How Much Money Do I Really Need to Buy a Home?

Almost every first conversation I have starts here. Someone has a number in their savings account and a number in their head for what buying costs, and they’ve decided the gap between the two means not yet.

Usually the number in their head is too big. Sometimes it’s too small in a way that matters more. Here’s the whole stack of cash a purchase actually asks for, in the order you’ll be asked for it.

The 20% figure isn’t a rule

It’s the threshold where private mortgage insurance drops off a conventional loan. That’s all it is. It was never a minimum.

Most people don’t hit it. In recent data, roughly three-quarters of buyers put down less than 20%, and first-time buyers cluster closer to 8% to 10%. Conventional loans start at 3% down for many first-time buyers, FHA at 3.5%, and VA and USDA loans at nothing at all if you qualify.

Putting less down means a larger loan, a higher payment, and mortgage insurance until you build enough equity. That’s a real cost and I won’t pretend otherwise. It’s also a monthly one you can plan around, and for plenty of people it’s the trade that ends a rent payment ten years sooner.

The down payment is one of four things

This is where budgets go wrong. People save diligently toward a down payment, hit the number, and discover three more line items waiting.

Closing costs come first: lender fees, title and escrow, recording, appraisal, credit. Figure 2% to 5% of the price, and here in California title and escrow charges push most purchases toward the upper half of that.

Then come prepaids, which aren’t fees so much as money you’d owe anyway, collected early. Your first year of homeowners insurance up front, property taxes deposited into your escrow account, and the interest between your closing date and your first payment. These surprise people more than the fees do, because they can’t be negotiated away and nobody mentions them.

There’s also cash you spend before you ever reach closing. The home inspection runs a few hundred dollars and you pay the inspector directly. The appraisal is commonly collected up front too, usually somewhere in the several-hundred range. If a deal falls apart after inspection, that money is gone. It bought you information, and it was worth it, but budget for the possibility of paying it twice.

And last, reserves: money still sitting in your account after everything clears. More on that below, because it’s the piece almost nobody plans for.

Your earnest money sits inside the down payment rather than on top of it. In California that deposit is typically due within three business days of acceptance and commonly runs around 3% of the price, so it doesn’t raise your total. It simply means the first and largest chunk of your down payment leaves your account weeks before everything else does, and that timing is the thing to plan for.

What it looks like on a real purchase

Say a $650,000 home with 5% down. Every figure here is illustrative; yours will land differently.

• Down payment: $32,500
• Closing costs and prepaids at roughly 3%: about $19,500
• Cash to close: around $52,000
• Inspection and appraisal paid along the way: roughly $1,000 to $1,500

So call it $53,000 to get to the signing table, against the $130,000 that a 20% assumption would have told you to wait for. Drop to a 3% conventional down payment and you’re near $40,000 instead.

Your Loan Estimate shows the real numbers within three business days of applying, and the cash-to-close figure on page three is the one to read.

What you need left over afterward

Closing with your account at zero is the mistake I most want to spare you.

Lenders look at this directly. Many conventional loans want to see reserves after closing, often around two months of your full housing payment, and more if you’re buying a condo, a multi-unit property, or using certain programs. Those reserves have to be documented and sourced like everything else.

Underwriting aside, the first six months of owning a home cost money. A water heater fails. The house needs blinds, a fridge, a locksmith, and a plumber in the same fortnight. Moving itself runs real money. If your full payment lands around $5,000, two months is $10,000 you leave untouched — and I’d rather see three to six months than two.

That’s the piece I’d protect. A buyer who closes with nothing behind them is house-poor from week one, and it’s a miserable way to start something that should feel good.

Some of this money doesn’t have to be yours

Four levers exist here, and most buyers use at least one.

Gift funds from a family member are allowed on most loan programs, sometimes for the entire down payment. They need a signed gift letter and a clean paper trail showing where the money came from, which is why I’d want to hear about a gift before it lands in your account rather than after.

California also has real down payment assistance. Some of it comes from the state, some from individual cities and counties, and there are options across Los Angeles as well. They differ in who qualifies, in whether the help goes toward your down payment or your closing costs, and in whether they’re open to new applicants at a given moment. Availability and terms change often enough that this is worth asking about the month you’re ready, rather than relying on what someone told you last year.

Seller credits are the third. In a slower market or on a home that’s been listed a while, a seller contributing toward your closing costs is an ordinary negotiation. Program limits apply, but this can quietly erase several thousand dollars of what you’d have brought.

Lender credits are the fourth: you accept a slightly higher rate and receive money toward closing costs, which is the reverse of paying points. Whether it’s sensible depends on how long you’ll keep the loan, so treat it as a conversation to have rather than a default to accept.

The bottom line

Plan on your down payment plus roughly 3% to 5% of the price for closing costs and prepaids, another $1,000 or so spent along the way, and at least two months of payments still in the bank when the dust settles. On a mid-priced California home with a low-down-payment program, that’s frequently somewhere in the $40,000s to $60,000s rather than the six-figure sum people assume.

If that’s still out of reach today, the gap is almost always smaller than it feels, and knowing the real figure turns a vague someday into a savings target with a date on it. Getting an honest number early is worth more than another year of guessing.

Ready to learn more?

If you’d like to know what your actual number looks like — your price range, your program, your county, instead of a rule of thumb — I’d be honored to run it for you and tell you plainly where you stand.