"How Much Money Do I Need Upfront to Buy a Home, and When Is Each Payment Due?"

Your offer gets accepted on a Thursday evening, and by Friday morning your agent is asking for a check. Nobody at the lender has asked you for a dollar yet, and the closing date is five weeks out. That first check is the earnest money deposit, and it is the first of three times you'll reach for your money between the offer and the keys.

Buying a home takes money three times: the earnest money deposit a few days after your offer is accepted, a few smaller bills during the loan process, and your remaining down payment and closing costs at the end. On my own files, I like that last amount at the closing office about three days before closing, once that office confirms the figure.

I'm Jeff Moran, a mortgage broker in Bluffton, South Carolina, originating since 1996, licensed in fifteen states, NMLS #483943, through C2 Financial Corporation. I'd like to walk you through those three steps in the order they happen, with the amounts I see on my own files and the timing I ask my clients to plan around. The deposit comes back to you at closing as a credit, so you are never paying it on top of everything else, and I'll show you where it lands.

The earnest money deposit comes first

The deposit is the money you put up with your offer to show the seller you are serious. A typical amount depends on the area you are in and the price point you are shopping at. In my experience, one to three percent of the purchase price is pretty standard, and two to three percent is what I see most often.

The market you are in moves that number. If you are writing an offer on a three million dollar home in a competitive area, we are going in at three percent at the very least, to show the seller we mean it. If you are a VA client buying in the meat-and-potatoes part of the market, one percent is probably doable. Your agent will have a feel for what sellers in your area expect, and we can talk through what makes sense for your offer before you write it.

The deadline for delivering the deposit is set by your purchase contract. In most contracts I see, it is written as within three business days of the accepted offer. Please read that line in your own contract with your agent, because the contract names the deadline, the amount and who holds the money. The contract has its own deadlines and the lender has its own, and both of them have to be met. I wrote about how the contract dates and the loan dates line up if you want the longer version.

That is why I want the money ready before we are out looking at homes. If it needs to move from one account to another, we move it before the offer, so you are not scrambling over a weekend to fund a deposit that is due Monday.

The deposit gets held, and the lender asks where it came from

Your deposit is held until closing. Depending on your contract and your state, it usually goes to the closing attorney, a title or escrow company, or a real estate broker's trust account, and your contract says which one.

The lender will want to know where that money came from. Your minimum contribution is the part of the down payment that has to come from your own money. Fannie Mae's guide on the earnest money deposit says that when the deposit counts toward it, the lender "must verify that the funds are from an acceptable source". When the deposit is used to qualify you, Freddie Mac's section on the deposit asks the lender to document that the deposit cleared your account. A copy of the canceled check, the account statement, a written statement from whoever is holding the money, or the wire confirmation will do it.

FHA works the same way. FHA's handbook requires the lender to verify and document the amount and source if the deposit "exceeds 1 percent of the sales price", or if it looks large next to your savings history.

Please keep the record of that deposit leaving your account. We will need a copy of the check or the wire confirmation, and the complete bank statement for the account the deposit came out of, all pages, even if the last page is intentionally left blank. If the money for the deposit came from somewhere other than your own checking or savings, please tell me before you send it, so we can document the source the way the guidelines ask. The paper trail article explains which deposits an underwriter asks about and how to keep the records connected.

The bills you pay while the loan is in process

Between the deposit and the closing table there are a few smaller bills, and they are paid when the work is ordered rather than at closing.

You hire and pay the home inspector yourself, and your inspector will tell you when payment is due. The appraisal and the credit report are ordered by the lender and paid when they are ordered, outside of closing. The closing cost estimate on this site lists them that way. It matters for your planning, because those items come out of pocket along the way rather than at the end.

If you want the full breakdown of what is in a closing cost estimate and what is paid outside of it, the closing costs explainer covers every bucket.

Your final cash to close, and when to have it there

Your down payment and your closing costs get lumped together into one final amount to close, and that is due at the end. The closing office will give you the exact figure, and it comes from the Closing Disclosure. The CFPB's Closing Disclosure explainer walks through how that form separates your closing costs, the items you pay ahead, the initial escrow deposit and the final cash to close. It also shows the section where your deposit is listed as money already paid, separate from the cash you still bring to closing.

So the final number is the rest of your down payment, plus your closing costs and prepaids, minus the deposit you already put up and any seller or lender credit on your file. Prepaids are the items you pay ahead at closing, such as the first year of homeowners insurance and the interest up to the end of the month you close. In this post I'm also counting the starting deposits into your escrow account for property taxes and insurance under that word, and I'll use it that way from here on.

If a seller credit is part of your contract, the seller credit article explains how it can be applied.

