Saving up for a home is one of the biggest financial steps you’ll take, but knowing when to have your funds ready can make all the difference.
You’ve done the hard work of building credit, managing your income, and deciding it’s time to buy a home. At what point in the process are you required to pay the down payment and closing costs?Let’s walk through the homebuying timeline, explain what earnest money is, and help you feel confident about every stage of the process.
Apply for a home loan with GO Mortgage.What is a down payment, and when is it due?
A down payment is the portion of your home’s purchase price that you pay upfront.
It’s a key component of your mortgage and affects everything from your monthly payments to whether you’ll need private mortgage insurance (PMI).
But contrary to what some first-time homebuyers assume, you don’t need to hand over your full down payment the moment your offer is accepted.
Down payment timing
Your full down payment is typically due at closing, which is the final step in the homebuying process. This occurs roughly 30 to 45 days after your offer is accepted and your purchase agreement is signed.
That means you have a short window to gather your funds, finalize your loan, and prepare for closing costs.
If you’re unsure what amount to budget, working with your loan officer early can help you estimate how much you’ll need and ensure those funds are easily accessible from your bank account or investment holdings.
What is earnest money, and how is it different?
When you submit an offer on a home, you’ll likely include earnest money.
This is a smaller deposit that signals to the seller you’re a serious buyer. Think of it as a good-faith gesture that holds your spot while both parties move through the purchase process.
The amount varies but typically falls between 1% to 3% of the home’s purchase price. Earnest money is usually due within a few days of signing the purchase agreement.
Where does earnest money go?
It doesn’t go directly to the seller right away. Instead, it’s held in an escrow account managed by a neutral third party.
At closing, your earnest money is applied toward your total down payment or closing costs.
Can you lose your earnest money?
Yes—if you back out of the purchase for a reason not covered by a contract contingency, the seller may be entitled to keep your earnest money as compensation for taking their home off the market.
That’s why it’s critical to review the contract terms with your real estate agent or attorney.
Breaking down closing costs
Closing costs are the fees and expenses you pay to finalize your home purchase.
These can include:
- Loan origination fees
- Appraisal and inspection fees
- Title insurance
- Attorney fees (where applicable)
- Prepaid property taxes and homeowners’ insurance
- Recording and transfer fees
Typically, closing costs run 2% to 5% of the home’s purchase price. Like your down payment, these costs are due at closing.
Some lenders offer options to roll closing costs into the mortgage loan, though this may increase your monthly payment and the amount of interest paid over time. Discuss these trade-offs with your lender.
How much do you need to save?
The amount you’ll need for a down payment varies based on your loan type.
Here are some common examples:
- Conventional loan: As low as 3% down with PMI
- FHA loan: 3.5% minimum down
- VA loan: 0% down for eligible borrowers
- USDA loan: 0% down in eligible rural areas
- Jumbo loan: Typically 10%-20% down
Even if you’re pursuing a low- or no-down-payment option, you still need to account for earnest money and closing costs. Planning ahead ensures you aren’t caught off guard.
Don’t forget reserves
Lenders may require you to show cash reserves—additional funds left in your account after closing—to demonstrate financial stability.
Two to six months of mortgage payments is a common reserve benchmark.
What if you back out of the deal?
Most purchase contracts include contingencies that allow you to cancel the deal under specific conditions and still get your earnest money back.
Common contingencies include:
- Financing contingency: If you’re unable to secure a mortgage
- Appraisal contingency: If the home appraises for less than the agreed price
- Inspection contingency: If a home inspection reveals major issues
Without a contingency, backing out of the deal could mean forfeiting your earnest money.
Tips to be financially ready
- Start saving early: Even if you’re not planning to buy for a year or more, setting aside funds now gives you flexibility and peace of mind.
- Know your market: In competitive markets, sellers may expect a higher earnest money deposit or faster timelines
- Budget for extras: Beyond down payment and closing costs, you may need funds for moving, repairs, or new furnishings.
- Get pre-approved: This not only strengthens your offer but gives you a clear picture of what you can afford and what funds you’ll need.
- Understand your total cash-to-close: Your lender will provide a Loan Estimate and Closing Disclosure showing all costs due at closing. Review these closely to avoid surprises.
Ready to get started?
Understanding when to pay your down payment and closing costs can reduce stress and help you move through the homebuying process with confidence.
Whether you’re eyeing your first home or planning a move, GO Mortgage is here to guide you every step of the way.
Need help mapping out your next move? Get started with GO Mortgage today.
Want to run the numbers? Try a mortgage calculator to see what your future monthly payments could look like.