Advice for First-Time California Homebuyers: Save a Hefty Down Payment

  • First-time homebuyers in the San Jose and San Francisco metropolitan areas make average down payments of more than $125,000.
  • In San Jose, 95 percent of new homebuyers have credit scores of 680 or better.
  • While Federal Housing Administration-insured loans can save Bay Area buyers a substantial amount on a down payment, they have a ceiling of about $725,000.
Young couple talking with a real estate professional

New buyers who are shopping for a home in major coastal California job centers should prepare to part with a sizable down payment, as well as maintain a sterling credit score.

Those are two key findings from a recent LendingTree report, in which company Chief Economist Tendayi Kapfidze ranks the 50 best (and worst) U.S. real estate markets for first-time homebuyers based on down-payment size, credit scores, number of borrowers using Federal Housing Administration-insured loans, and affordability. Typically, amassing a down payment is one of the biggest barriers to homeownership for first-time buyers, and that is especially true here in the Golden State.

First-time homebuyers in the San Jose metropolitan area make average down payments of $144,214, the most in the country and representing 20 percent of a home’s purchase price. New homebuyers in San Francisco rank second for the largest down payment by dollar amount: $128,627, which equals 21 percent of a home’s price. San Diego and Los Angeles followed, where first-time buyer down payments come in at a respective $96,453 (19 percent) and $95,418 (18 percent).

California newbie homebuyers will also find that they need healthy credit ratings to be competitive. In San Jose, less than 5 percent of first-time buyers have credit scores of 680 or lower, the fewest in the nation. San Francisco and Los Angeles are nearly as competitive when it comes to good credit, with only about 10 percent of first-time buyers falling below the 680 mark.

Six-figure down payments, high credit standards, and low affordability mean that California housing markets rank among the nation’s most difficult for first-time buyers. LendingTree puts Los Angeles, San Francisco, and San Jose among America’s five toughest housing markets for new buyers, with many of the best first-timer markets located in the Rust Belt.

LendingTree notes that first-time buyers in San Francisco and San Jose who used FHA loans made down payments that were about 30 percent smaller those cities’ averages, among the largest such savings of the housing markets included in the study. And while prospective California buyers should certainly thoroughly review all of their financing options, it’s worth nothing that FHA loan amounts in the Bay Area and Los Angeles have a ceiling of $726,000, which is why they are a less-frequently used option here than in other parts of the country.

Even if first-time California buyers face challenges on their journey to homeownership, the current mortgage landscape is solidly on their side. A separate LendingTree study released two weeks ago found that Californians are getting the best mortgage rates in the country in early 2019, at an average of 4.74 percent. And Freddie Mac says that 30-year, fixed-rate mortgages averaged 4.35 percent for the week ended Feb. 21, the lowest level recorded in a year.

(Photo: iStock/SolisImages)

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