How Much Money Do You Really Need to Buy Your First Home?
One of the biggest things keeping people from buying their first home isn't the monthly payment.
It's this:
"I don't have enough money saved."
Sometimes that's true.
But a lot of times, the number someone thinks they need and the number they actually need are completely different.
I've talked to plenty of renters who assumed they needed $50,000, $75,000, or more before buying a home because somewhere along the way they were told they needed a 20% down payment.
Meanwhile, depending on their situation, they may be able to purchase with considerably less.
So let's clear up one of the most confusing parts of buying your first home.
How much money do you actually need?
The answer depends on more than just your down payment.
You Probably Don't Need 20% Down
Let's start here.
You do not automatically need a 20% down payment to buy a home.
There are Conventional loan options that may allow qualified buyers to put as little as 3% down.
FHA financing generally allows qualified borrowers to purchase with 3.5% down.
Eligible veterans may potentially use VA financing with no down payment.
There are also down payment assistance programs that can help eligible buyers with some of their upfront costs.
So why does everyone talk about 20%?
Putting 20% down can have advantages. On a Conventional loan, it can generally allow you to avoid private mortgage insurance. A larger down payment also reduces your loan amount and monthly principal and interest payment.
That doesn't mean it's always the best use of your money.
[Learn more: Why Putting 20% Down Isn't Always the Smartest Financial Decision]
Down Payment and Cash to Close Are Not the Same Thing
This is probably the most important distinction for first-time buyers to understand.
Let's say you're buying a $400,000 home with 5% down.
Your down payment would be $20,000.
Does that mean you need exactly $20,000 to buy the house?
No.
Your transaction may also include closing costs, prepaid expenses, escrow funding, and other costs associated with purchasing the property.
At the same time, you may receive credits or concessions that reduce what you actually need to bring.
So when someone asks me:
"How much do I need for a down payment?"
I usually want to take the conversation one step further.
What you really want to know is:
"How much money should I expect to bring to closing?"
That's the number that matters.
What Makes Up Your Cash to Close?
There are several buckets of money involved in a typical home purchase.
Your Down Payment
This is the portion of the purchase price you're paying upfront rather than financing.
The amount depends on your loan program and the strategy we choose.
Closing Costs
There are various costs associated with obtaining the mortgage and completing the transaction.
Depending on your specific purchase, these can include lender-related costs and third-party services such as:
Appraisal
Title-related services
Credit-related fees
Recording fees
Other transaction costs
The exact amount varies from one transaction to another.
Prepaid Expenses
Some costs aren't really "fees" at all.
They're expenses associated with owning the home that you're paying in advance.
Homeowners insurance is a good example.
You may need to pay the first year's homeowners insurance premium at or before closing.
There may also be prepaid interest depending on when during the month you close.
Initial Escrow Funding
If your mortgage has an escrow account, your lender may collect funds at closing to establish that account.
Those funds are ultimately used toward future property tax and homeowners insurance bills.
Again, that isn't money disappearing into a lender's pocket.
It's your money being placed into an account so those future expenses can be paid when they're due.
This distinction matters because buyers sometimes look at a Closing Disclosure and assume every dollar listed under "closing costs" is a lender fee.
It isn't.
Earnest Money and Option Money Matter Too
If you're buying in Texas, you may provide earnest money and potentially an option fee shortly after your offer is accepted.
Those are upfront funds, so you need to have them available when you're making offers.
But don't make the mistake of automatically adding those amounts on top of your final cash-to-close estimate.
Assuming the transaction proceeds and the funds are credited appropriately, money you've already paid into the transaction can generally be accounted for toward what you ultimately owe at closing.
In other words, if you've already put money into the deal, we're not pretending it never happened.
We'll account for it when calculating your final numbers.
What About the Home Inspection?
This is another expense buyers should plan for.
Your home inspection is typically paid outside of closing.
The price depends on the property, inspector, size of the home, additional inspections requested, and other factors.
You may also decide to order additional inspections depending on the property.
Those expenses don't necessarily appear in your mortgage cash-to-close figure, but they're still part of the money you should have available during the buying process.
This is why I don't like giving someone a single number and saying:
"That's all you'll need."
I want you prepared for the transaction, not just the wire transfer on closing day.
Let's Look at a Simple Example
Suppose you're buying a $400,000 home.
A 5% down payment would be:
$20,000.
But that doesn't mean your total cash requirement is $20,000.
You may have closing costs.
You may need to fund homeowners insurance.
There may be escrow deposits for taxes and insurance.
