The cash needed to buy a home is usually more than the down payment.
A buyer may need money for the down payment, closing costs, prepaid taxes and insurance, initial escrow deposits, inspections, appraisal fees, moving expenses and financial reserves after closing.
A practical starting estimate is:
Down payment + approximately 2% to 5% of the purchase price for closing costs and prepaid expenses + money left over after closing.
The Consumer Financial Protection Bureau advises buyers to estimate closing costs at approximately 2% to 5% of the purchase price, excluding the down payment. Actual costs depend on the home, loan, location, lender and transaction.
After more than 30 years in mortgage lending, I have seen buyers focus entirely on the down payment and overlook everything else. The better question is not simply, “What is the minimum amount I can bring to closing?”
It is:
How much cash do I need to complete the purchase without emptying every account I own?
The Five Main Cash Categories
Most buyers should plan for five separate categories:
Down payment
Closing costs
Prepaid expenses and escrow deposits
Expenses paid before closing
Cash reserves after closing
Some of these costs may be reduced by seller credits, lender credits, gift funds or assistance programs. However, buyers should understand the full cost before assuming credits will cover it.
How Much Down Payment Do You Need?
The required down payment depends on the loan program, purchase price, property type, occupancy and borrower qualifications.
You do not automatically need 20% down.
Loan Program | Typical Min. Down Payment | Key Requirement or Benefit |
|---|---|---|
Conventional | 3% - 5% | Fannie Mae "97% LTV" options allow 3% down for first-time buyers with a 620+ credit score. |
FHA Loan | 3.5% | FHA requirements in 2026 allow for credit scores as low as 580 with 3.5% down. |
VA Loan | 0% | Available to eligible veterans and service members with no down payment and no monthly PMI. |
USDA Loan | 0% | Specifically for rural properties, providing 100% financing for qualified low-to-moderate income borrowers. |
Conventional Loans
Some conventional mortgage programs allow eligible borrowers to purchase with as little as 3% down. Higher-priced properties, second homes, investment properties and certain loan structures may require more.
Common conventional down payments include:
3% down
5% down
10% down
15% down
20% or more
Putting less than 20% down may require private mortgage insurance, depending on the loan structure.
A smaller down payment allows a buyer to preserve cash, but it generally creates a larger loan balance and monthly payment.
FHA Loans
FHA financing may allow a down payment as low as 3.5% for eligible borrowers and properties.
FHA financing also includes mortgage-insurance requirements that should be considered when comparing the payment and long-term cost with conventional financing.
VA Loans
Eligible veterans, service members and certain surviving spouses may be able to use VA financing without a down payment when the purchase price does not exceed the property’s appraised value.
A zero-down loan does not necessarily mean zero cash is needed. The buyer may still have closing costs, prepaid expenses, inspections and other transaction expenses.
USDA Loans
USDA financing may provide qualified borrowers with no-down-payment financing in eligible rural areas, subject to household-income, property and program requirements.
Most Scottsdale properties will not qualify as rural under USDA standards, but the program may be relevant in other eligible areas.
What Are Closing Costs?
Closing costs are the expenses associated with obtaining the mortgage and transferring ownership of the property.
They may include:
Lender origination or underwriting charges
Appraisal fee
Credit-report fee
Title and escrow charges
Lender’s title insurance
Recording fees
Government taxes or transfer charges
Attorney fees where applicable
Flood certification
Tax-service fees
Discount points
Other third-party settlement expenses
The exact amount varies by lender, loan program, property and location.
Closing costs should not be confused with the down payment. They are generally paid in addition to the down payment. Fannie Mae also estimates that closing costs often range from approximately 2% to 5%, although the exact calculation will vary.
What Are Prepaid Expenses?
Some amounts collected at closing are not technically lender fees.
They are expenses associated with owning the home or establishing the mortgage escrow account.
