How Much Cash is Needed to Buy a House?

How much cash you'll need up front to buy a home varies depending on the cost of the house and other factors. As a general rule, you'll need at least 3.5 percent of the purchase price as a down payment. Other up-front costs, such as closing costs, can be covered in a variety of ways.

FHA Insured Loans

As of 2010, FHA insured loans were among those offering the lowest down payments at 3.5 pecent. FHA insured loans are guaranteed by the U.S. government, removing most of the lending risk for banks and other institutions. In turn, the banks offer competitive interest rates.

Help With Closing Costs

A motivated seller might be willing to pay for closing costs to consummate the deal. Also, the U.S. Department of Housing and Urban Development (HUD) usually has an inventory of FHA insured homes in foreclosure, and these homes feature sharply discounted closing costs.

What's Included in Closing Costs

Closing costs vary, but generally amount to around 5 percent of the purchase price. The closing costs include the application fee, appraisal fee, loan origination fee and the first month's homeowner's insurance.

Borrowing Your Down Payment

You could borrow the money you need for a down payment and closing costs, either from a lender, family members or your 401k. That's perfectly acceptable as long as any payments for the loan don't push your income-to-debt ratio over the approved limits.

Other Help

There may be other programs that can help you if you are having trouble coming up with enough cash. For example, the U.S. Department of Housing and Urban Development (HUD) has a Good Neighbor Next Door Sales Program offering those in certain professions discounts of up to 50 percent off on the list price of their prospective home. The huge discount dramatically reduces the amount of money needed up front. The Good Neighbor program is limited to law enforcement officers, teachers, medical technicians and firefighters. However, there may be similar programs that apply to your situation, so check with your real estate agent.

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