On timing, this is how I handle it on my own files. I like to have the money at the closing office three days before we are supposed to close, or before we are aiming to close. That way it is there, it is accounted for, and everything is good to go. I usually don't want it there much earlier than that, because there are moving parts and it is a lot of money to have out of your hands for longer than it needs to be. Three days works because sometimes a file closes earlier than the contract calls for. Two days before works fine. Even the day before is okay. I'd ask you not to wait until the very end. Your closing office's confirmed deadline is the final word. Before you send anything, please verify the wiring instructions by phone with that office, the way the wire safety article lays out.

Four things to plan for with upfront money

You only count the deposit once. It is credited back at closing, so when you are adding up what the purchase will take, the deposit is part of your down payment and closing costs rather than an amount on top of them.

I'd like the deposit money ready before the offer. If it needs to come from a brokerage or retirement account, please tell me, and we can talk that through before we look at homes, so the money is in your checking or savings when the contract deadline arrives. The plan for your down payment and closing cost funds is that conversation.

You'll pay a few bills along the way. The inspection, appraisal and credit report are paid while the loan is in process, so please plan for them separately from your cash to close.

I like the final funds there a few days ahead. Sometimes a file closes earlier than the contract calls for, which is why I like the money at the closing office about three days before, with two days or the day before working too.

An invented example, start to finish

The dollar amounts below are made up to show how it works. They are not a quote, and your figures will come from your own contract, your Loan Estimate and your Closing Disclosure.

Say you are buying a $400,000 home with ten percent down, and your agent suggests a two percent deposit for your market. Your offer is accepted on a Thursday. The contract calls for the deposit within three business days, so it goes to the closing attorney on Monday.

Purchase price                               $400,000
Earnest money deposit (2%), due Monday         $8,000

Over the next two weeks you pay for the inspection, and the lender orders the appraisal and credit report. Those bills are paid along the way and are not part of the closing figure.

About a week before closing, the Closing Disclosure arrives. Your down payment is $40,000 and your closing costs and prepaids come to $11,000, both invented figures.

Down payment (10%)                            $40,000
Closing costs and prepaids                    $11,000
Less: earnest money deposit already paid       $8,000
                                             ─────────
Cash to close                                 $43,000

Closing is set for a Friday. The $43,000 is wired to the closing attorney on Tuesday, after you confirm the amount and the instructions with that office by phone. It is there, accounted for, and the only thing left on Friday is the signing.

Common questions

How much earnest money should I put down on a home?

In my experience, one to three percent of the purchase price is standard, and two to three percent is what I see most often. A competitive, higher-priced market pushes the deposit up, and I'd go in at three percent at the very least on an expensive home with other offers likely. A VA client in a mid-priced market can often offer one percent. Your agent will know what sellers in your area expect, and the deposit is credited back to you at closing.

When is the earnest money deposit due after an offer is accepted?

The deadline is set by your purchase contract. In most contracts I see, it is written as within three business days of the accepted offer. Your contract also names who holds the deposit, usually the closing attorney, a title or escrow company, or a real estate broker's trust account. Please read that section with your agent before you write the offer so the money is ready to go.

Does the earnest money count toward my down payment?

Yes. The deposit is credited to you at closing. Your final cash to close is your down payment plus closing costs and prepaids (the first year of homeowners insurance and the starting tax and insurance deposits), minus the deposit you already paid and any seller or lender credits. The CFPB's Closing Disclosure explainer shows where the form lists your deposit as already paid.

Will the lender ask where my earnest money came from?

Often, yes. Fannie Mae, Freddie Mac and FHA each ask the lender to verify the deposit in certain cases. Fannie asks when it counts toward your minimum contribution, Freddie when it is used to qualify you, and FHA when it exceeds 1 percent of the sales price or looks large next to your savings history. When that applies, the lender documents that it cleared your account and came from an acceptable source. Please keep a copy of the check or wire confirmation, and the complete bank statement for the account the deposit came out of, all pages, even if the last page is intentionally left blank. If the deposit money came from a gift or another account, please tell me before you send it so we can document it properly.

Which costs do I pay before closing, and which are due at closing?

The earnest money deposit is due a few days after your offer is accepted. The appraisal and the credit report are paid when they are ordered, and the home inspection is paid to your inspector, all while the loan is in process. Everything else, meaning the rest of your down payment, your closing costs and your prepaids (the first year of homeowners insurance and the starting tax and insurance deposits), is paid together as your cash to close at the end.

How many days before closing should I wire my cash to close?

I like to have it at the closing office about three days before the closing date. Two days before works, and the day before is fine too. Waiting until closing day itself is the one thing I'd avoid, because a closing can be scheduled earlier than the contract date. Your closing office's confirmed deadline is the final word. Before you send the money, please verify the wiring instructions by phone with that office.

If you'd like to see what the cash to close looks like for your own price range and your own state, you can run your numbers here. If you'd rather talk it through, I'm happy to take the call and walk you through the money in order for the home you have in mind.

Estimates and educational information are not a loan approval or commitment to lend.