Plan on the down payment plus 2 to 5 percent of the price in closing costs, plus a few months of reserves, so a $400,000 house bought with 5 percent down usually needs somewhere between $30,000 and $40,000 in the bank rather than the $20,000 the down payment alone suggests.
Down payment is the number everybody quotes and it is the smaller half of the answer for most first purchases. The cash a buyer actually has to produce is the down payment, the closing costs, whatever the lender wants left over afterwards, and the small pile of things that arrive before the keys do.
The four piles
Each of these is a real number somebody will ask you for, and only the first is optional in the sense that a loan program can shrink it.
- Down payment: 0 percent on VA and USDA, 3.5 percent on FHA, 3 to 5 percent on the common conventional first-time programs, 20 percent to avoid mortgage insurance entirely.
- Closing costs: 2 to 5 percent of the price, covering lender fees, title, escrow, recording, and the taxes and insurance the lender collects up front.
- Reserves: what the lender wants to see left in the account after closing, often two months of the new payment, more on a condo or an investment purchase.
- The small stuff before the keys: earnest money (which is credited back at closing, not extra), inspections at $300 to $600 apiece, and an appraisal where the lender collects it separately.
Worked on a $400,000 house
At 5 percent down that is $20,000 down and roughly $8,000 to $20,000 in closing costs, so $28,000 to $40,000 before reserves. At 20 percent down it is $80,000 down and the same closing costs, and the payment falls by both the smaller balance and the absence of mortgage insurance.
The number that moves this most is not the loan program. It is seller concessions: in a market where sellers are already cutting prices, asking the seller to pay part of the closing costs is normal, and it converts the pile of cash you need today into a slightly higher price financed over thirty years.
What people forget
Moving, a fridge if the house has none, the first insurance premium, and the fact that a mortgage payment is due about a month after closing and the old rent may overlap it. None of these are large next to the down payment and all of them arrive at once.
Questions people ask
Can you buy a house with $10,000?
In a lower-priced market with a 3 percent down program and seller-paid closing costs, yes. On a $400,000 house it is unlikely without down payment assistance, because closing costs alone are usually more than that.
Are closing costs included in the mortgage?
Not usually. They are paid at closing out of your own funds, or covered by the seller as a concession, or in some cases rolled into the loan at a higher rate. They are not automatically financed.
Does earnest money count toward the down payment?
Yes. It is applied to what you owe at closing, so it is money moved early rather than money spent twice. It is at risk only if you walk outside the contract's contingencies.