The down payment is the core number, but closing costs and reserves matter just as much
The amount you need to save depends on three separate pools of money: your down payment, your closing costs, and your cash reserves after closing. Most people focus only on the down payment and then run short when the other two arrive.
Down payments range from 3 percent to 20 percent of the home's purchase price, depending on the loan type. A conventional loan typically requires 5 to 20 percent down. An FHA loan requires 3.5 percent down. A VA loan (if you may have access to) requires zero down. Closing costs run 2 to 5 percent of the purchase price and cover appraisals, title insurance, inspections, and lender fees. Lenders also want to see cash reserves—usually one to three months of your future mortgage payment—sitting in the bank after you close.
On a $300,000 home with a 10 percent down payment, you would need $30,000 for the down payment, $6,000 to $15,000 for closing costs, and another $5,000 to $10,000 in reserves. That is $41,000 to $55,000 total before you can close.
Key Takeaways
- Down payment requirements range from zero percent (VA loans) to 20 percent (conventional loans), with 10 percent being a common middle ground for first-time buyers.
- Closing costs add 2 to 5 percent of the purchase price on top of your down payment and are due at closing, not rolled into the mortgage.
- Lenders require cash reserves equal to one to three months of your future mortgage payment to remain in savings after closing.
- The total amount you need to save is down payment plus closing costs plus reserves, not just the down payment alone.
- Some down payment assistance programs exist through state housing agencies and nonprofits, but they typically require you to meet income or credit thresholds first.
How down payment size affects your monthly payment and loan terms
A larger down payment lowers your monthly mortgage payment and can eliminate the need for mortgage insurance. If you put down less than 20 percent on a conventional loan, you will pay private mortgage insurance (PMI)—an extra monthly fee that protects the lender if you default. PMI typically costs 0.5 to 1 percent of your loan amount per year, divided into monthly payments.
On a $270,000 loan (90 percent of a $300,000 home), PMI might cost $135 to $270 per month. That fee disappears once you reach 20 percent equity in the home, either through payments or home appreciation, but it can take years. A larger down payment avoids this cost entirely and also means you borrow less money overall, so your total interest paid over 30 years drops significantly.
The trade-off is time: saving an extra $30,000 to reach 20 percent down might take years longer than saving 10 percent. Whether that delay is worth the PMI savings depends on your timeline and how fast your home's value is likely to rise in your market.
Closing costs you cannot avoid or negotiate much
Closing costs are not one bill—they are a collection of fees that add up quickly. The largest are usually the appraisal ($400 to $600), title insurance ($500 to $1,500), and lender origination fees (0.5 to 1 percent of the loan amount). You will also pay for a home inspection ($300 to $500), survey (if required), property taxes (prorated for the year), homeowners insurance (first year premium, often required upfront), and attorney fees in some states.
Some of these costs are negotiable—you can shop for title insurance and homeowners insurance, and you can ask the seller to cover some closing costs as part of the purchase agreement. Others are fixed by law or lender policy. Your lender must give you a Closing Disclosure form at least three business days before closing, which lists every fee. Review it carefully against your initial Loan Estimate to catch surprises.
In some cases, you can roll closing costs into your mortgage instead of paying them upfront, but this means paying interest on those fees for 30 years. For a $10,000 closing cost rolled into a mortgage at 7 percent interest, you would pay roughly $23,600 total by the end of the loan.
Cash reserves and why lenders require them
After closing, lenders want to see proof that you can cover your mortgage payment if your income drops. Cash reserves are savings held in checking or savings accounts that remain untouched after you close. Most conventional lenders require one to three months of your projected mortgage payment (principal, interest, taxes, and insurance combined) to stay in the bank.
On a $300,000 home with a 10 percent down payment at 7 percent interest over 30 years, your monthly payment is roughly $1,900 (before taxes and insurance). With taxes and insurance, the total might be $2,400 per month. A lender requiring three months of reserves would want $7,200 sitting in savings after closing.
Some loan programs are stricter than others. FHA loans may require six months of reserves. Jumbo loans (over $766,550 in most of the country) often require six to twelve months. Self-employed borrowers typically need more reserves than W-2 employees because their income is seen as less stable.
How to calculate your total savings target
Start with the home price you are targeting. Multiply by your down payment percentage (as a decimal) to get the down payment amount. Multiply the home price by 0.03 to 0.05 to estimate closing costs. Then calculate your projected monthly payment using an online mortgage calculator, and multiply by the number of months of reserves your lender will require.
Here is a worked example for a $350,000 home:
| Item | Calculation | Amount |
|---|---|---|
| Down payment (10%) | $350,000 × 0.10 | $35,000 |
| Closing costs (3.5%) | $350,000 × 0.035 | $12,250 |
| Loan amount | $350,000 − $35,000 | $315,000 |
| Monthly payment (est.) | 7% interest, 30 years | $2,095 |
| Reserves (3 months) | $2,095 × 3 | $6,285 |
| Total to save | $53,535 |
This calculation assumes you have no other debts and your debt-to-income ratio is low enough to may have access to. If you carry student loans, car payments, or credit card balances, your lender may require a larger down payment or more reserves to offset the risk.
Down payment assistance programs and what they actually cover
Several states and nonprofits offer down payment assistance, but these programs have strict rules and do not cover the full amount. The most common are state housing finance agencies, which offer grants or forgivable loans that cover 3 to 10 percent of the purchase price. Some require you to take a homebuyer education course first. Others limit assistance to first-time buyers or to homes in certain neighborhoods.
The National Housing Trust Fund, administered through state housing agencies, provides down payment help to very low-income buyers. Individual nonprofits like Habitat for Humanity and local community development organizations also offer assistance, though availability varies by region and their funds run out quickly.
Down payment assistance rarely covers closing costs or reserves, so you will still need to save separately for those. Some programs also require you to pay back the assistance if you sell the home within a certain number of years, which affects your long-term costs. Check your state housing finance agency website or call 211 to find programs in your area.
Frequently Asked Questions
Can I borrow money for my down payment?
Most lenders will not allow you to borrow the down payment from family or friends unless you document it as a gift and the giver signs a letter stating they do not expect repayment. If the money is a loan, lenders count it as debt and lower the amount you can borrow. Some first-time buyer programs allow a gift of up to 5 or 10 percent of the purchase price.
What if I do not have enough for closing costs?
You can ask the seller to cover some or all of your closing costs as part of the purchase agreement. This is called a seller concession. Lenders typically allow sellers to cover 3 to 6 percent of the purchase price in closing costs, depending on the loan type. The trade-off is that you may need to offer a higher purchase price to make the deal attractive to the seller.
Do I need to save the full amount before I start house hunting?
You should have your down payment and closing costs saved before you make an offer, because lenders will verify your savings during underwriting. Reserves can sometimes be satisfied by retirement accounts or other assets, but cash in the bank is strongest. Starting to house hunt before you have saved the full amount can lead to offers that fall through during the loan process.
How long does it usually take to save for a house?
That depends on your income, expenses, and savings rate. If you save $1,000 per month, reaching $50,000 takes about four years. If you save $2,000 per month, it takes two years. Many first-time buyers find that cutting discretionary spending and redirecting bonuses or tax refunds to savings speeds up the timeline significantly.
Does my credit score affect how much I need to save?
Yes. Borrowers with credit scores below 620 may not may have access to for conventional loans at all and will need FHA loans, which require 3.5 percent down but have higher interest rates. Borrowers with scores between 620 and 680 often face higher interest rates and may be required to put down more than 10 percent. A score above 740 typically unlocks the best rates and lowest down payment requirements.