The amount you need depends on your down payment, closing costs, and reserves

Most people think of a down payment as the only money needed to buy a house. That is incomplete. You need three separate pools of money: a down payment (what you pay upfront to own part of the house), closing costs (fees and taxes paid at the end of the purchase), and reserves (money left over after buying, for emergencies and repairs). The total varies widely depending on where you live, what house you buy, and what kind of loan you get.

A down payment can range from 3 percent to 20 percent of the house price. Closing costs typically run 2 to 5 percent of the purchase price. Reserves are usually recommended at 3 to 6 months of your mortgage payment, property taxes, insurance, and utilities combined. On a $300,000 house with a 10 percent down payment, you would need roughly $30,000 down, $6,000 to $15,000 in closing costs, and $15,000 to $30,000 in reserves — a total of $51,000 to $75,000 before you move in.

Key Takeaways

  • Down payments range from 3 to 20 percent of the house price, with lower percentages requiring mortgage insurance that increases your monthly payment.
  • Closing costs (appraisal, title search, loan origination, taxes, insurance) typically cost 2 to 5 percent of the purchase price and are due at closing.
  • Reserves are cash left in your account after closing, usually 3 to 6 months of housing expenses, to cover repairs and emergencies without taking on debt.
  • Your actual target depends on local home prices, the loan type you choose, and how much monthly payment you can afford.

Understanding down payments and what percentage you need

A down payment is the cash you give the seller (through escrow) on the day you close. The rest of the purchase price comes from a mortgage loan. The larger your down payment, the smaller your loan, and the less interest you pay over time.

A 20 percent down payment is often cited as the standard because it lets you avoid private mortgage insurance (PMI) — an extra monthly fee lenders charge when you borrow more than 80 percent of the house value. On a $300,000 house, PMI might add $150 to $300 per month. If you put down only 5 percent instead of 20 percent, you pay PMI for years until you build enough equity, which can cost thousands.

However, 20 percent down is not required. Many lenders offer loans with 10 percent, 5 percent, or even 3 percent down. The trade-off is that your monthly payment rises because you borrowed more, and you pay PMI on top of that. A 3 percent down payment on a $300,000 house means a $9,000 down payment instead of $60,000 — a real difference if you are saving from scratch — but your monthly costs go up.

What closing costs actually include and why they vary

Closing costs are fees charged by the lender, the title company, the local government, and sometimes the real estate agent. They are not optional, and they are not small. On a $300,000 house, closing costs typically range from $6,000 to $15,000.

Common closing costs include: loan origination fees (what the lender charges to process your loan), appraisal fees (to verify the house is worth what you are paying), title search and insurance (to confirm no one else has a claim on the property), property taxes (prorated for the portion of the year you own it), homeowners insurance (required by the lender), and recording fees (paid to the county to record the deed). Some states and counties add transfer taxes or documentary stamp taxes on top.

Your lender is required to give you a Loan Estimate within three business days of applying. This document lists every closing cost estimate. Review it carefully — some costs can be negotiated, and some lenders charge more than others for the same service. You will receive a final accounting called the Closing Disclosure at least three business days before closing, which shows the actual costs.

Why you need reserves and how much to keep in the bank

Reserves are money you keep in savings after closing. They are not part of the down payment or closing costs — they are a safety net. Lenders often require you to have reserves equal to 1 to 3 months of your total housing payment (mortgage, property taxes, homeowners insurance, and HOA fees if applicable). Some lenders require 6 months. If you cannot show reserves, some loan programs will not approve you.

Reserves matter because homeownership has unexpected costs. A water heater fails. The roof leaks. The furnace stops working in January. If you have no money left after closing, you have to borrow or go without repairs — and some repairs (like a failing roof) affect your ability to keep the house. Lenders know this, which is why they ask about reserves before approving your loan.

Calculate your reserves this way: add your monthly mortgage payment, property tax payment, homeowners insurance payment, and any HOA fee. Multiply by the number of months your lender requires (typically 3 to 6). That is your target reserve amount. On a $300,000 house with a $1,500 mortgage, $300 in taxes, $150 in insurance, and no HOA, your monthly housing cost is $1,950. Six months of reserves would be $11,700.

