One of the most common surprises for first-time buyers is that buying a home requires more cash than just the down payment.
You may also need money for earnest money, inspections, appraisal fees, closing costs, prepaid expenses, and sometimes reserves depending on your loan.
The good news is that these costs can usually be estimated well before closing so you are not scrambling for funds at the last minute.
Start With Your Down Payment
Your down payment is the portion of the purchase price you pay upfront.
The amount depends on your loan type.
For example:
- FHA loans may allow down payments as low as 3.5%
- Some conventional loans may allow 3% or 5% down
- VA and USDA loans may allow eligible buyers to purchase with no down payment
- Some buyers choose to put 10%, 20%, or more down
If you are buying a $400,000 home with 5% down, your down payment would be:
$20,000
But that is only one part of the cash you may need.
What Are Closing Costs?
Closing costs are the fees and expenses associated with completing the purchase.
They can include things such as:
- Lender fees
- Loan origination charges
- Appraisal
- Credit report fees
- Closing attorney or settlement fees
- Title-related expenses
- Recording fees
- Property taxes
- Homeowners insurance
- Prepaid interest
- Escrow deposits
- HOA-related fees, when applicable
A common planning range is approximately 2% to 5% of the purchase price, although your actual amount can vary significantly based on the loan, property, taxes, insurance, lender, and contract terms.
For a $400,000 home, that could mean roughly:
$8,000 to $20,000
That does not mean you should automatically budget 5%. Your lender should give you a more precise estimate based on your specific financing.
What Is Earnest Money?
Earnest money is money you put forward after going under contract to demonstrate that you are serious about purchasing the property.
It is not usually an additional cost on top of everything else.
If the transaction closes, your earnest money is generally credited back toward the money you owe at closing.
For example:
Purchase price: $400,000
Earnest money deposited: $4,000
If your total cash required at closing is $30,000, that $4,000 is generally applied toward that amount, leaving approximately $26,000 still due, assuming no other adjustments.
The amount and timing of earnest money depend on the contract.
It is important to understand the deadlines because failing to deliver earnest money as required can create contractual problems.
Do Not Forget About Due Diligence Expenses
Some costs are paid before closing and may not be refundable.
Common examples include:
Home Inspection
A general home inspection may cost several hundred dollars, depending on the property.
You may also choose additional inspections such as:
- Sewer scope
- Radon testing
- Mold testing
- Termite inspection
- Structural evaluation
- HVAC inspection
- Roof inspection
Appraisal
The lender may require an appraisal, and buyers often pay this fee before closing.
Specialized Reports
Certain properties may require additional evaluations involving septic systems, wells, surveys, structural concerns, or other conditions.
These expenses should be part of your purchasing budget even though they are not necessarily included in the final closing figure.
What Are Prepaid Expenses?
Some of the money you bring to closing is not technically a fee.
It may be money being collected in advance for future expenses.
For example, your lender may require:
- Several months of property taxes
- Homeowners insurance premiums
- Initial escrow funding
- Prepaid mortgage interest
This is why two buyers purchasing similarly priced homes can have very different cash-to-close amounts.
Property taxes and insurance costs can vary substantially by property.
What Does “Cash to Close” Mean?
Your cash to close is the total amount you actually need to bring to settlement after all credits and prior payments are accounted for.
A simplified calculation looks something like this:
**Down Payment
- Closing Costs
- Prepaid Expenses
- Earnest Money Already Paid
- Seller Credits
- Lender Credits
= Estimated Cash to Close**
Your lender will ultimately provide the official figures.
Example: Buying a $400,000 Home
Here is a simplified example.
Purchase price: $400,000
5% down payment: $20,000
Estimated closing and prepaid costs: $12,000
Total estimated funds needed: $32,000
If you previously deposited:
Earnest money: $4,000
Your remaining estimated amount due at closing could be approximately:
$28,000
If the seller agreed to contribute $5,000 toward your allowable closing costs, the amount could potentially decrease further.
These numbers are only examples. Your loan estimate and closing disclosure will determine your actual figures.
Can the Seller Pay Some of Your Closing Costs?
Sometimes.
A purchase contract can include a request for the seller to contribute toward allowable buyer closing costs.
Whether that makes sense depends on:
- The market
- Competition for the property
- Your financing
- The seller’s priorities
- The purchase price
- Loan program limits
A seller contribution can reduce the amount of cash you need at closing, but it becomes part of the overall negotiation.
A buyer asking for significant closing-cost assistance may sometimes need to structure the rest of the offer differently to remain competitive.
When Will I Know the Exact Amount I Need?
You should receive estimates throughout the process.
Before You Start Shopping
Your lender can estimate:
- Down payment
- Monthly payment
- Closing costs
- Estimated cash needed
After You Go Under Contract
The lender can calculate figures using the actual:
- Purchase price
- Property taxes
- Homeowners insurance
- Loan terms
- HOA information
- Contract concessions
Shortly Before Closing
You should receive a Closing Disclosure showing the final loan and closing figures.
Review it carefully.
Do not wait until closing day to discover how much money you need.
Avoid Moving Large Amounts of Money Without Talking to Your Lender
This is an important part of the process.
Your lender will typically need to document where your purchase funds came from.
Large deposits, transfers between accounts, gifts, cryptocurrency liquidation, investment account withdrawals, or newly borrowed funds may require additional documentation.
Before moving significant amounts of money, ask your lender how they want the transaction handled.
The goal is to maintain a clear paper trail.
Do Not Drain Your Bank Account Just to Close
Being able to technically afford the cash-to-close amount does not necessarily mean you should spend every available dollar.
Homeownership begins immediately after closing.
You may need money for:
- Moving
- Furniture
- Repairs
- Utility deposits
- Appliances
- HOA expenses
- Maintenance
- Unexpected repairs
Keeping an emergency reserve can make the transition into homeownership much more comfortable.
A Better Way to Determine Your Real Homebuying Budget
Instead of asking only:
“How much house can I qualify for?”
Ask:
“How much house can I comfortably buy while still having enough cash to close and money left afterward?”
Those are very different questions.
Before we start looking at homes, I want my buyers to understand the entire financial picture: purchase price, down payment, estimated closing costs, monthly payment, and cash needed to complete the transaction.
That makes it much easier to shop within a range that actually works.
Buying a Home in Metro Atlanta?
If you are considering purchasing a home in Metro Atlanta, we can look at the financial side before you get serious about a property.
I can help you understand how the offer, earnest money, seller concessions, and contract terms fit together while your lender provides the financing and cash-to-close estimates.
The objective is simple: you should know what you are likely to spend before you are asked to spend it.
