Buying a first home means managing two budgets at once: the cash you need to close and the monthly payment you will carry afterward. They pull against each other. A larger down payment lowers the payment, but it can drain the savings you need for closing costs, moving, and the first repair.
This guide builds a complete cash plan for a hypothetical $400,000 purchase, compares three down payment sizes, and walks through the closing timeline, including the three-day window to review your final terms and the most important step for protecting your money on closing day.
What to know
- Plan for cash beyond the down payment: closing costs, prepaids, moving, and a reserve.
- A smaller down payment keeps more cash in reserve but raises the monthly cost.
- You should receive the Closing Disclosure at least three business days before closing.
- Confirm wiring instructions by phone at a number you already trust.
Start with your life, then the loan
Write down the monthly housing amount that leaves room for the rest of your life. Include principal and interest, property taxes, insurance, any mortgage insurance, association dues, utilities, and maintenance. A lender’s approval amount and a comfortable personal budget answer different questions.
Keep an emergency reserve outside the money earmarked for closing. A down payment that uses every available dollar may leave you exposed to a repair, moving cost, or a temporary drop in income. Run a second budget with higher insurance or property taxes to see how much flexibility remains.
Prepare before shopping
Collect recent income records, bank statements, and a list of monthly debts. The lender’s exact documentation will depend on your employment and loan type. If income varies, think beyond your strongest month. Check your credit reports and allow time to address information you believe is inaccurate.
Ask about conventional and any government-backed programs you may qualify for. A smaller down payment is only one feature: compare insurance, fees, property requirements, and the total payment. Preapproval is conditional and does not eliminate the need for final underwriting.
Compare, inspect, and close
Once you have a specific property and loan scenario, compare written Loan Estimates. Request the same amount, term, and rate-lock period so differences are easier to interpret. Keep track of which costs are lender charges, third-party services, or estimates for taxes and insurance.
A home inspection and a lender’s appraisal serve different purposes. Budget time to understand the property and the financing. Before closing, reconcile the final disclosure with your expectations, ask about unexplained changes, and confirm payment instructions using a trusted contact method.
Make a readiness sheet before a shopping list
A useful first document is one page with four numbers: the monthly housing amount you want to stay below, cash available for the transaction, cash you intend to keep afterward, and the date you would like to move. None of these is a lender qualification rule. They are your own boundaries for evaluating a purchase. If two people will share the cost, discuss the boundaries before comparing properties.
Next, write down what could change in the first year. A longer commute, childcare change, or new insurance bill can alter what feels comfortable. Build one ordinary month and one difficult month. A home that works only with overtime, a hoped-for raise, or unusually low repair costs deserves another look. You can adjust the home search, the timing, or the financing plan before becoming committed to a property.
Organize the document handoff
Use the lender’s own requested document list. It may include pay records, account statements, tax information, or explanations of deposits. The CFPB advises borrowers to ask which records they need and be prepared to document the source of funds. Keep the documents in the lender’s secure process; RatesMatter does not need them. Ask who is handling the file and how you will know a request is authentic.
Create a simple private checklist with the document name, period covered, date requested, and date supplied. When something is missing, record the question rather than submitting an unrelated document and hoping it is enough. Ask whether a document will need updating before closing. Keep copies of written explanations so that the same question does not lead to inconsistent answers later.
Separate the financing decision from the property decision
An attractive payment cannot answer whether the home suits your needs. Keep a property list beside the loan list: repairs you expect, work that can wait, association obligations, and the cost of moving in. Ask the appropriate property professional about the home’s condition. A financing approval does not replace your evaluation of the building or neighborhood.
Before closing, compare the final disclosure with the latest estimate and ask about differences in the rate, payment, costs, and cash due. The CFPB’s Closing Disclosure explainer provides a form-by-form reference. Leave time for answers. Afterward, keep the final documents and create a calendar for the first payment, insurance renewals, taxes paid separately, and maintenance you already know is coming.
Build a cash plan, not just a down payment goal
Ten percent down on a $400,000 home is $40,000, but that is only the largest line in the cash plan. Closing costs cover the lender’s charges and third-party services such as the appraisal and title work. Prepaid items cover interest, homeowners insurance, and the first deposit into an escrow account for taxes and insurance. Then there is the move itself, and the reserve you want left in the bank after you get the keys.
Using hypothetical figures, the total comes to $63,826, about 1.6 times the down payment. The closing cost and prepaid amounts are placeholders; your Loan Estimate will list the estimates for your actual loan. The reserve here is three months of the full housing payment. Choose your own target, but decide on it before you decide on the down payment, not after.
| Item | Amount | Notes |
|---|---|---|
| Down payment | $40,000 | 10% of the price |
| Closing costs | $9,000 | Placeholder; use your Loan Estimate |
| Prepaid interest, insurance, and escrow deposits | $3,500 | Placeholder; varies with the closing date and property |
| Moving and immediate setup | $2,500 | Your own estimate |
| Reserve after closing | $8,826 | Three months of the $2,942.11 housing payment |
| Total cash plan | $63,826 | About 1.6 times the down payment |
Sources: CFPB: Fees paid at closing
Compare down payment sizes by payment and cash left
A conventional loan with less than 20% down typically requires private mortgage insurance, which the CFPB notes protects the lender, not you. FHA loans carry their own mortgage insurance, with both an upfront and a monthly cost. The table uses a conventional loan at 6.50% and, for simplicity, the same assumed 0.5% annual mortgage insurance rate at 5% and 10% down. Real rates vary with the down payment and credit score, so ask each lender for the actual premium.
