How Much Do You Really Need to Save Before Buying a Home?

You do not need a 20% down payment to buy a home—but if every dollar you have is going toward your down payment, you may not be ready to buy just yet.

This is Part 4 of our series breaking down the four financial areas to understand before buying a home: credit, income, debt-to-income, and assets.

When it comes to assets, think of your savings in three buckets:

Down payment + closing costs + reserves.

1. Your Down Payment

Many buyers assume they need to put 20% down, but that is not always the case.

For a conventional loan, a common planning number is around 5% down, though some programs may allow as little as 3%. For FHA loans, the minimum down payment is typically 3.5%.

On a $400,000 home, a 5% down payment would be $20,000.

That is a meaningful amount to save—but it is only the first piece of the picture.

2. Your Closing Costs

In addition to your down payment, you will also have closing costs. These can include lender fees, title expenses, prepaid taxes and insurance, appraisal costs, and other transaction-related expenses.

As a general planning estimate, budgeting around 3% of the purchase price for closing costs is a good place to start.

On that same $400,000 home, that could mean approximately $12,000 in closing costs—bringing your estimated upfront total to around $32,000 before considering reserves.

Could seller concessions help cover some of those closing costs? Absolutely. Depending on the loan type, contract terms, and market conditions, a seller may be willing to contribute toward allowable closing costs.

But seller concessions cannot be used for your down payment.

And it is important not to build your entire home-buying plan around receiving them. The home you really want may have multiple offers, or the seller may simply not be willing to contribute. If you need seller concessions in order to buy, you may be limiting the homes you can realistically pursue.

3. Your Reserves

The third bucket is often the one buyers forget: reserves.

You do not want to spend every dollar you have just to get the keys and immediately become house poor. Homeownership comes with moving costs, repairs, maintenance, unexpected emergencies, and all the regular expenses life can bring.

Even if you qualify for the loan and have enough to close, having money left over can make a huge difference in how comfortable you feel once you own the home.

So, if you are hoping to buy in the next couple of years, do not only ask, “How much do I need for a down payment?”

Ask yourself how much you need for:

Down payment + closing costs + reserves.

The goal is not just to be able to buy the home. The goal is to be financially comfortable once you own it.