The down payment is only the first number—and it's usually smaller than you think

Most people believe they need 20 percent of the home's price saved before they can buy. That's not true. You can buy a house with 3 to 5 percent down through conventional loans, or with no down payment at all through VA or USDA programs if you meet the requirements. But the down payment is only one piece. You also need to cover closing costs (typically 2 to 5 percent of the purchase price), inspections, appraisals, and enough cash left over after closing to handle immediate repairs or emergencies.

The real question isn't "what percentage should I save" but "what does my actual situation require?" A $300,000 house with 5 percent down costs $15,000 upfront, plus $6,000 to $15,000 in closing costs. But if your credit score is lower, your interest rate will be higher, and you'll pay more over time. If you have no emergency fund after closing, one broken furnace becomes a crisis. The number you need depends on the price range you're targeting, the loan type you can get, and how much cushion you want.

Key Takeaways

  • Down payments can be as low as 3 percent for conventional loans or 0 percent for VA and USDA loans, so you don't need 20 percent saved to buy.
  • Closing costs typically run 2 to 5 percent of the purchase price and are separate from the down payment—budget for both.
  • Your credit score, debt-to-income ratio, and savings history affect which loan programs you can access and what interest rate you'll receive.
  • Keeping 3 to 6 months of expenses in savings after closing protects you from becoming house-poor if repairs or job changes happen.
  • The actual target number depends on your local home prices, your income, and which loan program fits your situation.

Calculate your down payment based on the price you can actually afford

Start by figuring out what price range you can afford, not what you want to spend. Most lenders will approve you for a mortgage if your monthly housing payment (including property tax, insurance, and HOA fees if applicable) doesn't exceed 28 percent of your gross monthly income. If you earn $5,000 per month, that's roughly $1,400 available for housing. Work backward from there to find the price range.

Once you know the price, calculate the down payment for the loan type you're considering. A 3 percent down payment on a $250,000 house is $7,500. A 5 percent down payment is $12,500. A 10 percent down payment is $25,000. If you're may be able to access for a VA loan (active duty, veteran, or surviving spouse) or a USDA loan (rural property, income limits apply), your down payment can be zero. Write down the exact dollar amount for your target price and loan type—not a percentage, an actual number.

Add closing costs and don't forget the inspection

Closing costs are fees paid to the lender, title company, appraiser, and other parties involved in the sale. They typically range from 2 to 5 percent of the loan amount. On a $250,000 purchase with a $242,500 loan (after a 3 percent down payment), closing costs might run $4,850 to $12,125. Some of these costs can be negotiated or rolled into the loan itself, but you should plan to have cash available.

Before closing, you'll also pay for a home inspection (usually $300 to $500) and an appraisal (usually $400 to $600). These happen earlier in the process and come out of your pocket. Add these to your down payment number. If you're putting 3 percent down on a $250,000 house, you're looking at roughly $7,500 down payment, $900 for inspection and appraisal, and $5,000 to $12,000 in closing costs—a total of $13,400 to $20,400 before you own the house.

Keep a separate emergency fund after you close

The moment you own a house, you become responsible for every repair. The water heater fails. The roof leaks. The furnace stops working in January. These aren't small expenses—a new furnace can cost $4,000 to $8,000, a new roof $8,000 to $25,000. If you've saved every dollar for the down payment and closing costs, the first major repair will force you to take on debt or miss other obligations.

Plan to keep 3 to 6 months of your total monthly expenses in savings after closing. If your monthly expenses (housing, food, utilities, insurance, transportation, everything) are $3,500, aim to have $10,500 to $21,000 set aside. This is separate from your down payment savings. It's your protection against becoming house-poor.

Your credit score and debt affect how much you can borrow and what you'll pay

Lenders use your credit score and debt-to-income ratio to decide whether to lend to you and at what interest rate. A credit score of 740 or higher typically qualifies you for the best rates. A score of 620 to 639 still qualifies you for conventional loans, but your interest rate will be higher—sometimes 0.5 to 1 percent higher, which adds tens of thousands to the total cost of the loan over 30 years.

Your debt-to-income ratio is your total monthly debt payments divided by your gross monthly income. Most lenders want this to be 43 percent or lower. If you earn $5,000 per month and have $1,500 in existing debt payments (car loan, student loans, credit cards), your ratio is 30 percent. Adding a $1,400 mortgage payment would push you to 58 percent, which disqualifies you. Before you save for a down payment, pay down existing debt or increase your income. This directly affects how much house you can afford and what interest rate you'll receive.

Decide whether to save for 20 percent down or buy sooner with less

The 20 percent down payment myth persists because it does have one real advantage: it eliminates private mortgage insurance (PMI). If you put down less than 20 percent, the lender requires you to pay PMI—typically 0.5 to 1.5 percent of the loan amount per year. On a $250,000 house with a $237,500 loan (5 percent down), PMI might be $1,188 to $3,563 per year, added to your monthly payment.

But waiting five or ten years to save 20 percent means you're paying rent instead of building equity, and home prices may rise faster than you can save. A 5 percent down payment with PMI might cost you less overall than renting for another five years while home prices climb. Run the numbers for your situation: calculate how long it would take to save 20 percent, compare that to what rent will cost you in that time, and factor in expected home price growth in your area. Sometimes buying sooner with PMI is the smarter move.

Use a savings timeline to track progress toward your target

Once you have a target number—down payment plus closing costs plus emergency fund—divide it by the number of months until you want to buy. If you need $25,000 and want to buy in 24 months, you need to save about $1,042 per month. If that's not realistic on your current income, either extend your timeline or lower your target price.

Track your savings in a separate account, ideally a high-yield savings account that earns interest. Don't mix it with your regular checking account—the separation makes it harder to spend and easier to see progress. Set up automatic transfers on payday so the money moves before you see it. Review your progress every three months. If you're falling short, adjust either your monthly savings goal or your timeline. If you're ahead, you can either buy sooner or increase your emergency fund cushion.

Frequently Asked Questions

Do I really need 20 percent down to buy a house?

No. You can buy with 3 to 5 percent down through conventional loans, or with zero down through VA or USDA programs if you meet the requirements. The 20 percent threshold eliminates private mortgage insurance, but it's not required to purchase.

What's included in closing costs?

Closing costs typically include lender fees, title insurance, appraisal, credit report, attorney fees, property taxes, homeowners insurance, and HOA transfer fees. They vary by location and lender but usually total 2 to 5 percent of the loan amount. Ask your lender for a Closing Disclosure form at least three days before closing to see the exact breakdown.

Can I borrow money for the down payment?

Most lenders require that your down payment come from your own savings or a gift from a family member. Borrowed money typically disqualifies you because it increases your debt-to-income ratio. Some programs allow gifts, but the gift giver usually must sign a letter stating it doesn't need to be repaid.

What happens if I don't have an emergency fund after closing?

You become vulnerable to high-interest debt. A major repair forces you to use credit cards or take out a personal loan, both of which cost more than the repair itself. You may also struggle to make your mortgage payment if an unexpected expense hits. Plan for 3 to 6 months of expenses in savings after closing.

How does my credit score affect how much I can save?

Your credit score doesn't directly affect savings, but it affects the interest rate you'll receive on your mortgage. A lower score means a higher rate, which increases your monthly payment and total cost. Improving your credit score before applying for a mortgage can save you thousands over the life of the loan.