Prepaid expenses may include:
The first year of homeowners insurance
Prepaid mortgage interest
Initial property-tax deposits
Initial homeowners-insurance escrow deposits
HOA dues paid in advance
Other property-related assessments
For example, a lender may collect several months of property taxes and homeowners insurance to establish the escrow account.
That money has not disappeared into a mysterious mortgage-fee black hole. It is being set aside for upcoming property-related bills.
Still, it increases the cash required to close.
The CFPB identifies prepaid property taxes, homeowners insurance and interest through the first payment period as common charges that may be collected during the mortgage closing process.
How Much Cash Might Be Needed on a $500,000 Home?
The following examples use a planning range of 2% to 5% of the purchase price for closing costs and prepaid expenses.
These are illustrations—not loan estimates or quotes.
Three Percent Down
Purchase price: $500,000
Down payment: $15,000
Estimated closing costs and prepaids: $10,000 to $25,000
Approximate total cash: $25,000 to $40,000
Five Percent Down
Purchase price: $500,000
Down payment: $25,000
Estimated closing costs and prepaids: $10,000 to $25,000
Approximate total cash: $35,000 to $50,000
Ten Percent Down
Purchase price: $500,000
Down payment: $50,000
Estimated closing costs and prepaids: $10,000 to $25,000
Approximate total cash: $60,000 to $75,000
Twenty Percent Down
Purchase price: $500,000
Down payment: $100,000
Estimated closing costs and prepaids: $10,000 to $25,000
Approximate total cash: $110,000 to $125,000
These examples do not subtract earnest money already paid, seller credits, lender credits, gift funds or assistance.
They also do not include the money the buyer should retain after closing.
How Much Cash Might Be Needed on a $1 Million Scottsdale Home?
Consider a $1 million Scottsdale purchase with 20% down:
Purchase price: $1,000,000
Down payment: $200,000
Estimated closing costs and prepaids: $20,000 to $50,000
Approximate total cash: $220,000 to $250,000
The actual amount could be higher or lower.
A Scottsdale buyer may also need to account for:
Jumbo-loan reserve requirements
Higher homeowners-insurance premiums
HOA dues
Golf or gated-community fees
Condominium transfer charges
Pool or landscaping expenses
Immediate repairs or improvements
Furnishings and moving expenses
A million-dollar buyer should not assume that having exactly $200,000 available is enough simply because that represents a 20% down payment.
Is Earnest Money an Additional Cost?
Earnest money is generally a deposit paid after the purchase contract is accepted to demonstrate the buyer’s commitment to the transaction.
If the purchase closes, the earnest-money deposit is normally credited toward the buyer’s down payment or closing costs. It is part of the buyer’s funds—not necessarily an additional cost on top of the final cash requirement.
For example:
Total required cash: $50,000
Earnest money already deposited: $10,000
Remaining amount due at closing: approximately $40,000
The exact treatment will appear on the Loan Estimate and final Closing Disclosure.
Earnest money is still important because it must be available earlier in the transaction. Depending on the contract, the buyer may also risk losing it if contractual obligations are not satisfied.
Buyers should consult their real estate agent or attorney regarding the specific contract and applicable deadlines.
What Expenses Are Paid Before Closing?
Not every home-buying expense waits until closing day.
A buyer may pay some costs earlier, including:
Earnest money
Home inspection
Sewer or septic inspection
Pool inspection
Roof inspection
Termite or pest inspection
Appraisal
Insurance-related inspections
Attorney or consultation fees
Other property evaluations
Some of these costs may appear as already paid on the closing documents. Others may remain completely outside the mortgage closing statement.
The buyer should maintain enough liquidity to pay these expenses without interfering with the documented funds needed for the mortgage.
What Does “Cash to Close” Mean?
Cash to close is the amount the buyer is expected to bring to the closing after accounting for the complete transaction.
It generally includes:
Down payment
Closing costs
Prepaid expenses
Initial escrow deposits
It then subtracts or adjusts for items such as:
Earnest money already paid
Seller credits
Lender credits
Gift funds received
Tax prorations
Other contractual adjustments
The CFPB explains that estimated cash to close includes the down payment and closing costs, minus deposits already paid, seller credits and other adjustments.
