What Home Buyers Need to Know Before Buying

One of the most common questions I hear from buyers is:

“How much money do I actually need to buy a home?”

And this is where things can become confusing.

You may hear:

3% down

3.5% down

5% down

20% down

Closing costs

Earnest money

Seller credits

Cash to close

These terms all involve money…

but they do not mean the same thing.

This page will break everything down simply.

The first thing to remember:

DOWN PAYMENT ≠ CLOSING COSTS

They are two separate parts of buying a home.

WHAT IS A DOWN PAYMENT?

Your down payment is the portion of the home’s purchase price that you pay with your own eligible funds rather than borrowing through your primary mortgage.

For example:

Home Price

$500,000

5% Down Payment

$25,000

Approximate Mortgage Amount

$475,000

In this simple example, you are contributing $25,000 toward the purchase price and financing the remaining $475,000.

Your actual loan amount can differ depending on the loan program and other financed amounts.

WHY IS A DOWN PAYMENT NEEDED?

A down payment reduces how much money you need to borrow.

Generally, a larger down payment can mean:

A smaller mortgage

A lower monthly principal-and-interest payment

More equity from the beginning

and potentially different loan pricing or mortgage-insurance requirements.

The CFPB notes that down-payment requirements vary by loan and lender, and larger down payments can affect approval, interest rate and mortgage-insurance requirements.

DO I NEED 20% DOWN?

No.

This is probably the biggest down-payment misconception.

You may have heard:

“You need 20% down to buy a house.”

That is not universally true.

Depending on your qualifications and loan program, buyers may have options requiring substantially less than 20%.

For example, some conventional programs may allow qualifying buyers to purchase with around 3% down.

FHA financing commonly allows qualifying borrowers to purchase with a lower down payment than 20%.

Eligible VA borrowers may potentially finance a home without a traditional down payment requirement, subject to VA and lender requirements.

20% is an option.

It is not a universal rule.

THEN WHY DO PEOPLE TALK ABOUT 20%?

One reason is mortgage insurance.

With many conventional mortgages, putting less than 20% down can mean paying private mortgage insurance — PMI.

Mortgage insurance helps protect the lender if the borrower defaults; it does not insure the buyer against losing the home. CFPB guidance notes that mortgage insurance is commonly associated with down payments below 20%, while FHA and USDA loans have their own mortgage-insurance structures.

That does not automatically make a low-down-payment mortgage a bad loan.

It simply means you should understand:

The mortgage insurance cost

The monthly payment

The amount of cash you’re preserving

and

Your other financial priorities.

SHOULD I PUT 20% DOWN IF I HAVE IT?

Maybe.

But not automatically.

Suppose you have:

$100,000 in savings

and you’re buying:

a $500,000 home.

You could potentially put the entire $100,000 toward a 20% down payment.

But what happens after closing?

Do you still have money for:

Moving?

Furniture?

Emergency repairs?

Insurance deductibles?

Appliances?

Savings?

Job changes?

Unexpected expenses?

A larger down payment can be beneficial.

But draining your savings account simply to reach a particular percentage may not always be the best decision.

GOOD ENERGY TIP

DON’T ASK ONLY:

“How much CAN I put down?”

Also ask:

“How much SHOULD I put down while still keeping healthy reserves?”

Your lender can help you compare multiple scenarios.

WHAT ARE CLOSING COSTS?

Closing costs are the additional expenses involved in obtaining the mortgage and completing the transfer of the property.

They are separate from your down payment.

CFPB identifies common closing-cost categories including lender charges, discount points, third-party services, government fees, prepaid expenses and initial escrow deposits.

Examples may include:

Loan origination charges

Underwriting or processing charges

Appraisal

Credit-related charges

Title services

Title insurance

Escrow or settlement charges

Recording or government fees

Prepaid homeowners insurance

Prepaid interest

Initial escrow deposits

and other transaction-specific costs.

WHY ARE CLOSING COSTS NECESSARY?

Buying a property requires much more than simply transferring money to the seller.

There are professionals and services involved in:

Verifying the property’s value.

Reviewing title.

Preparing and processing financing.

Handling escrow.

Recording ownership.

Providing insurance.

Processing the mortgage.

Completing settlement.

Closing costs pay for many of those services and requirements.

HOW MUCH ARE CLOSING COSTS?

There is no fixed percentage that applies to every purchase.

