The down payment is your starting point, but it's not the only cost
The amount you need to save depends on three separate things: the down payment itself, the closing costs you pay at purchase, and a cash cushion to cover the first few months of ownership. Most people focus only on the down payment and run short when the other bills arrive.
A down payment is typically 3 to 20 percent of the home's purchase price, depending on the loan type and your lender's rules. On a $300,000 house, that ranges from $9,000 to $60,000. But you will also owe closing costs—usually 2 to 5 percent of the purchase price—which come due at the same time. On that same house, closing costs could be $6,000 to $15,000. Then you need money left over for repairs, property taxes, insurance, and living expenses while you settle in.
Key Takeaways
- Down payments range from 3 to 20 percent of the home price depending on your loan type, but closing costs add another 2 to 5 percent on top.
- A conventional loan typically requires 20 percent down to avoid mortgage insurance, but FHA and VA loans allow 3 to 10 percent if you meet other requirements.
- Closing costs include appraisal fees, title insurance, attorney fees, and lender fees—all paid at closing, not rolled into your monthly payment.
- Plan to keep 3 to 6 months of housing expenses in savings after you buy, because homeownership brings unexpected repair costs that renters don't face.
- Your total savings target should be down payment plus closing costs plus an emergency fund, not just the down payment alone.
How down payment size affects your monthly payment and insurance
A larger down payment lowers your monthly mortgage payment because you borrow less money. It also determines whether you pay private mortgage insurance (PMI), which protects the lender if you stop paying.
If you put down less than 20 percent on a conventional loan, your lender will require PMI. This is an extra monthly charge—typically 0.5 to 1.5 percent of your loan amount per year—added to your mortgage payment. On a $240,000 loan (20 percent down on a $300,000 house), you would avoid PMI entirely. On a $270,000 loan (10 percent down), you would pay PMI until the loan balance drops to 80 percent of the home's original value, which takes years.
Some loan types allow smaller down payments without PMI. An FHA loan requires 3.5 percent down but charges mortgage insurance for the life of the loan. A VA loan (for military members and veterans) often requires zero down payment. A USDA loan (for rural properties) also allows zero down for borrowers who meet income limits. Each has different rules, so the down payment you need depends on which loan you may have access to for.
Closing costs are separate from the down payment and due at signing
Closing costs are fees paid to third parties involved in the purchase. They are not part of the down payment and are not rolled into your mortgage. You pay them in full on the day you sign the deed.
Common closing costs include an appraisal fee ($300 to $700), title search and insurance ($500 to $1,500), attorney fees ($500 to $1,500 in some states), home inspection ($300 to $500), and lender fees such as origination and processing charges ($1,000 to $3,000). Property taxes and homeowners insurance may also be due at closing, depending on your state and lender. The total typically falls between 2 and 5 percent of the purchase price.
Your lender will provide a Closing Disclosure at least three days before closing, which lists every fee. Review it carefully because some fees are negotiable. You can also ask the seller to cover part of the closing costs as a condition of the sale, though this is more common in a buyer's market.
Plan for repairs, property taxes, and insurance after you buy
Homeownership costs do not stop at the mortgage payment. You are now responsible for every repair—the roof, the furnace, the plumbing, the foundation. Renters call a landlord. Homeowners call a contractor and pay the bill.
Most financial advisors recommend keeping 3 to 6 months of housing expenses in a separate savings account before you close. This covers your mortgage payment, property taxes, homeowners insurance, and utilities if an emergency repair drains your checking account. A new water heater costs $1,500 to $3,000. A roof repair can be $5,000 or more. A foundation crack can be tens of thousands. Without a cushion, a single repair can force you to take on debt.
Property taxes and homeowners insurance vary widely by location. In some states and counties, property taxes are 0.5 percent of the home's value per year. In others, they are 2 percent or higher. Homeowners insurance typically costs $800 to $2,000 per year depending on the home's age, location, and coverage level. Ask your real estate agent or a local insurance agent what these costs are in your area, then add them to your monthly budget.
A realistic savings target for different down payment scenarios
The table below shows how much you need to save for homes at different price points, assuming a 10 percent down payment, 3 percent closing costs, and a 6-month emergency fund. The emergency fund estimate assumes a monthly housing cost of $1,800 to $2,400 (mortgage, taxes, insurance, and utilities combined). Your actual cost depends on your location, the home's condition, and your loan terms.
| Home Price | Down Payment (10%) | Closing Costs (3%) | Emergency Fund (6 months housing) | Total to Save |
|---|---|---|---|---|
| $250,000 | $25,000 | $7,500 | $10,800–$14,400 | $43,300–$46,900 |
| $300,000 | $30,000 | $9,000 | $10,800–$14,400 | $49,800–$53,400 |
| $400,000 | $40,000 | $12,000 | $10,800–$14,400 | $62,800–$66,400 |
Use these numbers as a starting point, then adjust based on what homes cost in your area and what your local property taxes and insurance rates are. A home in a high-tax state or an area with expensive insurance will require a larger emergency fund than these estimates show.
Where to keep your down payment savings while you build it
Your down payment money should sit in a place where it grows slightly but stays completely safe. A high-yield savings account at a bank or credit union currently pays 4 to 5 percent annual interest, which is much higher than a regular savings account. You can withdraw the money whenever you need it, and deposits are insured by the FDIC up to $250,000.
Do not invest your down payment in stocks or bonds. The stock market can drop 20 or 30 percent in a single year, and you cannot afford to wait for it to recover if you are buying a house in two years. Keep it liquid and safe.
Some people use a certificate of deposit (CD), which locks your money away for a set time (3 months to 5 years) in exchange for a slightly higher interest rate. This works only if you are certain you will not need the money before the CD matures. If you withdraw early, you pay a penalty that wipes out the extra interest.
Frequently Asked Questions
Can I borrow my down payment from family or friends?
Most lenders allow a gift from a relative, but they require a signed letter stating it is a gift, not a loan you have to repay. If the lender thinks you are borrowing the money, they will count it as debt on your credit application and you may not may have access to for the mortgage. Ask your lender for their gift letter requirements before accepting money from family.
What if I can only save 5 percent down instead of 10 or 20 percent?
You can buy with 5 percent down on a conventional loan, but you will pay PMI until you reach 20 percent equity. An FHA loan allows 3.5 percent down with mortgage insurance for the life of the loan. Compare the total cost of PMI over time versus waiting to save more, because PMI adds hundreds of dollars to your monthly payment.
Do I have to pay closing costs upfront, or can they be rolled into the mortgage?
Closing costs are due at signing and cannot be added to your mortgage balance. However, you can negotiate with the seller to cover some or all of them as part of the purchase agreement. This is more common when there are many homes for sale and fewer buyers.
What counts as part of my emergency fund after I buy?
Your emergency fund should cover your mortgage payment, property taxes, homeowners insurance, utilities, and basic maintenance for 3 to 6 months. Keep it in a separate savings account so you do not accidentally spend it on everyday expenses. Once you have owned the home for a few years and know what repairs cost, you can adjust the amount.
Should I save for a down payment or pay off debt first?
This depends on your interest rates and timeline. High-interest debt (credit cards above 10 percent) usually costs more than waiting to save and buying later. Low-interest debt (student loans below 5 percent) may not. Talk to a mortgage lender about how your debt affects your borrowing power, then decide whether to pay it down or save for the house.