A First-Time Homebuyer's Guide, Start To Finish - The Strategic First-Time Homebuyer Book - Chapter 2 How Much Cash Do I Need?

April 28, 2026

r/NewbHomebuyer

......This is chapter 2, just scroll down a little beyond the intro and you'll pick up where you left off......

Hey guys, I spent a lot of time writing this book, and I had this subreddit in mind as I was writing it, so I thought I would post it here for you for free. If you want the physical book you can always go on Amazon, but here's my gift to you 😄

I'll include links so you can jump between chapters easily.

I hope you find it helpful.

The Strategic First-Time Homebuyer

Start to finish, with strategies to get approved and save thousands in interest, costs, and the down payment.

Introduction 1

Chapter 1 How Much Can I Afford? 3

Chapter 2 How Much Cash Do I Need? 16

Chapter 3 How To Find The Down Payment 30

Chapter 4 Your Debt To Income Ratio 41

Chapter 5 Choose Your Lender 69

Chapter 6 You’ve Been Denied (Your Credit) 80

Chapter 7 Selecting a Real Estate Agent 90

Chapter 8 Shopping For a House108

Chapter 9 Under Contract: Inspections and Appraisals 121

Chapter 10 Under Contract: Rate Lock and Underwriting 129

Chapter 11 How To Lower Your Rate 144

Chapter 12 Closing 163

Chapter 13 Post Closing 171

About the Author 190

Glossary 191

Chapter 2

I’ll cover two parts to this. There is the down payment, and there are closing costs. I’ll get very granular on closing costs, but first I want to cover the minimum amount needed for a down payment.

Conventional Mortgage Minimum Down

If you’re doing a conventional mortgage, here are some options:

● 3% minimum for first-time homebuyers

● 3% minimum for repeat buyers if income falls below 80% AMI (I’ll explain what this means)

● 5% for repeat buyers with income above 80% AMI

● 20%+ to avoid paying monthly mortgage insurance

What is AMI?

AMI means Area Median Income. This is usually broken into counties, measured by Fannie Mae, and can be found using this tool here: ami-lookup-tool.fanniemae.com

This tool even points out 80%, which they call the HomeReady Income Limit.

HomeReady mortgages only need a 3% down payment. Repeat buyers can take advantage of this if their income is at or below this limit.

FHA Minimum Down

If you’re considering an FHA mortgage, your minimum down payment will depend on your credit score.

● 580+ credit = 3.5% minimum down payment

● 500 to 579 credit = 10% minimum down payment

USDA and VA

If you’re eligible for a VA loan, or buying in a rural area that could qualify for a USDA mortgage, then you will not be required to pay a down payment.

Real Example

If you’re buying a home for $300,000 and would like to stick with 3% down, then take $300,000 × 3% = $9,000 for a down payment.

Closing Costs

Closing costs are tough to estimate. The reason it’s so difficult is because your closing costs can change depending on the day you close, the property you select, or the interest rate you choose.

The property could have high HOA fees and transfer fees, or it could have high property taxes. Your closing costs could increase if you are spending money to get a lower interest rate.

I’ll give a list of typical fees and an estimate or range of what each fee could cost.

Origination Fees

Origination fees are the costs to create the loan. On an official Loan Estimate, these fees will show up on page 2, section A. Here are some examples:

Origination fee or broker fee. This pays the mortgage loan officer or lender, and the fee can range from 1% to 3%. Some lenders will even offer a $0 origination fee.

Underwriting fee. This goes to the person or lender who is in charge of making sure your application checks all of the boxes and complies with conventional guidelines and rules. This can range from $900 to $1,500.

Processing fee. This is a fee for another person to organize and prepare your file for underwriting.

Points. I’m going to take an entire section to explain what “points” means right now.

Points

Points refer to an upfront charge to secure a lower interest rate. Lenders can offer a variety of interest rates. Some rates have a cost, one rate doesn’t have a cost, and other rates may have a credit.

I’ll use this chart as an example to explain it.

Interest Rate	Cost/Credit
6.375%	$1,500 Credit
6.250%	$0 Cost
6.125%	$1,500 Cost

If you select the higher interest rate that comes with a higher monthly payment, the lender will offset your closing costs by providing you with a credit.

If you select a lower interest rate, it may come with a cost that will add to your total upfront closing costs.

If you select a par interest rate, that means you’re going with a rate that doesn’t have a cost or a credit.

