Most First-Time Buyers in California Think They Need 20% Down. They Don't.

The most common misconception among first-time homebuyers has not changed much over the years: they believe they need a large down payment and excellent credit to qualify for a mortgage. In parts of Los Angeles County where median home prices sit around $500,000, that belief keeps would-be buyers on the sidelines, paying rent while assuming homeownership is out of reach. According to Gabriella Godde, a mortgage broker at Groves Capital, Inc., with nearly three decades in the lending industry, the gap between what buyers think they need and what loan programs actually require remains one of the most persistent barriers to entry in California’s more affordable submarkets.

Buyers call Godde expecting they need 20 percent down and a credit score well above 700. An FHA loan requires a minimum credit score of 620, and conventional first-time buyer programs can go as low as 3 percent down. “You could buy a house with zero down. You could buy a house with 3.5% down. You could ask your parents for a gift to get that 3.5% down,” she says. Some buyers even have parents help them qualify, then rent out bedrooms to friends whose payments cover the mortgage.

Why FHA Often Beats Down Payment Assistance

Many buyers call Godde specifically asking about down payment assistance programs, then end up choosing a different path once they understand the tradeoffs. Down payment assistance programs carry higher interest rates, which means higher monthly payments over the life of the loan.

With an FHA loan, Godde explains, the interest rate is lower, and buyers can ask the seller to cover closing costs, up to 6 percent of the purchase price. On a $500,000 home, that means up to $30,000 toward closing costs paid by the seller. “So all they’re needing is the 3.5% down plus the appraisal. Everything else could be paid for by the seller,” Godde says. At that price point, the buyer’s out-of-pocket cost drops to roughly $15,000 plus a $650 appraisal fee.

Down payment assistance still has a place; not every buyer can come up with $15,000, but Godde says she only puts borrowers into those programs when the situation genuinely calls for it. When a buyer can manage even a modest down payment, she steers them toward FHA to keep the monthly cost as low as possible.

The Credit Score Cost Most Buyers Don’t Anticipate

Even within FHA lending, a buyer’s credit score has a direct impact on cost in ways many borrowers do not expect. The interest rate itself may look the same on paper, but the cost of obtaining that rate shifts depending on the score. According to Godde, a borrower with a 720 score locking at 6.5 percent may pay nothing in discount points, while a borrower at 620 locking the same rate could face a cost of two points, a meaningful upfront expense.

Her advice for buyers in that position is straightforward: buy now, plan to refinance later. “Does it mean that you can’t buy a house at 620? No, you could still buy a house,” she says. “You could buy that house, and in the future you could refinance to bring down that rate.”

Turning a First Home Into an Investment

One strategy Godde actively encourages is buying a home and renting out spare rooms immediately. She points to a recent example: a young unmarried couple purchased a four-bedroom house with a monthly payment of roughly $2,500. They occupied one bedroom and rented out the other three. “They’re probably living rent-free now in their own home because they rented out the rooms,” Godde says.

The same logic applies to multi-unit properties. First-time buyers can purchase up to four units with the same 3.5 percent FHA down payment, living in one unit and renting out the rest. Godde says down payment assistance is available on properties up to two units. After a year in the property, the buyer can move out, rent their own unit, and convert the entire property into an income-producing asset. “Even though when you are a first-time home buyer, you could be investing right away by renting out the rooms,” she says.

A Shifting Market Opens for Concessions

Godde sees California’s market beginning to transition from seller-favored to buyer-favored conditions, which changes the negotiating landscape for first-time buyers. In a seller’s market, getting a seller to contribute toward closing costs or rate buydowns is difficult. As that leverage shifts, buyers in more affordable areas of Los Angeles County gain access to a tool that was previously hard to negotiate: the 2-1 buydown.

In a 2-1 buydown, the seller funds a temporary reduction in the buyer’s interest rate. On a 30-year fixed rate locked at 6.5 percent, the buyer pays 4.5 percent in the first year, 5.5 percent in the second year, and the full 6.5 percent from year three onward. The bet is that rates decline enough during those first two years to allow a refinance before the full rate kicks in. Godde notes that only the seller can pay for a 2-1 buydown; buyers cannot fund it themselves.

This strategy is most relevant where prices remain around $500,000. In higher-cost markets like San Jose or San Francisco, sellers are less likely to offer concessions, but buyers in those markets are also less likely to need them. “I’m talking about the affordability of the outskirts of Los Angeles County where the sales prices are still like 500,000,” Godde says. “We utilize the seller to help that first-time homebuyer get into the home.”

Why Broker Access Matters

Godde emphasizes the structural advantage of working with a mortgage broker rather than a large bank. Her brokerage works with 150 lenders, giving access to FHA, VA, USDA, conventional, down payment assistance, DSCR investor loans, bank statement loans, and commercial products. A large bank, she says, typically offers only a handful of options. For buyers navigating the range of programs described above, where the right loan type can mean the difference between a higher monthly payment and a lower one, that breadth of access directly affects which terms they end up with. “My advice is to choose a broker that has many programs that you could utilize,” Godde says.

About the Expert: Gabriella Godde is a mortgage broker with nearly three decades in the lending industry, working primarily in Los Angeles County, California.

This article is based on information provided by the expert source cited above. It is intended for general informational purposes only and does not constitute legal, financial, or real estate advice. Readers should conduct their own research and consult qualified professionals before making any real estate or financial decisions.