Going from 5% down to 20% down lowers the monthly cost by $537.57, but it takes $60,000 more cash at closing. That trade is worth making only if you still have a reserve afterward. Mortgage insurance on a conventional loan also ends: you can generally ask to cancel it when the balance is scheduled to reach 80% of the original value, and it must generally end automatically at 78% if you are current on payments. The last column shows when the first of those dates arrives on each schedule.
| Down payment | Loan amount | Principal and interest | Mortgage insurance | Monthly total | Can request removal |
|---|---|---|---|---|---|
| 5% ($20,000) | $380,000 | $2,401.86 | $158.33 | $2,560.19 | Month 124 |
| 10% ($40,000) | $360,000 | $2,275.44 | $150.00 | $2,425.44 | Month 95 |
| 20% ($80,000) | $320,000 | $2,022.62 | None | $2,022.62 | Not needed |
Sources: CFPB: How mortgage insurance works · CFPB: When you can remove private mortgage insurance
The closing timeline, and what to check at each step
After you apply, the lender must send a Loan Estimate within three business days. It shows the terms the lender expects to offer; it is not an approval. Once a property is under contract, underwriting, the appraisal, and your own inspection run side by side. Keep answering document requests promptly. The CFPB notes that taking out a new loan or missing a payment can change your credit and allow the lender to revise your costs, so hold off on new borrowing until after closing.
The lender must give you the Closing Disclosure at least three business days before closing. Use those days. Compare it with your latest Loan Estimate: the rate, the monthly payment, the loan amount, and the cash to close. Some costs cannot increase at all, the total of some others can rise by no more than 10%, and some, such as prepaid interest and insurance premiums, can change by any amount. A change in circumstances, such as a different loan type or down payment, or an appraisal that came in differently than expected, can reset those limits. Ask about any difference you cannot explain.
Before closing, inspect the home to confirm it is acceptable and that any agreed repairs are complete. After closing, note when the first payment is due and how you will pay it, and start setting aside money for repairs. If taxes and insurance are not escrowed, set aside money for those bills too.
Sources: CFPB: What is a Loan Estimate? · CFPB: What is a Closing Disclosure? · CFPB: Which Loan Estimate costs can change · CFPB: Before, during, and after closing
Protect your closing funds
Closing usually involves moving a large sum of money by wire, which makes it a target for fraud. The CFPB has warned about scams in which criminals send emails that appear to come from a real estate or settlement agent, confirming or suggesting last-minute changes to wiring instructions. The money goes to an account the scammer controls, and a diverted wire can cost a buyer their savings.
The CFPB’s advice is straightforward. Before closing, agree on the process and payment instructions with two trusted people, such as your real estate agent and settlement agent, in person or by phone. Before you wire money, confirm the instructions, including the account name and number, by calling a phone number you already have. Never follow instructions, phone numbers, or links in an email, and treat any message announcing changed instructions as a warning sign.
Sources: CFPB: Protecting your closing funds (archived post)
Size the down payment around the reserve
Suppose you have $64,000 saved. With 10% down on the hypothetical $400,000 home, the cash plan uses $63,826, including a three-month reserve. Reaching 20% down would take $40,000 more than that. Choosing 5% down instead would free $20,000 for reserves or first-year repairs, at a cost of $134.75 more a month than 10% down until mortgage insurance ends. The right choice is the one that leaves you able to handle a repair in the first year without new debt.
Your next-step checklist
- Write a cash plan that includes closing costs, prepaids, moving, and a reserve.
- Compare at least two down payment sizes by monthly cost and cash left over.
- Ask each lender for the actual mortgage insurance premium and how it can end.
- Hold off on new credit until after closing.
- Compare the Closing Disclosure with your latest Loan Estimate during the three-day review.
- Confirm wiring instructions by phone at a number you already trust.
Sources & further reading
CFPB: Loan Estimate explainer CFPB: Understand loan options CFPB: Preparing to buy a home CFPB: Documents and lender requests CFPB: Closing Disclosure explainer CFPB: Fees paid at closing CFPB: How mortgage insurance works CFPB: When you can remove private mortgage insurance CFPB: What is a Loan Estimate? CFPB: What is a Closing Disclosure? CFPB: Which Loan Estimate costs can change CFPB: Before, during, and after closing CFPB: Protecting your closing funds (archived post)Educational information, not individualized financial, legal, or tax advice. Examples are hypothetical. Verify current terms directly with the provider.
