How Much Money Do You Need To Buy a House?

How much money do you need to buy a house? It’s less than you think and, in some cases, the answer is zero.

The typical U.S. home sold for $356,700 in the summer of 2021. Assuming a 3 percent down payment and closing costs at 1.5 percent of the home price, you could move into your first home with just $16,000 cash.

At a $180,000 purchase price, you could move in for half that amount.

Table of Contents:

How Much Does It Cost To Buy a House?

Illustration explains the differences among down payments, prepaid expenses, and closing costs for first-time buyers.

Assuming a purchase price of $150,000, here’s what bottom-line figures look like for home buyers using three common loan types. 

 

Conventional
Mortgage

FHA
Mortgage

USDA & VA
Mortgages 

Down Payment

3% or $4,500

3.5% or $5,250

0% or $0

Closing Costs

$2,250

$2,250

$2,250

Total Cost to Buy a House

$6,750

$7,500

$2,250

 

When you buy a home, you pay for more than just its sticker price. Insurance policies, government fees, and real estate taxes add to your bottom line, and your choice of down payment affects your out-of-pocket numbers.

Some home buyers opt for a low-down payment loan, which requires less than 20 percent down. Others choose no-down payment mortgages, which need nothing down. 

Down payment assistance programs are a third popular option. Down payment assistance programs cover most, or all, of the required mortgage down payment.

The majority of Homebuyer.com customers request to bring as little cash to their closing as possible. Depending on their state of purchase and loan type, that figure can range from 5 percent all the way down to zero.

Down Payment

When you buy a home, your down payment is the amount of your own money you contribute toward the purchase price. The remaining amount becomes your loan size.

Statistically, first-time home buyers make smaller down payments than the general home-buying population. 

Among all home buyers, the average down payment is 12 percent. Active duty servicemen and servicewomen average 4 percent. First-time home buyers average 7 percent. There is no rule for how much money you should put down.

Some home buyers use down payment assistance (DPA) programs as part of their purchase. 

Down payment assistance programs offer low- or no-interest loans of up to $100,000, or forgivable loans and grants to eligible first-time buyers. Many buyers combine the mortgage loan with a DPA to make a 100 percent mortgage

The best down payment is the one that makes you comfortable, and leaves you with cash in your bank account to access in an emergency. 

Prepaid Costs

Prepaid costs are upfront payments to third-parties made at closing. Prepaid costs are not closing costs, which are fees for specific services. Rather, prepaid costs are advance payments for ongoing expenses associated with your mortgage or owning a home. 

Prepaid costs include homeowners insurance payments, mortgage insurance payments, and real estate tax payments.

Prepaid costs also include a mortgage per diem charge, or daily mortgage interest.

Mortgage per diem is based on your closing date. In most cases, it covers mortgage interest that accrues from your date of closing through the last day of the month. A per diem charge is the only time a homeowner pays interest in advance. 

Every other time, it’s paid in arrears.

Closing Costs

Closing costs are third-party fees paid when you purchase a home. Closing costs may be due to the title company, the municipality, your lender, and others. 

Closing costs can vary by loan size, loan type, location, or by mortgage lender and can range from less than one percent to higher than six percent.

Here at Homebuyer, closing costs typically fall in the one to two percent range. When you're planning your first-time home buyer budget, two percent would be a good estimate to use.


 

When you're pre-approved to buy, your lender will provide you with an itemized, binding loan estimate to help you budget for buying.

Earnest Money

Illustration of a lock, defines an escrow account as an account holding funds and managed by an independent party until an agreement is met. 

Earnest money is a cash payment home buyers make after the seller agrees to their offer. Earnest money deposits signal that the buyer is serious about the purchase and intends to follow through. 

Earnest money payments aren’t made to the seller directly. Earnest money is paid into escrow, where it’s held until closing. At closing, the escrow service releases the money to be applied toward down payment, closing costs, or back to the buyer so they can reclaim their cash.

In some scenarios, your earnest money may be forfeited to the seller.

If, as the buyer, you don’t fulfill your obligations to get a mortgage approved; or, if you change your mind about the purchase, the seller may elect to keep your earnest money. This is why earnest money is sometimes known as a Good Faith Deposit. 

A typical earnest money deposit will range between a few hundred and a few thousand dollars, depending on the sale price of the home. Homes at higher price points typically require larger earnest money checks.

Moving Expenses

It costs money to move homes and your moving expenses won’t show up on a settlement statement. Have a plan and set a budget. Waiting until the last minute adds stress and costs, and is one of our top 16 home-buying mistakes.

If you plan to hire professional movers, Tuesdays and Wednesdays are the least busy and offer the best deals. Moving near the beginning of the month is another way to save money.

If you plan to move by yourself, account for the costs of packing boxes, heavy-duty tape, Sharpie markers, and equipment rental. 

Prepaid Expenses

Image compares prepaid costs, closing costs, and ongoing costs of homeownership.

Prepaid expenses are independent of home closing costs. Prepaid expenses are the costs of homeownership, and they likely begin before you move in. These include:

  • Real estate taxes
  • Homeowners insurance premiums
  • Mortgage interest (between closing date and first mortgage payment)

These prepaid expenses will also help you set up an ongoing escrow account which includes your taxes and homeowners insurance premiums in your monthly housing payment. This way they will always be paid current and you won't be surprised by a lump sum payment once or twice per year.

Maintenance Costs

Part of owning a home is caring for it and preparing for regular home maintenance. It’s a good idea to budget 1.5 percent of the home’s value for annual maintenance costs. 

A home inspection gives you initial insights into needed home and appliance repairs. Learn how often features like your roof, siding, and toilets need replacing and budget for these costs.

How To Meet Your Home Savings Goals

Saving money is always easier when you have a detailed budget and clear goal. Look over previous bank statements and see how much you spend on necessities like rent, groceries, and car maintenance. Then see where you’re spending on wants like restaurants, accessories, and hobbies.

Once you’ve segmented your spending, see where you can cut costs. For example, you may choose to buy a gym membership instead of paying for weekly fitness classes. You don’t have to give up the things you love to save money. 

Calculate how much you can save each month and estimate how many months you'll need to save the money to buy a house. Now you’ll have a better idea of your savings timeline. You can revisit your budget to trim more expenses and save quicker as necessary.

It’s helpful to set rewards or savings strategies to help reach your goals. This could be enjoying your favorite breakfast spot every two weeks you don’t eat out. You can also choose a social motivator, like inviting your friends for a movie night, to enjoy their company without overspending.

Buying your first home doesn’t have to cost a fortune upfront. Programs are available to help you offset some initial home-buying costs. Low- and no-down payment loans for those with low credit scores help make homeownership achievable. 

With the right home buyer education and a little work, you’ll know how much money you need to buy a house and plan accordingly. 

Download the Gamify Your Goals Infographic

 

Dan Green

Dan Green

Dan Green is a former mortgage loan officer and an industry expert. He's appeared on NPR and CNBC, and in The Wall Street Journal, Bloomberg, and dozens of local newspapers. Dan has helped millions of first-time home buyers get educated on mortgages, real estate, and personal finance. Have mortgage questions? Ask Dan in the chat.

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