The CFPB currently suggests buyers may use approximately 2%–5% of the home’s purchase price as a rough early estimate for closing costs, excluding the down payment. Actual costs vary according to the property, lender, loan, location and transaction.

For a hypothetical:

$500,000 HOME

A rough 2%–5% educational range would be:

$10,000 – $25,000

That does not mean your costs will definitely fall within that exact range.

Your lender’s Loan Estimate will give you a much more useful property- and loan-specific estimate.

DOWN PAYMENT VS. CLOSING COSTS

This is the easiest way to remember it:

DOWN PAYMENT

Goes toward the price of the house.

CLOSING COSTS

Pay the expenses required to finance and complete the transaction.

They are different.

SIMPLE EXAMPLE

Imagine you purchase a home for:

$500,000

And your loan requires:

5% Down Payment

That equals:

$25,000

Now imagine your estimated closing costs are:

$15,000

Your starting calculation may look like:

DOWN PAYMENT

$25,000

CLOSING COSTS

$15,000

TOTAL

$40,000

But even this is not necessarily your final cash-to-close amount.

Why?

Because other credits, deposits and adjustments may affect the final number.

WHAT IS EARNEST MONEY?

Earnest money is another number buyers often confuse with the down payment.

Earnest money is a deposit made after your offer is accepted according to the purchase contract.

For example:

You might deposit:

$5,000 earnest money.

That money generally does not simply disappear.

If the transaction closes, it is typically credited toward the amounts you owe at closing according to the settlement statement.

So imagine:

Down Payment

$25,000

Closing Costs

$15,000

Estimated Total

$40,000

But you already deposited:

$5,000 Earnest Money

Your remaining amount may be reduced accordingly, subject to the actual closing figures.

Earnest money is NOT automatically an extra cost on top of everything else.

IMPORTANT:

EARNEST MONEY IS NOT AUTOMATICALLY REFUNDABLE.

Whether you receive your deposit back if you cancel depends on:

Your contract.

The reason for cancellation.

Your contractual protections.

Your deadlines.

The circumstances.

Never assume:

“I can cancel anytime and get my money back.”

Your actual purchase agreement controls.

WHAT IS “CASH TO CLOSE”?

This is the number buyers ultimately care about.

CASH TO CLOSE

is the amount you actually need to provide at closing after the applicable costs, credits, deposits and adjustments have been calculated.

CFPB’s Closing Disclosure guidance distinguishes total closing costs from Cash to Close, which reflects what the buyer must bring after accounting for the other parts of the transaction.

That may include:

Down payment.

Closing costs.

Prepaids.

Other required amounts.

minus:

Earnest money already deposited.

Seller credits.

Lender credits.

Other applicable credits or adjustments.

THINK OF IT THIS WAY

PURCHASE PRICE

The cost of the house.

↓

DOWN PAYMENT

Your contribution toward that price.

↓

MORTGAGE

What you finance.

↓

CLOSING COSTS

Expenses required to complete the transaction.

↓

CREDITS + DEPOSITS

Amounts that may reduce what remains due.

↓

CASH TO CLOSE

The actual amount you need at settlement.

WHAT ARE PREPAIDS?

Some of the money shown around closing isn’t necessarily a “fee.”

This distinction is important.

You may need to prepay items such as:

Homeowners insurance

Property taxes

Mortgage interest

or deposit money into an escrow account for future taxes and insurance.

CFPB specifically separates these prepaid expenses and deposits from other loan-related charges.

You’re not necessarily paying someone a fee.

Some of the money is simply being collected now to cover expenses associated with owning the home.

WHAT IS AN ESCROW ACCOUNT?

For many mortgages, the lender may collect a portion of your:

Property taxes

and

Homeowners insurance

as part of your monthly payment.

That money is held in an escrow account and used to pay those expenses when due.

At closing, you may need to contribute an initial amount into that account.

This can make your cash-to-close number higher than simply:

Down payment + lender fees.

WHAT ARE SELLER CREDITS?

A seller credit is money the seller agrees to contribute toward eligible buyer closing expenses according to the purchase contract and applicable loan rules.

Example:

Purchase Price

$500,000

Buyer Closing Costs

$15,000

Seller Credit

$10,000

Potential remaining buyer closing costs:

approximately $5,000

assuming all $10,000 can be applied to eligible costs.

Seller-credit limits and eligible uses depend on the loan and transaction.

IMPORTANT MISCONCEPTION:

A $10,000 SELLER CREDIT IS NOT THE SAME AS A $10,000 PRICE REDUCTION.

