One of the first questions California buyers ask is, “How much money do I actually need to buy a home?” The honest answer is more useful than a single percentage: it depends on the loan, the property, the purchase contract, your available credits, and how much money you want left after closing.
Your down payment is important, but it is not the same as your total cash requirement. A better plan accounts for every stage of the transaction—from the initial deposit through the first repair after move-in.
The quick answer
Most buyers should plan for five separate cash categories:
- The earnest-money deposit required by the purchase agreement.
- The down payment for the selected loan.
- Loan and real-estate closing costs.
- Prepaid taxes, insurance, interest, and initial escrow funding.
- Reserves for moving, repairs, and unexpected expenses.
The Consumer Financial Protection Bureau (CFPB) says closing costs, excluding the down payment, typically range from 2% to 5% of the purchase price. That is an early planning range—not a quote. Your Loan Estimate and, later, your Closing Disclosure provide the transaction-specific figures.
1. Earnest money affects timing, not just the total
An earnest-money deposit is money paid under the purchase agreement and held until closing. The amount and deadlines are determined by the contract and local practices.
When the purchase closes, an eligible deposit is generally shown as money already paid on your behalf and credited in the cash-to-close calculation. In other words, it normally reduces what you still need to bring to closing, but you must have the deposit available much earlier.
This timing matters. A buyer may have enough total savings but still be unprepared to transfer the deposit immediately after an offer is accepted.
2. The down payment depends on the loan—not a universal 20% rule
Twenty percent down can reduce the amount borrowed and may avoid private mortgage insurance on many conventional loans, but it is not the only path to homeownership.
Depending on eligibility and lender requirements, borrowers may consider:
- Low-down-payment conventional home loans.
- FHA home loans, which can provide a lower-down-payment pathway for eligible borrowers.
- VA home loans, which may offer eligible service members, Veterans, and certain surviving spouses a no-down-payment option when program conditions are met.
- USDA loans for eligible households and eligible rural properties.
- First-time homebuyer and down-payment-assistance programs.
A smaller down payment can preserve cash, but it may affect mortgage insurance, the monthly payment, pricing, or program eligibility. The better question is not simply “What is the minimum?” It is “Which combination of cash, monthly payment, and reserves fits my complete financial plan?”
3. Closing costs are separate from the down payment
Closing costs can include lender charges, appraisal and credit-related charges, title and escrow services, recording or government charges, and other transaction expenses.
After you apply, the lender generally provides a standardized Loan Estimate within three business days. It shows the estimated rate, payment, and total closing costs, making it easier to compare offers. The Closing Disclosure provides the final loan terms and closing-cost details and is generally delivered at least three business days before closing.
Review these documents carefully. The CFPB specifically recommends checking the “Cash to Close” figure rather than assuming it equals the down payment plus a rough percentage.
4. Prepaid expenses and escrow funding can be substantial
Some charges collected at closing are not lender fees. They are expenses connected with owning the home or establishing the loan, such as:
- Homeowners-insurance premiums.
- Prepaid interest from the closing date through the end of the month.
- Property-tax amounts due at or near closing.
- Initial deposits into an escrow or impound account.
- Applicable homeowners-association charges.
The closing month, property-tax schedule, insurance premium, and escrow structure can change these figures. Two buyers with the same price and down payment may therefore have different cash-to-close amounts.
5. Inspections, appraisal, and other early expenses need their own budget
Some transaction costs may be due before closing. Depending on the purchase and loan, they may include a general home inspection, specialist inspections, an appraisal, or other evaluations.
Ask which charges are refundable and which are not if the transaction does not close. Keep enough accessible cash to pay early expenses without disturbing the funds documented for the down payment and closing.
6. Credits and assistance can reduce—but not erase—the planning work
Lender credits, seller credits, gift funds, and assistance programs may reduce the amount a buyer pays directly, subject to loan and program rules.
