How much do I actually need to buy a house

6 min read

Almost everyone starts this conversation with the same question, and almost everyone is asking about the wrong number. The down payment gets all the attention. It is rarely the thing that decides whether you can buy this year.

There are four numbers, and you need a realistic figure for each.

1. The down payment

This is the share of the price you pay yourself. Twenty percent is a myth that has cost more people more money than almost any other idea in housing. Conventional loans start at three percent. FHA starts at three and a half. If you have served in the military, a VA loan starts at nothing at all.

On most programmes this money can be a gift from family, as long as it is documented properly with a gift letter and a clean paper trail. Plan that in advance. A gift that appears in your account mid-underwriting creates a week of work that a phone call beforehand would have avoided.

2. Closing costs

This is the number that surprises people. Closing costs cover the lender's fees, the appraisal, title and escrow, recording, and the prepaid property taxes and insurance that go into your escrow account on day one. Budget for a few percent of the purchase price on top of your down payment.

Some of it is negotiable. A seller can contribute toward your closing costs, and in a slower market they often will. That is a conversation your agent and I should be having before your offer goes in, not afterwards.

3. Reserves

Reserves are the money still in your account after everything has closed, measured in months of your new payment. Some loans require it formally. Every loan is safer with it.

This is where I push back hardest on people. Emptying your savings to reach a larger down payment, and then meeting a broken water heater in month two with nothing behind you, is a worse outcome than a slightly higher payment and three months of breathing room.

4. The monthly payment, all in

The number that actually decides whether you can live in this house is the total monthly payment: principal and interest, property taxes, homeowners insurance, any HOA dues, and mortgage insurance if the loan carries it. People compare principal and interest alone and then get a shock at closing.

Property taxes in California are set against the purchase price, so they usually rise when you buy. Insurance has moved a great deal recently. Both belong in the number from the very first conversation.

So what is the real answer

For most first time buyers I work with, the honest figure is the down payment plus closing costs plus a couple of months of reserves. That is a bigger number than three percent and a much smaller number than twenty.

The fastest way to find out is to put your own figures into the affordability calculator, then call me and we will pressure test it. Fifteen minutes will tell you more than a month of reading.