These can affect a buyer very differently.

For example:

Reducing a $500,000 purchase price to:

$490,000

reduces the amount being purchased or financed.

But giving:

$10,000 toward closing costs

may allow the buyer to keep $10,000 more of their available cash at closing.

For a buyer who is more concerned about cash than monthly payment, the credit can sometimes be more useful.

That is why negotiations should consider the buyer’s complete financial situation.

GOOD ENERGY EXAMPLE

Imagine you have:

$35,000 AVAILABLE

You’re buying a $500,000 home using a hypothetical 5% down payment.

DOWN PAYMENT

$25,000

That leaves:

$10,000

Now imagine closing costs are:

$15,000.

You appear to be:

$5,000 short.

But suppose we negotiate:

$7,500 seller credit.

Now the transaction may fit much more comfortably, subject to lender approval and applicable contribution limits.

This is why knowing your cash position BEFORE writing the offer matters.

WHAT ARE LENDER CREDITS?

Your lender may also offer a credit toward closing costs.

But lender credits are not necessarily free money.

CFPB notes that lender credits commonly offset upfront closing expenses in exchange for a higher interest rate than the borrower would otherwise receive.

So compare:

LOWER RATE + MORE MONEY UPFRONT

with:

HIGHER RATE + LESS MONEY UPFRONT

Neither is universally better.

It depends on your finances and how long you expect to keep the loan.

WHAT ARE DISCOUNT POINTS?

This is almost the opposite concept.

You may choose to pay additional money upfront to obtain a lower mortgage rate.

This is often called:

Buying down the rate.

If:

1 point = 1% of the loan amount,

then on a hypothetical $400,000 mortgage:

1 point = $4,000.

But exact pricing and the rate improvement vary.

Ask:

“How much does this point cost?”

“How much does it lower my payment?”

“How many months until I recover that upfront cost?”

CAN THE SELLER PAY MY ENTIRE CLOSING COSTS?

Potentially some or even most eligible closing expenses in certain transactions.

But there are limits.

The allowable seller contribution can depend on:

Loan program

Down payment

Occupancy

Type of expense

and other underwriting requirements.

Your lender should determine the maximum allowable contribution.

Never write an offer assuming a certain credit will be permitted without checking.

CAN THE SELLER PAY MY DOWN PAYMENT?

Usually, seller credits and down-payment funds are treated differently under mortgage rules.

A standard seller closing-cost credit generally cannot simply substitute for the buyer’s required minimum down-payment contribution where the loan program requires the buyer to provide eligible funds.

However, buyers may qualify for:

Gift funds.

Assistance programs.

Other eligible sources.

Those rules depend on the loan.

WHAT IS DOWN-PAYMENT ASSISTANCE?

Some buyers may qualify for programs designed to help provide funds toward the purchase.

Nevada currently has Home Is Possible programs administered through the Nevada Housing Division.

The general Home Is Possible program currently advertises assistance of up to 5% of the loan value that can be used toward qualifying down payment or closing costs, subject to income, credit, occupancy, underwriting and program requirements.

There is also a Nevada Home Is Possible for First-Time Homebuyers option that currently advertises assistance of up to 4% of the total loan amount, subject to its own requirements and repayment terms.

These programs are not automatically free money.

Assistance structures can involve a second mortgage, repayment requirements, eligibility conditions or other terms.

A participating lender should explain:

How much assistance you’re receiving

Whether it is repayable

When repayment is required

Whether there is interest

How it affects your mortgage rate

What happens if you sell or refinance

SOUTHERN NEVADA BUYERS SHOULD ALSO ASK ABOUT SPECIAL PROGRAMS

Nevada programs can change over time.

For example, the Nevada Housing Division currently offers a Worker Advantage program for eligible essential workers, with $20,000 of assistance structured as a no-interest, no-payment, non-forgivable 30-year second mortgage. The program has specific employment, residency and underwriting requirements.

Never assume you don’t qualify.

Ask.

WHAT ABOUT BUILDER CLOSING-COST INCENTIVES?

New-construction builders may offer incentives toward:

Closing costs.

Rate buydowns.

Financing expenses.

Other eligible costs.

These can materially reduce the amount of cash you need at closing.

But they frequently come with conditions such as:

Using an affiliated lender.

Closing by a particular date.

Choosing a qualifying home.

Meeting financing requirements.