Lender Paperwork Fees

These are the fees that a lender might incur while working on your loan, and they’ll either ask for your credit card to pay for them, or they’ll charge you at closing.

These could include things like an appraisal fee, a verification of employment fee, or a flood certificate fee.

● Appraisal fees are charged to ensure the property’s value supports the loan. A typical appraisal fee could cost anywhere from $500–$900.

● Verification of employment fees are charged if your employer uses a third-party verification system. This is typical with larger companies that don’t want their HR employees filling out forms for lenders. A big name here is “The Work Number,” which may charge $150 to verify your employment status.

● Flood certificate. This verifies that the home you’re purchasing is not in a flood zone. It may cost around $8 to obtain.

● MERS fee, which stands for Mortgage Electronic Registration System. This is a filing fee to keep track of your mortgage and who is investing in it. This is around $25.

● Credit report fee. Credit bureaus make their money by charging lenders to access their data. Lenders pass that charge on to the buyer whenever they can. This can be around $100–$200.

Title Insurance Fees

On page two of the official Loan Estimate, in section C, you’ll find these fees.

Title insurance protects you and the lender against unknown claims against the house. This could include things like a builder not paying the plumber or an heir of the property claiming he wasn’t paid his portion.

A plumber might make a claim against the house with a mechanic’s lien, forcing responsibility on the current homeowner.

An heir could make a claim against the house for whatever portion he was entitled to, which would also fall on the homeowner.

The lender cares about this because it wants to protect its ability to receive full repayment.

There’s a lender policy and a homeowner policy.

The lender policy protects the lender’s position. The homeowner’s policy protects the homeowner against claims.

It’s usual for the seller to cover the homeowner’s policy but not the lender’s. The lender will put that cost on you.

Title insurance will vary depending on the state you’re in.

Here’s a calculator for an estimate of Old Republic’s title fees (no affiliation): oldrepublictitle.com/rate-calculator

Here are some title fees you can expect to pay:

● Lender’s title policy: This can vary depending on the loan amount and state. For a $291,000 loan amount in Oklahoma, for example, the lender policy could be around $1,100.

● Settlement fee: This pays the title company to manage the disbursement of funds and recording of your ownership. This could be around $400–$600.

● Endorsement fees: Around $60.

● Recording fees: Around $20.

● Closing protection letter: Around $25.

● Survey fees: Around $600. This ensures that there are no boundary disputes and that the home you're buying matches the property description.

● Attorney fees: Around $200.

Property Taxes, Homeowners Insurance and Prepaid Interest

On page two of your official Loan Estimate, in sections E through H, you’ll find these fees. A majority of these have more to do with homeownership than actually getting a loan.

Example: You’ll have to pay property taxes even if you don’t need a mortgage.

Recording Fees and Transfer Taxes

These are the local fees to record you as the new owner. They can vary by state and area.

Here’s an example of how much they can vary:

● Utah charges $80 in recording fees.

● Florida charges 0.7% of the sales price (which is usually paid by the seller), but will also charge the buyer 0.55% of the loan amount if the buyer needs a mortgage.

Homeowners Insurance

You’ll need to pay the full annual policy up front. But you’ll also need to start saving for next year’s annual policy renewal, so the lender will collect a little bit on top to start your escrow savings account.

Here’s what to expect:

Take your annual bill and divide it by twelve. This gives you the monthly amount.

Take that monthly amount and multiply it by fifteen. The lender will collect twelve months to pay the annual premium immediately, then an additional three months to start your escrow savings account.

Here’s an example:

● $1,200 annual policy

● $100 monthly amount

● $1,500 needed at closing (twelve months plus three)

Property Taxes

Property taxes are due each year. Every state handles the due date a little differently. Some taxes are due at the beginning of the year, and some are due at the end of the year.

Let’s take Utah, for example. Taxes are due in November.

If you buy your home in October, then right around the corner is the property tax bill, and the lender wants to make sure that bill gets paid.

Let’s pretend that the bill is $2,400, so the lender collects $2,400 from you, plus a few more months to start saving for next year.

You’re probably thinking to yourself, “How is that fair? I’ve only owned the property for a month, and I have to pay a year’s worth of taxes?”

You’d be right, but there’s already a solution for that.

The seller will pay a prorated portion of the time they spent in the home. They’ll give you a credit to offset that large tax bill.

After all is said and done, you’ll owe about four months’ worth of taxes.