You may have inspection expenses.
There may be other property-specific or transaction-specific costs.
On the other hand, maybe the seller is contributing toward your allowable closing costs.
Maybe you qualify for down payment assistance.
Maybe we're using a lender credit.
Maybe you've already deposited earnest money.
All of those things can change the final amount.
That's why two people buying a $400,000 house with the same down payment can still have very different cash-to-close numbers.
Seller Concessions Can Make a Huge Difference
This is where I think buyers should get more strategic.
Let's say you're negotiating on a house and the seller is willing to give something up.
Your first instinct might be:
"Let's get another $10,000 off the price."
Nothing wrong with that.
I like paying less for things too.
But let's actually compare what that does.
Reducing the purchase price by $10,000 doesn't reduce your monthly payment by $10,000.
Obviously.
Depending on the financing, the monthly savings from that price reduction may be much smaller than buyers expect.
Now compare that with receiving $10,000 in seller concessions that can be used toward allowable closing costs or potentially toward an interest-rate buydown.
That could reduce the amount you need to bring to closing by thousands of dollars.
Or potentially help us reduce your monthly payment.
Same negotiation.
Very different financial result.
That's why your Realtor and lender should be communicating before the offer is written.
[Learn more: Purchase Price vs. Seller Concessions: Which Should You Negotiate?]
Can the Seller Pay All of My Closing Costs?
Potentially some or even a significant portion, but there are limits.
The amount a seller can contribute depends on factors including the loan program, occupancy, down payment, and the types of costs involved.
Seller concessions also can't simply become unlimited cash back to the buyer.
There are rules around what those funds can be used for.
This is why I want to know what your cash situation looks like before your Realtor negotiates the contract.
If you have plenty of cash but want the lowest possible purchase price, our strategy may look one way.
If preserving $10,000 of your savings is extremely important, our negotiation may look completely different.
Down Payment Assistance Can Change the Equation
If your biggest obstacle is the upfront cash, we should also determine whether you qualify for down payment assistance.
Depending on the program, assistance may help eligible buyers with their down payment and potentially other allowable costs.
But don't hear "down payment assistance" and automatically translate it to "free money."
Programs can be structured very differently.
Some may involve grants.
Others may involve forgivable, deferred, or repayable second liens.
Programs can also have income limits, credit requirements, property restrictions, different interest rates, or other eligibility rules.
I want to compare the assistance option with buying without assistance whenever possible.
The question isn't:
"How much money can I get?"
It's:
"Does using this program put me in a better financial position?"
[Learn more: Down Payment Assistance: How Does It Actually Work?]
Lender Credits Are Another Tool
Another way we can potentially reduce your upfront costs is through lender credits.
In simple terms, you may have the option to accept a different interest rate in exchange for the lender providing a credit toward eligible closing costs.
Is that always a good idea?
No.
Can it be a very good idea?
Absolutely.
Suppose paying a slightly higher rate saves you several thousand dollars upfront.
If you expect to refinance or sell the home relatively soon, spending thousands of dollars today to obtain a lower rate may not provide enough time to recover that upfront cost.
On the other hand, if you expect to keep the mortgage for a long time, paying more upfront for a lower rate may make more sense.
This is why I don't believe you can properly compare mortgages by looking at interest rate alone.
Rate and cost work together.
[Learn more: Why the Lowest Mortgage Rate Isn't Always the Best Mortgage]
Should You Use Every Dollar You Have for the Down Payment?
Usually, I at least want to show you an alternative.
Let's say you have $50,000 saved.
Maybe putting nearly all of it into the house gives you the lowest possible payment.
Great.
But what does your bank account look like the morning after closing?
That's important too.
There is value in liquidity.
You just bought a house.
You're going to have moving expenses.
You may want furniture.
Something will eventually need to be repaired.
And despite what HGTV has taught all of us, home improvement projects have a strange tendency to cost more than expected.
I'd rather have a conversation about keeping some money available than automatically assume every available dollar belongs in the down payment.
Sometimes putting more down is clearly the better decision.
Sometimes keeping $15,000 or $20,000 in the bank in exchange for a slightly higher payment gives the buyer considerably more financial flexibility.
Let's compare it.
Don't Forget About Reserves
There's another number I care about:
How much money will you have left after closing?
If you bring $30,000 to closing and still have $40,000 available afterward, that's one financial picture.
If you bring $30,000 to closing and have $600 left, that's another.
Even if both borrowers qualify for the exact same mortgage.
