The real cash you need at closing
The real cash you need at closing
The deposit is only part of the cash required. Closing costs typically add another 2–5% of the purchase price, and they are due at the same time. Enter the home price and your intended deposit percentage to see both figures together, along with the resulting monthly payment and whether you avoid mortgage insurance.
On a $400,000 home with 10% down, the deposit is $40,000 and closing costs at 3% add roughly $12,000 — so you need about $52,000 in cash, not $40,000. Buyers who budget only for the deposit are the ones who find themselves short weeks before completion.
Twenty percent is not a legal requirement. It is the point at which most conventional lenders stop requiring private mortgage insurance, and that is worth real money.
PMI typically costs 0.3–1.5% of the loan amount annually. On a $360,000 loan at 0.7%, that is about $210 a month that buys you nothing — it protects the lender, not you. Reaching 20% removes it entirely.
Beyond insurance, a larger deposit lowers the loan amount and therefore both the payment and total interest, and it often earns a slightly better rate because the lender's risk is lower. It also means you start with equity rather than sitting at the edge of negative equity if prices dip.
Waiting years to reach 20% is not automatically the better choice, and treating it as a rule can cost more than it saves.
While you save, you are paying rent and prices may rise. If a home appreciates 4% in a year, a $400,000 house costs $16,000 more — potentially outpacing what you added to the deposit. PMI can also be removed later: once you reach 20% equity through payments or appreciation, you can request cancellation, and lenders must automatically terminate it at 22% on most conventional loans.
Low-deposit routes exist for this reason. Conventional loans start at 3% for many buyers, FHA at 3.5%, and VA and USDA loans require nothing down for those who qualify. They cost more monthly, but they get you in.
Once the deposit is set, the loan amount is simply price minus deposit, and the payment follows the standard amortisation formula:
Payment = P × [ r(1+r)n ] ÷ [ (1+r)n − 1 ]
The sensitivity is useful to see. On a $400,000 home at 6.5% over 30 years, moving from 10% down to 20% down cuts the payment by roughly $250 a month before PMI, and removing PMI saves another $200 or so — a difference of about $450 monthly for $40,000 more upfront.
The most common mistake is putting every available dollar into the deposit and moving in with no reserves. Homes generate expenses immediately: a failed water heater, a roof repair, appliances, and the furnishing costs nobody budgets for.
A sensible sequence is to keep your emergency fund intact, budget separately for moving and immediate repairs, and only then decide the deposit from what remains. A 15% deposit with three months of expenses in the bank is a stronger position than 20% with nothing behind it.
Beyond savings, gift funds from family are permitted by most loan programmes with a signed letter confirming the money is not a loan. Some retirement accounts allow first-time buyer withdrawals or loans, though the long-term cost of removing money from a tax-advantaged account deserves careful thought. Many states and cities run down payment assistance programmes with grants or forgivable second loans for buyers under certain income limits — these are frequently underused simply because people do not know they exist.
No. Conventional loans start at 3% for many buyers, FHA at 3.5%, and VA and USDA loans can require nothing down. Twenty percent is the level at which most conventional lenders drop private mortgage insurance, not a requirement to purchase.
Typically 2-5% of the purchase price, covering lender fees, appraisal, title insurance, and prepaid escrow items. They are due at closing alongside the deposit, so budget for both together.
Yes. Once you reach 20% equity through payments or appreciation you can request cancellation, and lenders must automatically terminate it at 22% equity on most conventional loans. FHA loans have different rules and often keep the premium for the life of the loan.
Keep your emergency fund intact. A slightly smaller deposit with reserves in the bank is a safer position than a larger deposit that leaves you unable to handle the first repair after moving in.