

Buyers sometimes mistakenly think this deposit must be added on top of the down payment.

Generally, when the transaction closes, the earnest-money deposit is credited toward the buyer's funds for the transaction.

For example:

Purchase price: $600,000 | 5% down payment: $30,000 | Earnest-money deposit already in escrow: $12,000

That $12,000 generally counts toward the funds already contributed to the transaction.

The final Cash to Close calculation accounts for the deposit.

What Are Closing Costs?

Closing costs can include:

• Loan origination charges
• Appraisal
• Escrow costs
• Title-related costs
• Recording fees
• Prepaid interest
• Homeowners insurance
• Tax and insurance reserves
• Mortgage insurance
• Discount points
• Other transaction-specific expenses

The CFPB suggests approximately 2% to 5% of the purchase price as an early planning estimate.

For a $600,000 home, that represents approximately $12,000 to $30,000.

That is only a planning range. The actual Loan Estimate is more important.

A Simple $600,000 Home Example

Consider a hypothetical $600,000 Greater Sacramento home.

FHA at 3.5% Down — Down payment: $21,000, plus applicable closing costs and prepaid expenses.

5% Down — Down payment: $30,000, plus applicable closing costs and prepaid expenses.

10% Down — Down payment: $60,000, plus applicable closing costs and prepaid expenses.

Eligible VA Buyer at 0% Down — Potential down payment: $0. The buyer can still have closing costs, inspections, prepaid expenses, and other transaction costs.

Seller credits, lender credits, assistance programs, earnest money already deposited, and other adjustments can materially change Cash to Close.

That is why I prefer to tell buyers:

"Let's review the Loan Estimate and determine the actual Cash to Close."

rather than relying on a generic estimate.

Don't Forget Inspections and Money After Closing

Not every expense appears in the down payment or closing costs.

Buyers may also need money for appropriate inspections, including:

• General home inspection
• Pest inspection
• Roof inspection
• Sewer inspection
• Pool inspection
• Well testing
• Septic inspection
• Specialized evaluations when appropriate

After closing, buyers may also need funds for:

• Moving
• Appliances
• Repairs
• Furniture
• Landscaping
• Utility setup
• Unexpected maintenance

The CFPB recommends keeping an emergency cushion rather than committing every available dollar to the purchase.

Seller Credits and Lender Credits

Depending on the transaction and financing, seller credits may help pay allowable buyer closing costs.

Lender credits can also reduce upfront costs.

But lender credits commonly involve a tradeoff, such as a different interest rate.

Do not evaluate a loan based only on:

"How much credit am I getting?"

Evaluate the complete loan. Again, the Loan Estimate makes this easier.

Frank's Buyer Perspective

Before we seriously shop for homes, I want buyers to know these three numbers:

1. My comfortable maximum loan amount is ______.

Not simply the maximum amount the lender will approve.

2. My comfortable total monthly housing payment is ______.

That means understanding principal, interest, property taxes, homeowners insurance, and applicable mortgage insurance, HOA dues, Mello-Roos, or assessments.

3. My estimated Cash to Close is ______.

Once those three numbers are clear, the home search becomes much more focused.

And once a lender starts quoting a specific interest rate, payment, and loan costs for an identified property:

Ask for the Loan Estimate.

The Loan Estimate gives buyers a standardized federal form for verifying what they are being quoted and comparing one lender's loan with another.

Frequently Asked Questions

Do I need 20% down to buy a home in California?

No. Different loan programs may allow qualified borrowers to purchase with significantly less than 20% down.

What does PITI mean?

PITI means principal, interest, taxes, and insurance. Buyers should also consider mortgage insurance, HOA dues, Mello-Roos, special assessments, and other applicable housing expenses.

What is Cash to Close?

Cash to Close is the estimated amount a buyer needs to complete the transaction after accounting for the down payment, closing costs, deposits already made, credits, and other adjustments.

How much are closing costs?

The CFPB says closing costs typically range from approximately 2% to 5% of the purchase price, excluding the down payment. Actual costs vary.

Is the Loan Estimate a required federal form?

For most standard residential mortgages covered by federal Loan Estimate rules, lenders are legally required to provide the standardized Loan Estimate once they receive the six required application items.

Can I demand a Loan Estimate?

Once you have supplied the required application information for a covered mortgage transaction, the lender is generally legally required to provide a Loan Estimate within three business days.

Do I need a signed purchase contract to receive a Loan Estimate?

No. A signed purchase agreement is not required merely to receive the Loan Estimate. A property address is one of the required application items.

Should I compare Loan Estimates from different lenders?

Yes. Comparing Loan Estimates can help buyers evaluate rates, lender fees, points, credits, monthly payments, and Cash to Close using the same standardized format.