➡️ [ READ: BUILDER INCENTIVES ]

CAN I USE GIFT MONEY?

Depending on the loan program, eligible gift funds from an acceptable donor may potentially be used for some purchase funds.

The lender may require documentation.

Do not have someone randomly transfer money into your account and explain it afterward.

Tell your lender first.

They will explain the appropriate process.

WHERE SHOULD MY DOWN-PAYMENT MONEY BE?

Your lender needs to verify your funds.

They may review:

Bank accounts.

Savings accounts.

Investment accounts.

Other eligible assets.

They may also need to verify where significant deposits came from.

Keep the money trail clean.

Do not:

Move large sums unnecessarily.

Deposit undocumented cash.

Borrow money without telling your lender.

Move funds between several accounts just before closing.

Ask the lender before making unusual financial moves.

MISCONCEPTION #1

“I NEED 20% DOWN.”

No.

Many buyers qualify with less.

MISCONCEPTION #2

“MY DOWN PAYMENT INCLUDES CLOSING COSTS.”

No.

They are separate.

MISCONCEPTION #3

“IF I HAVE THE DOWN PAYMENT, I’M READY TO BUY.”

Not necessarily.

You also need to consider:

Closing costs.

Prepaids.

Inspections.

Moving.

Initial repairs.

Emergency reserves.

MISCONCEPTION #4

“CLOSING COSTS ARE JUST RANDOM BANK FEES.”

No.

Some are lender charges.

Others pay third-party providers.

Others are government charges.

Others are prepaid homeownership expenses.

The CFPB separates these into multiple categories for exactly this reason.

MISCONCEPTION #5

“SELLER CREDITS ARE FREE MONEY.”

Not exactly.

They are negotiated as part of the overall transaction.

The seller may consider the credit when deciding whether the total deal is acceptable.

CFPB also notes that seller credits can be economically reflected elsewhere in the negotiated transaction, such as the purchase price.

MISCONCEPTION #6

“LOWER DOWN PAYMENT IS ALWAYS BAD.”

No.

A lower down payment may increase your mortgage amount or mortgage-insurance cost.

But it may also allow you to:

Keep reserves.

Handle moving expenses.

Maintain emergency savings.

Purchase sooner.

The question is whether the complete financing structure makes sense.

MISCONCEPTION #7

“THE BIGGEST DOWN PAYMENT IS ALWAYS BEST.”

Also no.

There can be a point where keeping some cash available is more valuable than putting every dollar into the property.

Ask your lender to show you scenarios.

MISCONCEPTION #8

“CASH TO CLOSE = DOWN PAYMENT.”

No.

Cash to close is the final net amount you actually need after all applicable costs, credits, deposits and adjustments.

THREE NUMBERS I WANT EVERY BUYER TO KNOW

Before we start seriously writing offers, I want you to know:

1. DOWN PAYMENT

How much are you planning to put toward the purchase price?

2. ESTIMATED CLOSING COSTS

What additional upfront costs are expected?

3. CASH TO CLOSE

Approximately how much money will you actually need to complete the transaction?

If you understand those three numbers…

you’re already much better prepared than many first-time buyers.

ASK YOUR LENDER THESE QUESTIONS

Bring this list to your lender:

What is my minimum required down payment?

Should I consider putting more down?

How would different down payments affect my monthly payment?

Will I have mortgage insurance?

What are my estimated closing costs?

What is my estimated cash to close?

How much should I keep in reserves?

Can I use gift funds?

Do I qualify for down-payment assistance?

How much seller credit can my loan allow?

Can seller credits be used toward a rate buydown?

Are there costs that cannot be covered by seller credits?

Am I paying discount points?

Am I receiving lender credits?

What should I avoid doing with my money before closing?

Those questions will create a much better conversation than simply asking:

“What’s the lowest down payment?”

YOUR MONEY SHOULD HAVE THREE BUCKETS

This is how I like buyers to think about it.

BUCKET 1 — BUY THE HOME

Your down payment.

BUCKET 2 — COMPLETE THE PURCHASE

Closing costs and related expenses.

BUCKET 3 — PROTECT YOURSELF AFTER CLOSING

Savings and reserves.

The goal should not be to empty Bucket 3 just to make Bucket 1 bigger.

THE GOOD ENERGY RULE

DON’T SPEND EVERY DOLLAR JUST TO GET THE KEYS.

The day after you close…

you are a homeowner.

