Start with a down payment between 3 and 20 percent of the home's price
The amount you need to save depends on the down payment percentage your lender will accept and the price of the home you want to buy. A down payment is the cash you pay upfront; the lender finances the rest through a mortgage.
If you are looking at a $300,000 home, a 3 percent down payment is $9,000. A 20 percent down payment on the same home is $60,000. Most first-time buyers put down between 3 and 10 percent, though some programs allow as little as 3 percent and some lenders prefer 20 percent or more.
The percentage you can put down depends on the type of loan you may have access to for. Conventional loans (from banks and mortgage companies) often require 5 to 20 percent down. FHA loans, backed by the Federal Housing Administration, typically allow 3.5 percent down. VA loans, for military members and veterans, often require zero down. USDA loans, for rural properties, also often require zero down.
Key Takeaways
- Down payment amounts range from zero to 20 percent of the home price, depending on the loan type you may have access to for.
- Closing costs—paid at the time you sign the mortgage—typically run 2 to 5 percent of the home price and must be saved separately from your down payment.
- A down payment below 20 percent triggers mortgage insurance, which adds to your monthly payment and should factor into how much you save.
- Saving for moving, inspections, appraisals, and emergency repairs after purchase means your total savings goal is usually 5 to 10 percent higher than the down payment alone.
Add closing costs on top of your down payment
Closing costs are fees you pay when you sign the mortgage documents. They cover the lender's processing, the title search, the appraisal, homeowners insurance, property taxes, and the title company's work. These costs are separate from your down payment and must be paid in cash at closing.
Closing costs typically range from 2 to 5 percent of the home's purchase price. On a $300,000 home, that is $6,000 to $15,000. Some lenders allow you to roll closing costs into the mortgage itself, which means you do not pay them upfront but you pay interest on them over 15 or 30 years. If you do this, your monthly payment rises, so it affects how much house you can afford.
Ask your lender for a Loan Estimate early in the process. This document lists every closing cost and is required by law. It lets you see the exact number for the loan you are considering, rather than guessing at a percentage.
Account for mortgage insurance if your down payment is below 20 percent
If you put down less than 20 percent, your lender will require mortgage insurance. This is insurance that protects the lender if you stop paying the mortgage. You pay the premium as part of your monthly payment, and it adds $100 to $300 or more per month depending on the loan size and your down payment percentage.
Mortgage insurance does not protect you—it protects the lender. It is a cost you bear for borrowing more than 80 percent of the home's price. The lower your down payment, the higher the insurance premium. This is one reason saving a larger down payment reduces your long-term cost: you avoid or reduce mortgage insurance payments over years.
On an FHA loan with a 3.5 percent down payment, mortgage insurance is mandatory for the life of the loan. On a conventional loan with 5 to 19 percent down, you can request to remove it once you have paid the mortgage down to 80 percent of the home's original value, though this takes years.
Budget for home inspection, appraisal, and other pre-purchase costs
Before closing, you will pay for a home inspection (typically $300 to $500) and the lender will order an appraisal (typically $400 to $600). These are separate from closing costs and come out of your pocket before you sign the mortgage. Some lenders roll the appraisal fee into closing costs, but the inspection is almost always your responsibility.
If you are buying in a flood zone or an area with radon, you may need additional inspections. If the home is in a homeowners association, you may pay for an HOA document review. These add $200 to $500 each. Budget for these separately from your down payment and closing costs.
Plan for immediate repairs and an emergency fund after purchase
Once you own the home, you are responsible for all repairs. The roof, the furnace, the plumbing, and the foundation are now your problem. Even if the inspection found nothing major, unexpected repairs happen in the first year—a water heater fails, a pipe bursts, the HVAC system needs work.
Financial advisors often recommend keeping 1 to 3 percent of the home's purchase price in savings for repairs in the first year. On a $300,000 home, that is $3,000 to $9,000. This is separate from your down payment and closing costs. If you do not have this cushion, a $5,000 repair can force you to use a credit card or take out a loan.
You should also have an emergency fund of 3 to 6 months of expenses before you buy. This covers your mortgage payment if you lose income. Buying a home should not drain every dollar you have.
Calculate your total savings target
Add these numbers together to find your real savings goal:
| Item | Example (3% down on $300,000 home) |
|---|---|
| Down payment | $9,000 |
| Closing costs (3% estimate) | $9,000 |
| Home inspection and appraisal | $1,000 |
| First-year repairs (1% estimate) | $3,000 |
| Total | $22,000 |
This example shows that on a $300,000 home with a 3 percent down payment, you need roughly $22,000 in savings before you buy. The actual number depends on the home price, the down payment percentage your lender accepts, and the closing costs for your area and loan type.
If you are looking at a $200,000 home with a 10 percent down payment, your down payment is $20,000, closing costs might be $5,000 to $8,000, and inspections and repairs might be $2,000 to $3,000—a total of $27,000 to $31,000. The percentage stays roughly the same even as the dollar amount changes.
Frequently Asked Questions
Can the seller pay my closing costs?
Yes. In a buyer's market, you can negotiate for the seller to cover some or all of your closing costs. This is called a seller concession. The seller pays the closing costs directly to the title company at closing. However, if you ask for a large concession, the seller may lower their asking price or walk away from the deal. Your real estate agent can advise on what is typical in your area.
What if I cannot save 20 percent down?
Most buyers do not put down 20 percent. FHA loans allow 3.5 percent down, and some conventional loans allow 3 to 5 percent. You will pay mortgage insurance, which raises your monthly payment, but you can still buy. As your income grows, you can refinance later and remove the insurance once you have paid down the principal.
Should I save for a down payment or pay off debt first?
This depends on your interest rates and your timeline. High-interest debt (credit cards above 10 percent) usually costs more than mortgage interest, so paying it down first lowers your overall debt burden. However, if you have moderate debt and a stable income, saving for a down payment while paying minimums on lower-interest debt may get you into a home sooner. A mortgage lender will look at your debt-to-income ratio, so less debt improves your loan terms.
Do I need to save the full amount before I talk to a lender?
No. Talk to a lender early to find out what down payment percentage you may have access to for and what your monthly payment would be. This tells you whether your savings goal is realistic and whether you should aim for 5 percent down or 10 percent down. A lender can also tell you if you need to pay off debt before applying.
What happens if I run out of money before closing?
Tell your lender immediately. Some lenders allow you to ask the seller for a larger concession to cover the shortfall. Others may require you to delay closing until you have saved more. Do not borrow money for a down payment or closing costs—lenders will ask where the money came from, and borrowed funds can disqualify you or delay approval.