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It’s likely that buying a house will be one of the most expensive things you ever do. There are also good reasons to have doubts about the process, especially when it comes to the money involved. “Do I need money in my bank account to buy a house?” is a question that many first-time homebuyers ask.
The short answer is yes, you typically need money in your bank account to purchase a home. The funds are necessary for expenses like the down payment, closing costs, and prepaid costs. While it is possible to buy with no money down through certain mortgage programs, you’ll still have other upfront fees at closing.
It’s important to have money in the bank when you buy a house. Here’s why and how much you’ll need.
Why You Need Money in Your Bank Account to Buy a House
There are a few key reasons why money in your bank account is necessary to buy a real estate property
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Down Payment—As a down payment, most mortgage lenders want you to put down a certain amount of the home’s price. This lowers the amount of money you borrow and shows that you have “skin in the game.” “.
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Closing Costs – In addition to the down payment, you’ll need cash on hand for closing costs like origination fees, appraisal fees, and prepaid items like homeowners insurance and property taxes
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Mortgage Reserves – Lenders want to see you have cash remaining after closing for mortgage reserves. This provides a financial cushion in case you lose your job or have an emergency.
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Stronger Offer – Buyers who can prove funds in their account are often taken more seriously by sellers and can strengthen their offer.
While special financing programs exist that offer low or no down payment options, you’ll still need thousands for closing and prepaid costs at a minimum.
How Much Money Will I Need in My Account?
The amount of money you’ll need in your bank account depends on factors like:
- The purchase price of the home
- Your down payment amount
- Closing costs
- Whether you receive down payment assistance
As a general guideline, here’s how much money you should plan to have accessible:
Down Payment
- Conventional loans – At least 3-20% of purchase price
- FHA loans – Minimum 3.5% of purchase price
- USDA/VA loans – No minimum requirement
Closing Costs
- Estimate 2-5% of loan amount
Prepaid Costs
- Homeowners insurance premiums
- Property taxes
- Mortgage interest
Total Needed in Account
- Minimum: ~5-8% of purchase price
- 20% down: ~22-25% of purchase price
If you want to buy a $300,000 house, you might need anywhere from $15,000 to $75,000 in cash. This depends on how much you put down and how much the closing costs are. Compare rates and costs from different mortgage lenders to find the best deal.
What If I Don’t Have Enough Money?
Don’t panic if you don’t have enough cash in your account yet to buy a house. You have options, such as:
- Taking more time to increase your savings
- Exploring down payment assistance programs
- Asking for help from family members with a gift
- Looking into low or no down payment mortgage loans
While possible to buy with little money down, it’s essential you don’t overextend your finances. Review your full budget to ensure you can afford the monthly mortgage payments and other ownership costs.
How to Save for a Down Payment
Here are some tips to build up your down payment funds faster:
- Track expenses and create a detailed budget
- Cut back discretionary spending each month
- Start a separate savings account or use a high yield account
- Increase your income with a side gig or freelance work
- Consider investing through a Roth IRA or stocks
- Apply for down payment assistance programs
- Seek a gift from a relative or savings through your employer
Saving for a down payment takes diligence, but it’s possible with time and discipline. Even small amounts add up over months and years.
Talk to a Mortgage Lender Early On
Before you start seriously looking at homes, talk to a mortgage lender. They can help you:
- Get preapproved – Confirms the loan amount you qualify for
- Know your options – Discusses different down payment programs
- Estimate total costs – Details the upfront money needed for your situation
- Improve your finances – Provides tips to strengthen your home buying profile
Connecting with a lender early gives you time to save, pay down debt, or take other steps to improve your chances of getting approved. Be sure to get preapproved by multiple lenders to compare options.
The Bottom Line
While buying a home with no money down is sometimes possible, the vast majority of buyers will need thousands of dollars available in their bank account to purchase a property. This money covers the down payment, closing costs, prepaid items, and post-closing reserves.
Carefully calculate how much you’ll need with help from a mortgage lender. While being preapproved provides reassurance you can get financing, you still must have sufficient funds to close on time. Patience and diligent saving now can pay off for years to come in home equity and mortgage savings.
Pros and cons of buying a house with cash
There are both advantages and drawbacks to paying cash compared to getting a mortgage.
- Competitive advantage: Sellers love all-cash bids, and buyers get to avoid the risk of potentially not being able to secure a loan. With an offer contingent on financing, there’s always the chance a loan could fall through, and the deal with it. That makes cash offers more attractive, giving your bid a leg up on others.
- Lower purchase price: Because cash deals are more appealing than ones that involve financing, you might be able to win a home with a lower offer. Sellers may be more willing to bargain, because your bid seems like a surer thing.
- Lower closing costs/faster closing: Many closing costs, and delays, are related to securing a mortgage. Skipping the loan process makes the closing proceed faster and with less expense.
- No monthly payments: If you pay for your home in full, you don’t have to worry about interest rates or monthly mortgage bills.
- Immediate ownership: In addition, when you pay for a home in full, you own it outright. That means there’s no risk of foreclosure by a lender and you have 100 percent equity in the home.
- Your money is tied up: Real estate can be a good investment — but it’s an illiquid one. If your money is tied up in your home, it’s no longer readily available for other purposes, such as home maintenance, emergencies or even to pay bills.
- Lower return on investment: Real estate is certainly an asset, but it might not appreciate in value as quickly as other investments can. For example, you might miss out on higher returns in the stock market if you put all your cash into a home.
- No mortgage interest deduction: Homeowners can deduct a portion of the interest they pay on their mortgage from their income when filing their tax return. If you don’t have a mortgage, you miss out on these savings.
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- Buying a home with cash means avoiding financing and mortgage payments, but it requires a large sum of money.
- Cash home purchases have become increasingly popular in todays high-interest-rate environment.
- If you can afford it, cash home purchases have major benefits. But there are disadvantages, too, including tying up your money in an illiquid asset.
If you’re shopping for a home in today’s high-interest-rate market, you might wish you could skip the financing and buy the place outright. There has always been a competitive advantage to making an all-cash offer, but when mortgage rates are high, there’s another: Borrowing money is expensive, and paying for the home in full helps you avoid the monthly obligation of mortgage payments and interest.
More people have taken this route in recent years, with the percentage of buyers using a mortgage to purchase a home falling from 87 percent in 2021 to 80 percent in 2023, according to the National Association of Realtors’ latest Profile of Home Buyers and Sellers.
Of course, most Americans don’t have hundreds of thousands of dollars lying around waiting to be spent. But let’s say you do. Even if you can afford to buy a house in cash, should you? Is it a smart idea? Here are the pros and cons.
How To Save For A House (Plus EVERYTHING else you’ll need to know)
FAQ
How much money should you have in your bank account before buying a house?
Putting money away between 2% and 3% of the price of your home to cover your down payment, closing costs, and other costs is a good idea.
How long does money need to be in your bank account before buying a house?
Most lenders require that money for a down payment and other upfront expenses has existed in an established account belonging to the borrower for at least 60 days. This shows a lender that the funds didn’t come from a temporary or fraudulent source.
Can I get a mortgage with no money in the bank?
Use a zero-down VA loan or USDA loan The easiest way to buy a house with no money down is to use a government-backed mortgage. VA loans are designed for veterans and active military members, and they offer the advantage of no down payment and no requirement for mortgage insurance.
How much money do you need in your bank account to build a house?
If your house-to-be appraises for exactly the cost to build, you’ll be able to get a loan for 80% of the cost… and you’ll need the other 20% in cash. However, with a bank willing to loan 80% of appraised value (NOT just 80% of cost), you can borrow more if the appraised value is higher than the cost to build.