And homeowners sometimes need money.

An appliance can break.

A deductible can become due.

Furniture may be needed.

You may discover something you want to improve.

Life can happen.

A strong purchase should leave room for life after closing.

WHEN WILL I KNOW THE EXACT AMOUNT I NEED?

Your lender provides estimates earlier in the process through the Loan Estimate.

As closing approaches, you will receive your Closing Disclosure, which shows the final loan terms, costs and cash-to-close calculation.

CFPB specifically recommends checking that the final Cash to Close matches expectations and asking the lender to explain any unexpected changes.

Do not wait until signing day to discover how much money you need.

SIMPLE BUYER EXAMPLE

Let’s put everything together.

PURCHASE PRICE

$500,000

HYPOTHETICAL DOWN PAYMENT — 5%

$25,000

HYPOTHETICAL CLOSING COSTS

$15,000

Potential total:

$40,000

Now imagine the buyer already deposited:

Earnest Money

$5,000

and negotiated:

Seller Credit

$7,500

Simplified illustration:

$40,000

minus $5,000 deposit

minus $7,500 seller credit

=

$27,500 remaining

This is intentionally simplified.

Actual Cash to Close will include the precise loan, prepaid expenses, credits and closing adjustments shown by the lender and settlement provider.

But it demonstrates why:

“How much is my down payment?”

and:

“How much money do I need to close?”

are completely different questions.

FREQUENTLY ASKED QUESTIONS

Do I need 20% down?

No.

Your minimum down payment depends on the loan program and your qualifications.

Is my earnest money part of my down payment?

At closing, earnest money already deposited is generally credited within the overall transaction calculation rather than simply becoming an additional purchase expense. Your settlement statement will show exactly how it is applied.

Are closing costs refundable?

Many costs pay for services already performed and are not simply refundable deposits. The treatment of a particular payment depends on what it was for and when the transaction ends.

Can seller credits cover my down payment?

Seller credits generally apply to permitted closing-related costs rather than substituting for required borrower contribution under a loan program. Ask your lender about your specific loan.

Can family help with my down payment?

Potentially through eligible gift funds, depending on the mortgage program and documentation requirements.

Can I borrow my down payment?

Do not assume so.

Debt and borrowed funds can affect qualification, and allowable sources vary by loan program.

Tell your lender exactly where your funds are coming from.

Are down-payment-assistance programs only for first-time buyers?

No.

Some programs require first-time-buyer status and others do not.

Nevada’s current general Home Is Possible program, for example, does not require the borrower to be a first-time homebuyer.

Does using assistance mean the money is free?

Not necessarily.

Programs can be structured differently and may include repayment obligations or second mortgages.

Read the program terms.

Should I put more money down to lower my payment?

Potentially.

Ask the lender to compare multiple scenarios so you can see the effect on:

Monthly payment.

Mortgage insurance.

Interest rate.

Cash reserves.

THE BOTTOM LINE

You don’t need to memorize every closing fee.

You need to understand the framework:

DOWN PAYMENT

Money going toward your home purchase.

CLOSING COSTS

Money required to finance and complete the transaction.

EARNEST MONEY

A contractual deposit made earlier in the purchase process.

CREDITS

Amounts that may reduce eligible costs.

CASH TO CLOSE

The final amount you need to provide at settlement.

Once those five ideas make sense…

home-buying finances become much easier to understand.

READY TO FIGURE OUT YOUR NUMBERS?

If you’re thinking:

“I have some savings, but I have no idea whether it’s enough…”

that’s a perfectly good place to start.

We can talk about:

Your approximate home budget

How much you have available

Your desired monthly payment

Your timeline

and then get the appropriate lender involved to determine your actual financing options.

TOMMY XAVIER NGUYEN

The Good Energy Realtor®

Nevada Real Estate Salesperson
NV Lic. #S.0204577

Good Energy Realty LLC

📞 725.224.1720

Calm numbers. Clear plan. Strong decisions.

IMPORTANT INFORMATION

This page is intended for general home-buyer education.

Actual down-payment requirements, seller-contribution limits, closing costs, mortgage-insurance requirements, gift-fund rules, assistance programs and cash-to-close amounts depend on the borrower, property, lender and loan program.

Program terms can change.

The Good Energy Realtor® and Good Energy Realty LLC do not provide mortgage, legal or tax advice.

Consult a properly licensed mortgage professional for your actual loan qualification and financing terms.