3% Mortgage Rate vs. a 3% Down Payment: Which Path Builds More Wealth?

With the 30-year fixed mortgage rate averaging 6.65%, many prospective buyers are waiting for rates to drop before buying a home.

But experts warn that a significant drop isn’t likely any time soon.

Mortgage rates hovered around 3% and even hit an all-time low of 2.65% during the pandemic after the Federal Reserve slashed the federal funds rate to keep the economy from collapsing.

But that didn't last. The Fed began hiking rates in March 2022, and mortgage rates have been climbing since. Realtor.com® senior economist Jake Krimmel says the odds of rates dropping that low are essentially zero.

“If there’s one thing I’d put at basically a 0% probability, it’s mortgage rates getting back to 3% any time soon," he notes.

But perhaps there is an alternative.

For Californians exploring homeownership options, a proposed statewide down payment assistance program could offer an alternative path to help them get into a home sooner.

California voters will decide this November on Proposition 37, which would let middle-income residents borrow up to 17% of a newly built home's purchase price, bringing the minimum down payment to just 3%. The loan would function as a secondary mortgage, paired with a primary mortgage, meaning borrowers would make payments on both home loans.

Would this 3% down payment option be just as beneficial as a 3% mortgage rate?

Here's how the Prop 37 program would work

If approved, California Proposition 37 would allow the California Housing Finance Agency (CalHFA) to create a down payment assistance program, which it could fund by selling up to $25 billion in revenue bonds.

While billed as a down payment assistance program, it would actually offer funding through second mortgages. The program would be available only to California residents and would cover only newly built homes priced below a certain limit (roughly $1 million to $1.5 million depending on the county).

The loan would cover up to 17% of the purchase price, with the buyer making a minimum 3% down payment. The buyer would need to secure a another mortgage to cover the remaining cost of the home.

While the proposal states that CalHFA would be required to keep homebuyers' interest costs as low as possible, the proposal doesn't outline specific rate limits or terms.

Even still, according to the California Budget and Policy Center, the combined 20% would allow buyers to avoid private mortgage insurance (PMI), a typical requirement when a buyer makes less than a 20% down payment.

The most recent Realtor.com® data shows the median listing price in California in July 2026 was $744,750. Based on this number, an eligible buyer would need around $22,340 for a down payment.

Keep in mind though that places like Los Angeles, San Francisco, and Monterey, CA have median list prices well over $1 million, so where you live in the state obviously matters.

To be eligible for the program, Californians would need to:

• be a resident of the state for at least a year before applying
• be the home's first purchaser
• agree to occupy the home as a primary residence within 60 days of closing
• have a household income no more than double the area median income (AMI)

Area median income varies by area. Using the California Department of Housing and Community Development’s (HCD) 2026 income limits, the maximum qualifying income for a four-person household in Los Angeles County would be around $216,200. However, CalHFA would likely set specific income guidelines.

Comparing a 3% mortgage rate to a 3% down payment

How do these options compare, and what should those deciding whether to wait to secure a 3% rate or pursue a 3% down payment program like Prop 37 consider?

Krimmel says those waiting for a 3% mortgage rate “will mean waiting for a long time—maybe forever.” Even waiting for rates to drop to 5% could take a while.

He says that if rates do drop and buyers can afford to wait, they'd “probably come out ahead on monthly cost rather than doing a Prop 37 down payment program.”

On the other hand, for buyers in California who get access to the Prop 37 program and want to refinance in the future, Krimmel explains that the two-loan structure would likely make consolidation impossible.

“Down the road, if you want to refinance your primary mortgage, your second lender usually has to sign off and agree to stay subordinate,” he says. That could leave buyers locked into both loans, even if rates improve.

But Krimmel says it's important to look at home prices and payment amounts, not just the mortgage rate, and reminds renters who are still figuring things out that home equity isn't the only path to building wealth.

“These downpayment assistance type programs are really more about reaping the benefits of homeownership like stability, forced savings, predictable monthly payments, than about building home equity in the short run,” he explains.  

What prospective buyers can do now

For hopeful buyers trying to figure out what to do, Krimmel says, “Don't wait for a particular rate.”

If monthly payments are too high, he suggests expanding their search radius if possible, as home prices can vary significantly across the state. He notes that fall could be a better time to buy due to greater inventory, more realistic sellers, and less competition.

Instead of trying to time the market and anticipate rate changes, Krimmel recommends buyers shop around across multiple lenders, get their finances in order, and save up for a larger down payment. These efforts could put buyers in a stronger position when they’re ready to buy.

It takes time to build wealth through homeownership. Whether buyers use a program like Prop 37 or wait for better market conditions, the best strategy is to focus on what they can control now.