Your Loan Estimate provides an early estimate. Your Closing Disclosure shows the final figures before closing.
Reviewing only the down-payment line will not tell you how much money you must actually send to the title or settlement company.
Can the Seller Pay Closing Costs?
A seller may agree to contribute toward eligible buyer closing costs.
Seller credits can potentially be used for items such as:
Lender fees
Title and escrow charges
Discount points
Prepaid expenses
Other eligible costs
The amount permitted depends on the loan program, down payment, occupancy and other underwriting rules.
Seller credits generally cannot replace the borrower’s required down payment unless a specific assistance or financing structure permits it.
A seller credit must also be negotiated as part of the transaction. In a competitive market, requesting a large credit can affect how the seller views the offer.
The right strategy depends on the property, market conditions and the buyer’s financial priorities.
What Is a Lender Credit?
A lender credit may reduce the buyer’s closing costs.
In many cases, the credit is connected to the mortgage interest rate. Accepting a higher rate may produce a larger lender credit, while paying discount points may produce a lower rate.
A lender credit can be useful when preserving cash is more important than obtaining the lowest available interest rate.
However, it is not free money. The buyer should compare:
Cash saved at closing
Difference in monthly payment
Expected time in the home
Likelihood of refinancing
Break-even period
Long-term interest cost
The lowest closing cost is not automatically the least expensive loan over time.
Can Gift Funds Be Used?
Gift funds may be permitted for the down payment, closing costs or reserves, depending on the loan program and transaction.
The donor and transfer must meet program requirements, and documentation may be required.
The lender may request:
A signed gift letter
Evidence of the donor’s ability to provide the funds
Documentation of the transfer
Proof that the borrower received the money
Confirmation that repayment is not expected
Fannie Mae notes that gifts, grants and eligible loans may help buyers fund a down payment, although permitted sources and amounts vary by mortgage program.
Do not move gift money between accounts without coordinating with the lender. A poorly documented transfer can turn helpful family assistance into an underwriting scavenger hunt.
Can Down-Payment Assistance Help?
Some borrowers may qualify for grants, forgivable loans, deferred-payment loans or other down-payment and closing-cost assistance.
Programs may be offered through:
State housing agencies
Cities or counties
Nonprofit organizations
Employers
Community organizations
Lenders
Federal, state or local initiatives
Assistance programs may have requirements involving:
Household income
Purchase price
Property location
First-time-buyer status
Homebuyer education
Occupancy
Credit
Length of ownership
Repayment when the property is sold or refinanced
The word “assistance” does not always mean free money. Some programs create a second mortgage or repayment obligation.
The terms should be reviewed carefully.
How Much Money Should Remain After Closing?
The minimum amount required by the lender is not necessarily the amount a buyer should keep.
After closing, a buyer may face:
Moving expenses
Furniture purchases
Utility deposits
Landscaping
Pool service
Appliance replacement
Plumbing or electrical repairs
HVAC expenses
Insurance deductibles
HOA assessments
Property-tax increases
Unexpected maintenance
Some mortgage programs require documented financial reserves. Jumbo financing, investment properties, second homes and borrowers with multiple financed properties may have more substantial reserve requirements.
Even when reserves are not required, draining every available account to complete the purchase is usually a bad plan.
A buyer should consider maintaining:
An emergency fund
Several months of housing payments
Funds for known repairs
Money for moving and immediate setup
Continued retirement and investment savings
Owning the house should not mean becoming one broken air conditioner away from financial panic.
Should You Put 20% Down?
Twenty percent down can offer advantages:
Smaller loan amount
Lower monthly principal-and-interest payment
No conventional private mortgage insurance in many cases
Stronger loan profile
Potentially better pricing
More immediate equity
But it is not always the best decision.