Homeownership should ideally improve your financial life over time.
It shouldn't leave you terrified every time the air conditioner makes a weird noise.
This is one reason I like discussing reserves during the planning process, even when the loan program itself doesn't require a large amount.
You Don't Have to Wait Until You've Saved Some Magic Number
I've met plenty of people who spent years waiting to reach a savings target they invented because they assumed that's what buying a home required.
Sometimes waiting is absolutely the right decision.
Maybe we really do need more savings.
Maybe we need to improve credit.
Maybe we need to pay down debt.
Maybe the monthly payment simply isn't comfortable yet.
If that's the case, I'll tell you.
But don't wait two more years simply because someone told you every buyer needs 20% down plus another 5% for closing costs.
Let's look at your actual situation first.
You may be closer than you think.
And if you're not ready yet, that's okay too.
At least we'll know the number we're working toward.
How Much Should You Have Saved Before Talking to a Lender?
There isn't a minimum amount you need before having the conversation.
You don't need to show up with a giant savings account to ask questions.
In fact, I'd rather talk earlier.
If you're six or twelve months away, we have time to plan.
Maybe we determine you need another $8,000.
Now we can build a savings target.
Maybe paying off a particular debt improves your qualification more than putting that same money toward the down payment.
Maybe you qualify for an assistance program.
Maybe your current savings are already enough.
Information gives you options.
[Learn more: Mortgage Pre-Qualification vs. Pre-Approval: What's the Difference?]
So, How Much Money Do You Really Need?
Your total number depends on:
Your purchase price.
Your loan program.
Your down payment.
Your closing costs.
Property taxes.
Homeowners insurance.
The property itself.
Your negotiated seller concessions.
Any lender credits.
Any down payment assistance.
Money you've already deposited into the transaction.
And how much you want left in savings after closing.
That's why I'm hesitant when someone asks me for a generic percentage.
We can estimate.
But I'd rather build an actual plan.
There's a big difference between technically having enough money to close and being financially prepared to own the home afterward.
My goal is the second one.
One Last Thing
Don't make your home-buying goal:
"Save 20%."
Make your goal:
"Understand my options."
Maybe 20% down turns out to be perfect for you.
Maybe 10% is better.
Maybe 5%.
Maybe assistance and seller concessions allow you to purchase while keeping significantly more money in savings.
There isn't a trophy waiting at the closing table for the person who brings the biggest down payment.
There is only the financial decision you're going to live with afterward.
Let's make that one intelligently.
If you're thinking about buying your first home in Dallas-Fort Worth or anywhere in Texas, I'm happy to help you figure out what the numbers actually look like.
Whether you're ready today or you're trying to build a plan for next year, we can look at where you are, estimate what you'll realistically need, and work backward from there.
You can learn more about my team, read our client reviews, or start a secure application at:
About Mark Karetskiy
Mark Karetskiy
Mortgage Strategist | Branch Leader | Loan Originator
Movement Mortgage
NMLS #1254891
Licensed in TX, NM, CA & OH
Mark Karetskiy is a Mortgage Strategist with Movement Mortgage serving homebuyers, homeowners, veterans, and real estate investors. With more than twelve years in the mortgage industry and hundreds of families served, Mark focuses on strategic mortgage planning, creative financing solutions, and helping clients understand how their mortgage fits into their bigger financial picture.
Whether it's buying a first home, using VA benefits, financing an investment property, refinancing, or solving a complicated scenario, his approach is simple: educate first, communicate clearly, and structure the financing around the client's goals instead of just selling a rate.
Movement Mortgage is licensed in all 50 states, giving Mark and his team the ability to help clients and referral partners with mortgage financing nationwide.
Work: 469-202-4195
Cell: 857-544-3158
Office: 5840 Legacy Circle, Ste 250, Plano, TX 75024
Website: www.LoanOfficerMark.com
Book a Consultation: www.calendly.com/loanofficermark
Continue Learning
[Buying Your First Home: A Step-by-Step Guide from Pre-Approval to Closing]
[How Much House Can I Actually Afford?]
[Mortgage Pre-Qualification vs. Pre-Approval: What's the Difference?]
[FHA vs. Conventional Loans: Which Is Better for a First-Time Buyer?]
[Down Payment Assistance: How Does It Actually Work?]
[Why Putting 20% Down Isn't Always the Smartest Financial Decision]
[Purchase Price vs. Seller Concessions: Which Should You Negotiate?]
[Why the Lowest Mortgage Rate Isn't Always the Best Mortgage]