Down Payment, Closing Costs, Cash To Close: How much do I need to save?

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Your savings will play a major role in your home buying decisions. If you’re gearing up to buy a home, it’s probably a good idea to start saving ahead of time.

But what costs exactly do you need to save up for? And how much do you need to save up for your home purchase?

We’ll address these questions in this article. But first, let’s break down 3 home buying terms that often get confused.

Key takeaways

  • Learn the difference between the terms Down Payment, Closing Costs, and Cash To Close
  • Get an idea of how much you may need to save up for both the down payment and closing costs

What’s the difference between Down Payment, Closing Costs, and Cash To Close?

A lot of people mix up the terms Down Payment, Closing Costs, and Cash To Close.

Here’s a breakdown of the 3 terms:

Down Payment is the sum of money you pay upfront when obtaining a mortgage. The Down Payment is a percentage of your home’s purchase price, so if you’re putting 3% down on a $300,000 home, then your down payment is $9,000.

(In that case, your loan amount would be $300,000 – $9,000 = $291,000.)

Closing Costs include all the other fees that go into buying a home and getting a mortgage (IE appraisal, lending fees, title fees, credit report fee, recording tax, pest inspection, flood monitoring, and prepaids).

Cash To Close simply means the total sum of your Down Payment + Closing Costs.

The Cash To Close is the total amount of money you bring to Closing Day. Typically, home buyers will pay their Cash To Close either in the form of wire transfer or cashier’s check.

How much should I save for a down payment?

Down payment is oftentimes the highest expense to save for when buying a home. But it’s also a good idea to reserve some cash in hand for other expenses like closing costs, moving costs, and an emergency fund.

While a 20% down payment has traditionally been the “gold standard,” nowadays it’s much more common to put down as little as 3% to 5%.

In fact, there may be some special grants or down payment assistance programs to help you get into a home with 0% down!

Going with the lower down payment option makes sense for many people, as it allows them to allocate more cash toward other costs.

The best down payment options for you will depend on your specific situation. For more personalized guidance on this, talk to a Hero Homebuyer Programs™ mortgage advisor to see what programs are available to you!

What about closing costs?

Closing costs may vary between 2% to 5% of your home’s purchase price. Also, the seller may agree to pay for some of these costs, so keep that in mind.

This is one of the reasons why it’s so beneficial to have a highly skilled realtor on your side. A great realtor may be able to negotiate with the seller to get them to pay some of the closing costs, therefore saving you a significant amount of money on your home purchase!

But what exactly are closing costs?

Closing costs are all the extra fees that go into buying a home and getting a mortgage.

These fees include:

Origination Fees (also known as Lending fees)


Home inspection

Credit Report Fee

Title Fees

Flood Monitoring

Plot Survey Fee if it’s a newly built home

Pest Inspection

Recording Fees

Transfer Tax


Your Prepaids which include homeowners insurance, mortgage insurance, and property taxes. You’ll likely be required to “pre-pay” these dues a few months in advance in order to get approved for closing.

When it comes to estimating your closing costs, the challenge here is that all of these different fees can vary widely depending on your state, your home’s purchase price, and what’s going on in your local market.

For example, if you’re in a buyer’s market, then it might be easier to get the seller to pay for some of these costs.

Early on, when you’re first starting the homebuying process, you can ask your mortgage advisor or your lender for an itemized fee sheet.

This isn’t a guaranteed breakdown of your closing costs, but it’s a quote of the expected costs and terms, so you understand what certain fees are according to your state. That way, you get a heads up well beforehand.

But later on in the homebuying process, after you get pre-approved for a home loan and choose the property you’d like to purchase, your mortgage advisor will then be able to write up a Loan Estimate, which gives you a detailed estimate of what your closing costs will be.


The Takeaway

It’s definitely a good idea to start saving now if you’re looking to buy a home.

The down payment can cost anywhere from 0% to 20% of the purchase price or higher depending on the home programs you qualify for, along with what you decide is the best down payment option for you.

In addition to down payment, all the different fees that go into closing costs can vary depending on your state and your local market, but typically closing costs are around 2% to 5% of your home’s purchase price.

Picture of Jacquelyn Sublett
Jacquelyn Sublett

I love teaching and writing on real estate, finance and mortgage topics. I find it fulfilling hearing stories of first time home buyers who we have helped with the home buying process. Writer for the Hero Homebuyer Programs™

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