Step 3: Save for Your Down Payment and Closing Costs

Plan for the full cash to close (down payment, closing costs, prepaid items and reserves), not just the down payment.

The money you bring to closing is your cash to close. It's more than the down payment. Plan for all of it:

1. Earnest money, due within days of a ratified contract. It's credited toward your cash to close.
2. Down payment: from 0% (VA, USDA) to 20% or more.
3. Closing costs: lender, title, escrow, appraisal and government fees, often 2% to 5% of the price.
4. Prepaid items: the first year of homeowners insurance, interest to the end of the month, and a starting balance for your escrow account.
5. Reserves: money left over after closing. Some programs require it; every buyer needs it.

Minimum down payment by program

Putting 20% down on a conventional loan avoids private mortgage insurance. It isn't required, though. For many buyers, buying sooner with less down makes more sense than waiting years to reach 20%.

Where the money can come from

Lenders need to see where every large deposit came from, so keep money in accounts you can document.

• Savings and checking: two months of statements, with large deposits explained.
• Retirement and investment accounts: usable for the down payment or reserves.
• Gift funds from family, with a signed gift letter.
• Seller concessions: the seller pays some of your closing costs, within program limits.
• Down payment assistance from state and local programs.

Avoid moving money between accounts or depositing cash in the months before you apply; it creates paper trails lenders must document.

How buying without a buyer's agent helps

Without a buyer's agent, there is no buyer's agent commission to fund from the deal. You can use that room to ask for a lower price or a seller credit toward your closing costs.

Next: choose a loan program.

Your next move, by loan program

• Conventional: Conventional loans start at 3% down for first-time buyers (5% otherwise). Under 20% down adds private mortgage insurance you can later remove. Estimate my cash to close
• FHA: FHA needs 3.5% down with a 580+ score, and the entire down payment can be a gift. Sellers can pay up to 6% toward your costs. Estimate FHA cash to close
• VA: VA requires no down payment. The funding fee can be financed, and sellers can contribute up to 4% in concessions plus normal closing costs. Estimate VA cash to close
• USDA: USDA requires no down payment, and the 1% guarantee fee can be financed. Closing costs can be covered by seller credits or gifts. Estimate USDA cash to close
• Jumbo: Jumbo loans commonly need 10% to 20% down plus 6 to 12 months of payments in reserves. Estimate jumbo cash to close
• Investor: DSCR and other investment loans usually need 20% to 25% down, and gift funds are generally not allowed for investment property. Explore DSCR loans