How Much Cash Do You Need to Buy a House? (Down Payment + Closing Costs Explained)

Updated February 2026

One of the biggest questions first-time buyers ask is: “How much money do I actually need to buy a house?” Most people assume they need 20% down, but that’s no longer the norm. In reality, your total cash requirement includes down payment, closing costs, and sometimes reserves, depending on your loan type and lender.

If you understand these pieces early, you can plan more confidently, shop more strategically, and avoid surprises when you’re ready to make an offer — especially in areas like Cross Plains and Middleton, where first-time buyers make up a growing share of purchases.

If you haven’t already, read:
How to Get Preapproved for a Home Loan

Let’s Start With the Basics: Cash to Close

Your total upfront cash requirement typically includes three components:

Down Payment
Closing Costs
Reserves (Sometimes)

All three contribute to what lenders call cash to close, which is the amount you need to complete the purchase.

Down Payment Explained

Your down payment is the portion of the purchase price you pay upfront. It reduces the amount you borrow.

While 20% down used to be the standard, today many buyers put down:

3% to 5% with Conventional loans
3.5% with FHA loans
0% with VA or USDA loans (for qualified buyers)

You can explore loan types here:
https://www.consumerfinance.gov/owning-a-home/loan-options/

Down Payment Example:

If you buy a $350,000 home with 5% down:

5% of $350,000 = $17,500

That becomes your down payment portion of cash to close.

Closing Costs Explained

Closing costs are separate from your down payment. These cover the expenses needed to originate, process, insure, and record your loan.

Common closing costs include:

✔ lender fees
✔ appraisal
✔ title insurance
✔ prepaid interest
✔ attorney/title company fees
✔ escrow setup
✔ recording fees
✔ homeowners insurance
✔ property taxes

In Wisconsin, closing costs typically range from 2% to 5% of the purchase price.

Example:
On a $350,000 home:

2% = $7,000
5% = $17,500

This range surprises many first-time buyers who were focused only on down payment.

To explore closing costs further, the fannie mae provides a helpful calculator:
https://yourhome.fanniemae.com/calculators-tools/closing-costs-calculator

Prepaids & Escrows

These are a subcategory of closing costs and include:

property tax prepayments
homeowners insurance premiums
mortgage insurance (if applicable)

Because taxes and insurance vary by location, buyers in Cross Plains and Middleton often ask for estimates during preapproval. Your lender will calculate these during underwriting.

Reserves (Not Always Required)

Some lenders require cash reserves, which are funds you keep in the bank after closing. Not all buyers or loan types require reserves, but when they do, the expectation may be:

one month of mortgage payment
three months of mortgage payment
six months (for higher-risk or multi-unit properties)

Gift Funds & Assistance

If you’re receiving help from family or down payment assistance, you’re not alone — especially among first-time buyers.

Options include:

✔ gift funds
✔ employer programs
✔ WHEDA assistance (Wisconsin-specific)
✔ FHA assistance grants
✔ VA benefits
✔ USDA loan programs

You can explore WHEDA programs here:
https://www.wheda.com/home-buyers

Gift funds typically require a gift letter, verifying the money is not a loan.

Putting It All Together: Realistic Buyer Example

Let’s look at a typical first-time buyer scenario:

Home Price: $350,000
Down Payment (5%): $17,500
Closing Costs (3%): $10,500

Total Cash to Close: $28,000

If you use a 3.5% FHA down payment:

Down Payment: $12,250
Closing Costs (3%): $10,500

New Total: $22,750

If you qualify for VA or USDA with 0% down:

Down Payment: $0
Closing Costs (3%): $10,500

New Total: $10,500

Same house. Very different cash requirements.

What About 20% Down?

Putting 20% down can eliminate private mortgage insurance (PMI) and lower your payment, but it’s not mandatory and often slows down first-time buyers unnecessarily.

The FHA breakdown here is helpful:
https://www.hud.gov/program_offices/housing/fhahistory

Can Sellers Help With Closing Costs?

Yes — when the market supports it, sellers can contribute through a seller credit.

Seller credits can pay for:

✔ closing costs
✔ prepaid items
✔ escrow funding

Credits cannot typically be used for down payments.

In slower markets, credits are common. In competitive markets, they’re less likely.

Local Layer: Cross Plains + Middleton

Buyers in Cross Plains and Middleton often ask how cash requirements compare to Madison. In many cases:

home prices trend slightly lower than core Madison neighborhoods
property taxes vary by municipality
preapprovals often go further for the price

This can make these areas appealing to first-time buyers who need more value for their buying dollar.

Common Myths That Slow Down First-Time Buyers

Myth 1: You need 20% down
Reality: Many first-time buyers put down 3% to 5%

Myth 2: You need perfect credit
Reality: FHA and other programs allow flexibility

Myth 3: Assistance programs are only for low income
Reality: Many are designed for first-time buyers, not solely income-based

When to Start Planning

Ideally, you should start cash planning before touring homes. This pairs naturally with preapproval.

If you haven’t completed that step, read:
Prequalification vs Preapproval: What First-Time Buyers Need to Know (internal link)

FAQs

Do I need reserves?
Not always. Ask your lender.

Can I get a loan with gift funds?
Yes. Most major loan types allow it.

Do closing costs roll into the loan?
Sometimes — but often not for first-time buyers.

Final Thoughts

Your cash-to-close number is one of the most important pieces of your home buying puzzle. Once you understand it, the path to ownership becomes more realistic and less intimidating.

If you’re planning to buy in Cross Plains, Middleton, or surrounding communities, I can walk you through local numbers and connect you with lenders who break down costs clearly.

How Much Cash Do You Need to Buy a House?