Find the tax bill, divide it by twelve, then multiply it by four. Expect to pay about that amount at closing.

In the $2,400 example, you’ll spend about $800 in property taxes: $2,400 divided by 12, then multiplied by 4.

Prepaid Interest

You might have a renter’s mindset right now, and I’m about to break it.

As a renter, the idea is, “You pay at the start of the month, then you can live there for that month.”

But as a homeowner, you first accumulate interest, and then you make a payment.

Here’s how it will work.

If you close on your home, say, right in the middle of July, your first payment will not be due until September.

The reason is because you’ll accumulate interest in August, and your September payment will pay for all of that interest.

Accumulate interest, then make a payment.

Then what about those 15 days in July? Are those free?

No… you’ll have to pay for those 15 days. But you won’t pay them on September’s payment. You’ll actually pay them up front.

Prepaid interest covers the remaining days in the month.

If you close on the first day of July, you’ll pay for thirty days of interest, and your first payment will be due in September.

If you close on the last day of July, you’ll only pay for one day of interest, and your first payment will be due in September.

See how that changes things?

Let’s turn that into dollars.

If your loan is $400,000 at a 6% interest rate, then the math looks like this:

$400,000 × 0.06 = $24,000

That’s annual interest.

Divide that by 365 to get the daily interest charge.

$24,000 divided by 365 = $65.75 per day.

15 days of that is $986.25 in prepaid interest.

The earlier in the month you close, the more prepaid interest you’ll pay.

If you aren’t in a rush to move in, you might as well wait until your deadline to close. If your real estate agent asks, “Want to close early?” you can take this into consideration.

If you’re not in a rush, then I wouldn’t push for it, only because you’re going to increase your closing costs by closing early.

But if the peace of mind is worth closing early and getting it over with, then go for it.

Simple strategy: don’t close early if you don’t have to.

Other Fees

There are some fees that don’t have a designated category. These aren’t lender fees, and they aren’t property taxes or homeowners insurance. The most common types of fees that fall into this category are HOA transfer fees and real estate brokerage fees.

A typical amount I see for brokerage fees is around $500.

HOA transfer fees are typically paid by the seller, but there is a chance that, through negotiations, you end up paying for them. Transfer fees can be a percentage of the purchase price or a flat amount, so I can’t give a good estimate here.

Grand Total Cash Example

I’m going to run through an entire example, start to finish, with realistic numbers. This is meant to help you walk through your own closing costs and get an idea of how much cash you should expect to spend.

Here’s the setup:

● State: Utah

● Purchase price: $600,000

● Down payment: $18,000 (3%)

● Interest rate: 6%

● Loan term: 30 years

● Closing date: June 15

● Loan type: Conventional

Loan Estimate Page 2, Section A, Origination Fees:

● Origination fee: $0

● Underwriting fee: $1,200

● Points: $0 (This scenario has a “par” interest rate.)

● Processing fee: $700

Loan Estimate Page 2, Section B, Fees You Cannot Shop For:

● Appraisal fee: $600

● Verification of employment fee: $150

● MERS fee: $25

● Credit report fee: $100

● Flood certificate: $8

Loan Estimate Page 2, Section C, Title Insurance Fees (Services You Can Shop For):

● Lender’s policy: $1,732.00

● Settlement fee: $395.00

● Closing protection letter: $25

● eRecording fee: $60

Loan Estimate Page 2, Section E, Taxes and Other Government Fees:

● Recording fees and other taxes: $80

● Transfer taxes: $0 (Utah doesn’t charge this. Check your state and what’s customary for the seller and buyer to pay.)

● Loan Estimate Page 2, Section F, Prepaids:

● Homeowners insurance premium: $1,440 ($120/month × 12 months)
Prepaid interest: $1,530.72 ($95.67 per day × 16 days)

Loan Estimate Page 2, Section G, Initial Escrow Payment at Closing:

● Homeowners insurance: $360 ($120/month × 3 months)

● Property taxes: $1,040 ($260/month × 4 months)

Loan Estimate Page 2, Section H, Other:

● Real estate broker fee: $500

● HOA transfer or setup fees: $0 (Seller is paying.)

If we add it all up, here’s how it looks:

● Down payment: $18,000

● Closing costs: $9,945.72

● Total: $27,945.72

Note: If you’ve already paid an earnest money deposit, this will count toward your total. If the seller is paying any closing costs, this will also count toward the total.

Example: