How much money do you actually need to buy a home?
The 20% down payment myth stops a lot of buyers before they start. Here's the real answer — broken down by loan type, with no surprises.
You probably need less than you think
The idea that you need 20% down to buy a home is one of the most persistent myths in real estate. The reality: most first-time buyers put down far less. The median down payment for first-time buyers is around 6–8%, and several loan programs allow 0–3.5% down.
That said, the down payment is only one piece of the cash puzzle. Closing costs, prepaid items, and cash reserves all factor in. This guide breaks down every dollar you'll need — and how to minimize it.
Step 01
Down payment minimums by loan type
VA loans: 0% down for eligible veterans and active-duty military — the best deal available. USDA loans: 0% down for eligible rural and suburban properties. FHA loans: 3.5% down with a 580+ credit score; 10% down with a 500–579 score. Conventional loans: as low as 3% down with Fannie Mae HomeReady or Freddie Mac Home Possible programs; 5% is more typical; 20% eliminates PMI. Jumbo loans: typically 10–20% down depending on the lender and loan amount.
Key takeaways
VA and USDA zero-down options are real — not too good to be true — but have eligibility requirements
The 3% conventional option requires income at or below 80% of area median income in most cases
A larger down payment reduces your monthly payment and may eliminate mortgage insurance
Step 02
Closing costs: the other big number
Closing costs are separate from your down payment and typically run 2–5% of the loan amount. On a $400,000 home with 5% down ($20,000), expect $8,000–$20,000 in closing costs. These include lender fees (origination, underwriting), third-party fees (appraisal, title insurance, attorney), prepaid items (homeowner's insurance, property tax escrow, prepaid interest), and government fees (recording, transfer taxes). Your lender is required to give you a Loan Estimate within 3 business days of application that itemizes every cost.
Key takeaways
You can negotiate seller concessions to cover some or all closing costs — especially in a buyer's market
Lender credits can reduce closing costs in exchange for a slightly higher interest rate
Shop title insurance — in Colorado, you can choose your own title company and rates vary
Step 03
Prepaid items and escrow setup
Prepaid items are costs you pay at closing that aren't fees — they're advance payments for ongoing expenses. You'll typically prepay homeowner's insurance (12 months upfront), property taxes (2–6 months into escrow), and mortgage interest for the remainder of the closing month. These can add $3,000–$6,000 to your cash-to-close on a typical Colorado Springs purchase. The exact amount depends on your closing date, tax rates, and insurance premium.
Key takeaways
Closing at the end of the month minimizes prepaid interest — you pay fewer days of interest
Shop homeowner's insurance before closing — rates vary significantly between carriers
Your Closing Disclosure (received 3 days before closing) will show the exact prepaid amounts
Step 04
Cash reserves: what lenders require
Many loan programs require you to have cash reserves after closing — money left in the bank after your down payment and closing costs are paid. Conventional loans often require 2 months of mortgage payments in reserves. Jumbo loans may require 6–12 months. FHA and VA loans typically have no reserve requirement, though lenders may impose their own. Having reserves also protects you — unexpected repairs, job changes, or emergencies are much less stressful with a financial cushion.
Key takeaways
Retirement accounts (401k, IRA) typically count as reserves even if you can't easily access them
Gift funds can be used for down payment and closing costs but usually cannot count as reserves
Building 3–6 months of total housing costs in savings before buying is a smart financial goal
Step 05
Down payment assistance programs
Colorado Housing and Finance Authority (CHFA) offers down payment assistance through grants and second mortgages for qualifying buyers. The CHFA SmartStep program provides a grant of up to 3% of the loan amount. The CHFA Preferred program offers a second mortgage at a below-market rate. Income and purchase price limits apply. Some local governments and employers also offer assistance programs. These can be layered with FHA, VA, and conventional loans to dramatically reduce your cash-to-close.
Key takeaways
CHFA programs require a homebuyer education course — free and available online
Income limits for CHFA programs in El Paso County are updated annually — check current limits
Some assistance programs have recapture provisions if you sell within a certain number of years — read the fine print
Step 06
Total cash needed: a real example
Let's put it together for a $400,000 home in Colorado Springs. VA loan (0% down): $0 down + ~$10,000–$14,000 closing costs + funding fee (financed) = approximately $10,000–$14,000 cash to close. FHA loan (3.5% down): $14,000 down + ~$10,000–$14,000 closing costs = approximately $24,000–$28,000. Conventional (5% down): $20,000 down + ~$10,000–$14,000 closing costs = approximately $30,000–$34,000. Seller concessions and assistance programs can reduce these numbers significantly.
Key takeaways
Ask your broker to prepare a cash-to-close estimate for your specific scenario before you start shopping
Earnest money (typically 1–2% of purchase price) is paid upfront but credited toward closing costs
Wire fraud is common at closing — always verify wire instructions by phone before sending funds
Find out exactly what you need to get started.
We'll give you a real cash-to-close estimate based on your loan type, credit, and target price — no guesswork.
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