How to estimate your total savings target for your situation

Start with the house price you are looking at in your area. This is not guesswork — look at recent sales of similar houses on your local real estate website or through a real estate agent. Use that number for all calculations.

Next, decide on a down payment percentage. If you want to avoid PMI, use 20 percent. If you want to buy sooner with less saved, use 5 or 10 percent and accept that PMI will increase your monthly payment. Calculate: house price × down payment percentage = your down payment target.

For closing costs, use 3 percent of the house price as a conservative estimate. This varies by location and lender, but 3 percent is a reasonable middle ground. Calculate: house price × 0.03 = closing cost estimate.

For reserves, estimate your monthly housing payment using an online mortgage calculator (search "mortgage calculator" and enter the loan amount, interest rate, and loan term). Add property taxes and insurance. Multiply by the number of months your lender will require — usually 3 to 6. Calculate: (monthly mortgage + monthly taxes + monthly insurance) × months required = reserve target.

Add all three together: down payment + closing costs + reserves = total savings target. This is the amount you should have in savings before making an offer on a house.

The difference between what you save and what you borrow

Saving for a house is different from borrowing for one. The money you save — down payment, closing costs, and reserves — comes from your own accounts. The money you borrow is the mortgage, which you repay over 15, 20, or 30 years with interest.

Lenders care about both. They want to see that you have saved enough to put down a meaningful amount (showing you can delay spending and plan ahead) and that you have reserves left over (showing you can handle surprises without defaulting). If you save only the down payment and have nothing left, many lenders will not approve you, even if you can afford the monthly payment.

This is why the total savings target matters more than just the down payment. A $20,000 down payment looks good until closing costs and the first major repair drain your account and you cannot pay the mortgage.

How to adjust your target if you cannot save that much yet

If your total savings target feels out of reach, you have real options. You can lower your down payment percentage — moving from 20 percent to 10 percent cuts your down payment in half, though it raises your monthly payment and adds PMI. You can look at houses in a lower price range in your area. You can extend your savings timeline and keep building your down payment fund. You can explore whether a family member can gift you down payment money (lenders allow this, but they require documentation that it is a gift, not a loan).

Some first-time homebuyer programs offer down payment help or lower closing costs. These are run by state housing agencies, nonprofits, and sometimes local governments. They vary widely by location and income level. A local housing authority or nonprofit housing counselor can tell you what is available where you live. These programs do not reduce the amount you need to save, but they can reduce what you pay out of pocket.

Frequently Asked Questions

Can the seller pay my closing costs?

Yes. In a buyer's market (more houses for sale than buyers), sellers sometimes agree to pay part or all of closing costs as an incentive. This is negotiated as part of your offer. However, lenders limit how much a seller can contribute — usually 3 to 6 percent of the purchase price depending on your down payment. If the seller pays closing costs, you still need reserves after closing.

What if I have less saved than my target?

You can still buy, but with trade-offs. A lower down payment means higher monthly payments and PMI. Fewer reserves means less cushion for repairs. Some lenders require minimum reserves, so you may not be approved. Talk to a lender about what you can afford before deciding how much to save.

Do I need to save all the money before I start looking at houses?

You do not need every dollar before you start looking, but you should have a clear target and a timeline. Lenders will ask how much you have saved and when you plan to close. Having most of your down payment and closing costs saved before making an offer shows you are serious and ready to move quickly if your offer is accepted.

What counts as reserves — does it have to be in a separate account?

Reserves are just cash in your accounts that you show to the lender. They do not have to be in a separate account, but they have to exist and be accessible. Lenders verify reserves by looking at your bank statements from the last two months. Money in retirement accounts usually does not count.

Does my partner's savings count toward the down payment and reserves?

Yes, if you are buying together and both names are on the loan. Both of your bank statements will be reviewed. If only one of you is on the loan, only that person's savings count. If you are married but keeping finances separate, talk to your lender about how they handle this — rules vary.