Can You Trust Your Mortgage Preapproval When You're Out Shopping for Homes? Quick Summary: A…
How Much Cash Do You Need to Buy a Home?
Quick Summary: Most buyers need cash for three things: a down payment, an earnest money deposit, and closing costs. On a $250,000 home, that can range from about $5,000 with a zero-down VA or USDA loan to $20,000 or more with other loan types. Seller concessions and lender credits can lower what you need to bring.
Buyers often save for a down payment and then get surprised by everything else due at closing. I would rather you see the full number on day one. Here is what to budget for, what each cost covers, and where you can bring less.
How Much Cash Do You Need on a $250,000 Home?
| Loan Type | Minimum Down Payment | Estimated Closing Costs (2% to 5%) | Estimated Total Cash |
|---|---|---|---|
| VA | $0 | $5,000 to $12,500 | $5,000 to $12,500 |
| USDA | $0 | $5,000 to $12,500 | $5,000 to $12,500 |
| Conventional | $7,500 (3%) | $5,000 to $12,500 | $12,500 to $20,000 |
| FHA | $8,750 (3.5%) | $5,000 to $12,500 | $13,750 to $21,250 |
These are estimates before any seller concession or lender credit. Your earnest money deposit is part of these totals. It is not an added cost.
1. Down Payment
You do not need 20% down. Minimum down payments by loan type:
- VA loans: no down payment for eligible Veterans, service members, and surviving spouses. See my VA loan overview.
- USDA loans: no down payment for homes in eligible rural areas. See my USDA home loan page.
- Conventional loans: as little as 3% down for qualified buyers.
- FHA loans: 3.5% down with a credit score of 580 or higher.
A larger down payment lowers your monthly payment and can reduce or remove mortgage insurance. It is a choice, not a requirement.
2. Earnest Money Deposit
Earnest money is a good-faith deposit you make when a seller accepts your offer. It shows the seller you are serious.
- It is often 1% to 2% of the purchase price, and the amount is negotiable.
- It is held in escrow until closing.
- It is credited toward your down payment or closing costs.
You can lose your earnest money if you back out of the purchase for a reason your contract does not allow. Your real estate agent can explain the protections in your offer.
3. Closing Costs
Closing costs are the fees to finalize your loan and transfer ownership of the home. They are separate from your down payment and usually run 2% to 5% of the purchase price. They typically include:
- Lender fees, such as origination and underwriting
- Appraisal and credit report fees
- Title search, title insurance, and closing fees
- Recording fees
- Prepaid property taxes, homeowners insurance, and interest
- Funds to start your escrow account
Prepaid taxes and insurance are often the largest part of the total, which is why the number changes with your county, your insurance quote, and your closing date. I provide a Loan Estimate within three business days of your application so you can review every line.
Who Pays Closing Costs?
The buyer usually pays most of them. A seller can agree to pay part or all of your closing costs through a seller concession, and each loan type sets a maximum:
- Conventional: 3% with less than 10% down, 6% with 10% to 25% down, and 9% with 25% or more down. The percentage is based on the lower of the sales price or the appraised value.
- FHA: up to 6% of the sales price, regardless of down payment
- USDA: up to 6% of the sales price, regardless of down payment
- VA: the seller can pay your ordinary closing costs and normal discount points with no percentage cap. In addition, the seller can pay up to 4% of the home’s VA reasonable value toward items VA defines as concessions, such as your VA funding fee, paying off your debts, or a temporary rate buydown. See VA seller concession limits.
On a home with a $300,000 VA reasonable value, a seller could pay up to $12,000 in concessions plus the Veteran’s ordinary closing costs.
These percentages are ceilings, not automatic credits. Whether a seller agrees to pay anything depends on the market and your offer. VA loans also limit the fees a lender can charge a Veteran.
Can You Roll Closing Costs Into the Loan?
On a purchase, most closing costs cannot be added to your loan. There are three exceptions and one workaround:
- You can finance the VA funding fee.
- You can finance the FHA upfront mortgage insurance premium.
- You can finance the USDA guarantee fee.
- A lender credit lowers your cash due at closing in exchange for a higher interest rate.
A lender credit is a trade-off. It helps today and costs more each month, so I show you both versions before you choose.
Other Costs to Plan For
- Home inspection: paid to the inspector, usually before closing. Read why you should not skip the home inspection.
- Appraisal: often paid before closing and then counted in your closing costs.
- Moving and setup: movers, utility deposits, and basic repairs.
- A cushion: keep savings on hand after closing. Some loans require reserves.
Frequently Asked Questions
Do I need a 20% down payment to buy a home?
No. Conventional loans start at 3% down for qualified buyers, and FHA loans start at 3.5% down. VA loans for eligible Veterans and service members and USDA loans in eligible rural areas require no down payment.
What is an earnest money deposit?
Earnest money is a good faith deposit you make when a seller accepts your offer. It is often 1% to 2% of the purchase price; it is held in escrow and credited toward your down payment or closing costs at closing. It is not an extra fee.
How much are closing costs?
Closing costs usually run 2% to 5% of the purchase price. On a $250,000 home, that is about $5,000 to $12,500. The total depends on your loan type, property taxes, homeowners insurance, and your closing date.
Who pays closing costs, the buyer or the seller?
The buyer usually pays most closing costs. A seller can agree to pay part or all of them through a seller concession, and each loan type limits how much the seller can contribute.
Can closing costs be rolled into the loan?
On a purchase, most closing costs cannot be added to the loan. You can finance the VA funding fee, the FHA upfront mortgage insurance premium, and the USDA guarantee fee. A lender credit can also reduce cash due at closing in exchange for a higher interest rate.
Get Your Number
A range is a starting point. I can give you an itemized estimate for the price and loan type you are considering. I work with buyers in Indiana, Illinois, and Michigan. Call 219-695-0369 or text me at 219-758-8072, send me a message, or get pre-qualified online.
Figures are estimates for illustration only and are not a Loan Estimate or a commitment to lend. Actual costs depend on your loan, property, and closing date.
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