California Housing Finance Agency programs can help eligible first-time homebuyers with down-payment or closing-cost needs. For example, CalHFA’s MyHome program currently describes deferred-payment junior-loan assistance for eligible borrowers. Requirements include borrower, income, occupancy, property, education, and first-mortgage rules.
Program funding, application windows, terms, and approved combinations can change. Assistance is also not “free money” in every case; it may be a repayable junior loan or a shared-appreciation obligation. Review how and when assistance must be repaid before relying on it in your purchase plan.
7. Keep money available after closing
Using every available dollar to close can make the first months of ownership unnecessarily stressful. Moving expenses, utility deposits, repairs, appliances, furnishings, and insurance deductibles do not disappear because the loan funded.
The CFPB recommends considering initial home expenses and maintaining emergency savings. Some mortgage programs also require documented reserves—funds remaining after closing—depending on the property, number of financed properties, borrower profile, or automated underwriting findings.
A simple planning example
Suppose a buyer is considering a $600,000 home with 5% down.
- Down payment: $30,000.
- Early closing-cost planning range using the CFPB’s 2%–5% guideline: $12,000–$30,000.
- Earnest-money deposit: contract-specific and normally credited toward the final transaction.
- Inspections, moving expenses, and post-closing reserves: situation-specific.
- Seller, lender, gift, or assistance credits: subtract only after eligibility and documentation are confirmed.
This is an illustration, not a loan quote. The final number can be materially different based on the loan, rate structure, credits, property, insurance, taxes, closing date, and other transaction details.
Your cash-to-close preparation checklist
Before making offers, ask your loan officer to help you document:
- Your target price and comfortable monthly payment.
- The down-payment options for which you may qualify.
- A realistic early estimate of closing costs and prepaids.
- The source and availability date of each dollar being used.
- Gift-fund or assistance-program documentation requirements.
- The amount you want—or are required—to retain after closing.
- How seller or lender credits would affect both upfront costs and loan pricing.
Avoid moving large sums between accounts, depositing undocumented cash, or opening new debt without first discussing the potential mortgage impact. Clean documentation can be as important as the balance itself.
Frequently asked questions
Do I need 20% down to buy a home in California?
No. Multiple conventional and government-backed programs may permit less than 20% down for eligible borrowers. A lower down payment may introduce mortgage insurance or different costs, so compare the complete payment and cash requirement.
Is earnest money an extra cost?
It is generally a deposit paid earlier in the transaction and credited in the final cash-to-close calculation when the purchase closes. Its treatment and refundability depend on the purchase agreement and applicable contingencies.
Can a seller pay all my closing costs?
Seller contributions are limited by the loan program, occupancy, down payment, property, and type of cost. The purchase contract must also provide for the credit. Ask for a program-specific calculation before negotiating an amount.
Can I use gift funds or down-payment assistance?
Potentially. The donor, transfer, acceptable source, borrower contribution, and documentation rules vary by program. Assistance programs have additional eligibility and repayment terms.
Personalized Mortgage Guidance
Build the plan before choosing the house
The most useful preapproval does more than identify a maximum loan amount. It maps the down payment, estimated closing costs, available credits, documentation, monthly payment, and post-closing reserves together.
Contact Christine to review your goals and build a purchase budget around your actual numbers before you begin making offers.
Authoritative sources and further reading
- CFPB: Determine your down payment
- CFPB: What is a Loan Estimate?
- CFPB: Closing Disclosure explainer
- CalHFA: Homeownership loan-program resources
- CalHFA: MyHome Assistance Program
- VA: Buying with a VA-backed loan
- USDA Rural Development: Single Family Housing Programs
This article is for general educational purposes and is not financial, tax, legal, or credit advice. It is not a commitment to lend. Loan programs, assistance funding, rates, fees, and eligibility requirements can change and are subject to complete application, documentation, underwriting, appraisal, and program guidelines.
How could this guidance apply to your situation?
Mortgage information is most useful when it is connected to your goals, timing, income, property, and questions. Christine can help you make that connection.