Putting 20% down may be less attractive when it:
Empties the buyer’s emergency savings
Requires selling investments at an unfavorable time
Leaves no money for repairs
Reduces necessary business liquidity
Creates large taxable investment gains
Prevents the buyer from maintaining adequate reserves
A buyer may prefer 10% or 15% down while keeping more cash available.
The decision should be based on the monthly payment, mortgage-insurance cost, rate, reserves, investment priorities and overall financial plan.
Avoid These Cash-to-Close Mistakes
Assuming the Down Payment Is the Total
Closing costs and prepaid expenses are separate from the down payment.
Spending Every Available Dollar
The lender’s minimum reserve requirement is not necessarily a responsible personal reserve target.
Moving Money Without Telling the Lender
Large transfers and unexplained deposits may require documentation.
Depositing Cash
Physical cash can be difficult or impossible to document as an acceptable mortgage asset.
Opening New Accounts or Borrowing Money
New debt can affect credit, qualification and the source of funds.
Forgetting About HOA Costs
HOA transfer fees, dues, assessments or prepaid amounts may affect both cash to close and the monthly payment.
Assuming Seller Credits Are Guaranteed
Seller credits must be negotiated and must comply with the selected loan program.
Ignoring Repairs and Moving Costs
Closing is not the final home-related expense. It is more like the opening ceremony.
Frequently Asked Questions
Do I need 20% down to buy a home?
No. Some conventional loans allow as little as 3% down, FHA may allow 3.5%, and eligible VA or USDA borrowers may qualify without a down payment. Requirements vary by borrower, property and program.
Are closing costs included in the down payment?
No. The down payment and closing costs are separate parts of the transaction.
How much are closing costs?
A common planning range is approximately 2% to 5% of the purchase price, excluding the down payment. Actual costs vary.
Does earnest money reduce cash to close?
Generally, yes. Earnest money already paid is usually credited toward the final amount the buyer owes at closing.
Can I roll closing costs into the mortgage?
On a purchase transaction, buyers generally cannot simply add every closing cost to the loan balance. Seller credits, lender credits and assistance programs may reduce the amount paid directly by the buyer.
Can family help with the down payment?
Gift funds may be allowed, subject to the selected loan program and documentation requirements.
Should I use all my savings for the down payment?
Usually not. Buyers should consider closing costs, repairs, moving expenses and emergency reserves before deciding how much to put down.
How do I determine my exact cash requirement?
Complete a mortgage application and request a Loan Estimate using a realistic purchase price, down payment and property type. The final Closing Disclosure will show the completed cash-to-close calculation.
Final Planning for Your Home Purchase
The amount of cash needed to buy a home includes much more than the down payment.
A complete estimate should include:
Down payment
Closing costs
Prepaid taxes and insurance
Initial escrow deposits
Earnest money timing
Inspections and appraisal
Moving expenses
Repairs and furnishings
Financial reserves after closing
A buyer purchasing a $500,000 home might need approximately $25,000 to $125,000 or more, depending largely on the down payment and transaction costs.
A buyer purchasing a $1 million Scottsdale home with 20% down might reasonably plan for approximately $220,000 to $250,000 before considering additional reserves and post-closing expenses.
The goal should not be to arrive at closing with the smallest possible bank balance.
The goal is to structure the purchase so the buyer has enough money to close, maintain the home and remain financially secure afterward.
I have helped homebuyers evaluate down payments, cash-to-close requirements and mortgage options for more than 30 years. A detailed review before making an offer can identify the true cash requirement and help determine whether preserving funds or making a larger down payment is the better strategy.
Learn more at markmerry.com.
Mark Merry Senior Branch Manager | Mortgage Lender Granite Bank NMLS #452552 | Company NMLS #405434 Serving Scottsdale, Phoenix, Arizona, Minnesota and borrowers nationwide where licensed.
This article is provided for educational purposes only and is not a commitment to lend or individualized legal, tax, accounting or financial advice. Mortgage guidelines, costs, documentation requirements and program availability are subject to change and vary by borrower, property, lender, investor and loan program.
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