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- sarahmfriesema
- 26 minutes ago
- 3 min read
If you’re thinking about buying a home, this is usually the first question - and also the one with
the most conflicting answers.
You’ve probably heard things like “You only need 3% down” or “Just plan on 20%.”Neither tells the full story.
Buying a home usually requires more than just a down payment, but not nearly as much as many buyers fear. Let’s break it down clearly.
Keep Reading for the the 4 Buckets of Cash You Should Plan For
Knowing these upfront helps guide your home search and makes the process far less stressful.
Down Payment
This is often the most talked about number, but also the one with the most flexibility.
Common ranges:
3–5% for some conventional loans
0–3.5% for certain loan programs
10–20%+ for buyers who want lower monthly payments
👉 Important: A lower down payment isn't a bad thing, it just changes the structure of your monthly payment. Higher down payment = lower monthly payment BUT a lower down payment means more cash to cover the other three buckets.
Closing Costs
Closing costs are separate from your down payment and can catch buyers off guard. Your down payment and closing costs are referred to as Cash to Close and is the total amount you'll pay on closing day.
They typically include:
Lender fees
Appraisal
Title work
Attorney fees
Prepaid taxes and insurance (lenders like to collect 3-6 months of taxes and insurance to keep in your escrow account)
👉 Rule of thumb: Plan for 2–3% of the purchase price. Sometimes we're able to negotiate seller credits to offset these costs, but it's not guaranteed, so better to plan for it.
Inspections + Due Diligence
These costs are paid out-of-pocket before closing and are never something to skimp on.
Common expenses:
Home inspection
Termite inspection
Additional inspections (roof, HVAC, well, septic, etc.)
👉 Typical range: $500–$1,500 depending on the home and the necessary inspections.
Cash Reserves (The One No One Mentions)
Cash reserves are what you have left over after closing. While this cash isn't required to make a purchase, it's an important bucket to factor into your overall costs. They protect you if repairs pop up or life does what life does.
👉 A safe target is 1–3 months of housing expenses.
So… What Does This Look Like in Real Numbers?
Let’s say you’re buying a $400,000 home.
Down payment (5%): $20,000
Closing costs (2.5%): $10,000
Inspections & due diligence: $1,000
Cash reserves: $5,000–$10,000
👉 Estimated total cash needed: $36,000–$41,000
That number can go up or down depending on loan type, seller credits or negotiation strategy, but this gives you a realistic planning range.
Can You Buy With Less Cash?
Yes - sometimes significantly less. Depending on your situation, buyers may be able to:
Use lower down payment loan programs
Negotiate seller-paid closing costs
Leverage equity from a current home
Use gift funds (with proper documentation)
This is why talking to both a lender and an agent early matters so much. Strategy changes the numbers.
The Bottom Line
Buying a home doesn’t require a single magic number - but it does require clarity. When you understand where your money is going, what is flexible vs. fixed, and what you're comfortable with as a monthly payment, you can make really sound decisions and feel far less overwhelmed.
If you’re curious what these numbers would look like for your specific goals, I’m always happy to talk it through and help you map it out.
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