How Much Money Do You Actually Need to Buy a Home? A Guide for Minnesota and North Dakota Buyers

Think you need 20% down to buy a house? Think again.

One of the biggest misconceptions about buying a home is that you need tens of thousands of dollars saved before you can even begin looking. While purchasing a home does require financial preparation, you may need significantly less money upfront than you think.

Whether you're buying your first home in Fergus Falls, exploring properties in Detroit Lakes or Perham, relocating to Alexandria, or searching for a home in the Fargo–Moorhead area, understanding the true costs of homeownership can help you make smarter financial decisions.

At Ryan Hanson Homes, we believe buying a home should begin with understanding your options, not assuming homeownership is out of reach. Let's break down how much money you actually need to buy a home in Minnesota or North Dakota.

How Much Money Do You Need to Buy a House?

The amount of money you need to buy a home depends on your purchase price, mortgage program, closing costs, available assistance, and financial qualifications.

For many buyers, the biggest upfront expenses include:

• Down payment: Depending on the loan program, this could range from 0% to 20% or more.
• Closing costs: Often approximately 2% to 5% of the purchase price, although actual costs vary.
• Earnest money: A deposit submitted with an accepted offer that is generally credited toward your purchase at closing.
• Home inspection: An optional but highly recommended expense that typically occurs before closing.
• Appraisal: Often required by the mortgage lender.
• Moving expenses and reserves: Money for moving, maintenance, unexpected repairs, and other costs after purchasing the home.

The good news? You don't necessarily need to save 20% of the purchase price, and some qualified buyers may be eligible for financing or assistance programs that significantly reduce their upfront cash requirements.

How Much Down Payment Do You Really Need?

Your down payment is the portion of the purchase price you pay upfront rather than finance through your mortgage.

The required amount depends on the mortgage program and your eligibility.

Conventional Loans: As Little as 3% Down

Some conventional mortgage programs allow qualified buyers to purchase a primary residence with as little as 3% down.

For example, on a $250,000 home:

• 3% down payment: $7,500
• 5% down payment: $12,500
• 10% down payment: $25,000
• 20% down payment: $50,000

A 20% down payment is not required for every conventional loan. However, putting less than 20% down typically means paying private mortgage insurance (PMI), which increases your monthly housing expense.

Eligibility for low-down-payment conventional financing depends on factors such as credit, income, property type, occupancy, and specific program requirements.

FHA Loans: As Little as 3.5% Down

Federal Housing Administration (FHA) loans can be an attractive option for buyers who qualify but may have limited savings or less-than-perfect credit.

Qualified borrowers with credit scores of at least 580 may be eligible for a minimum down payment of 3.5%. Borrowers with scores between 500 and 579 generally need at least 10% down, and individual lenders may impose stricter requirements.

On a $250,000 home, a 3.5% down payment equals $8,750.

FHA loans also require mortgage insurance, including an upfront premium and ongoing premiums. These costs should be considered when comparing financing options.

VA Loans: Potentially 0% Down

Eligible veterans, active-duty military members, and certain surviving spouses may qualify for a VA-backed mortgage with no down payment.

VA loans can offer significant benefits, including:

• No down payment for eligible borrowers when the purchase price is supported by the appraisal and lender requirements are met
• No monthly mortgage insurance requirement
• Competitive financing options
• Flexible qualifying guidelines

Some borrowers must pay a VA funding fee, although certain eligible borrowers are exempt.

USDA Loans: Potentially 0% Down

USDA Rural Development loans can provide 100% financing for eligible buyers purchasing qualifying homes in designated rural areas.

This may be especially relevant for buyers considering communities and properties outside larger metropolitan areas throughout west-central Minnesota and eastern North Dakota.

USDA eligibility depends on several factors, including:

• The property's specific location
• Household income limits
• Primary residence occupancy
• Credit and repayment qualifications
• Property eligibility requirements

Important: A property being located in a small town or rural setting does not automatically make it USDA eligible. Buyers should verify the specific address and current program requirements.

USDA guaranteed loans also include upfront and annual guarantee fees.

What Does a Down Payment Look Like at Different Home Prices?

The following examples show how much you would need for different down payment percentages.

These examples illustrate down payments only. They do not include closing costs, prepaid expenses, mortgage insurance, or other homebuying expenses.

The lowest available down payment is not necessarily the best financial choice for every buyer. Your monthly payment, long-term interest costs, and available savings also matter.

What Are Closing Costs When Buying a Home?

Your down payment is only one part of the money you may need at closing.

Closing costs are the fees and expenses associated with finalizing your mortgage and transferring ownership of the property.

They often total approximately 2% to 5% of the home's purchase price, although they can fall outside that range depending on the transaction.

Common closing costs include:

• Loan origination and underwriting fees
• Appraisal fees
• Title examination and title insurance
• Settlement or closing services
• Recording fees
• Prepaid homeowners insurance
• Prepaid mortgage interest
• Initial property tax and insurance escrow deposits
• Applicable government charges and transfer-related fees

Some of these expenses are lender fees, while others are third-party charges or prepaid ownership expenses.

For a $250,000 home, a 2% to 5% planning estimate would equal approximately $5,000 to $12,500.

Your lender's Loan Estimate will provide a more personalized breakdown.

Can the Seller Pay Some of Your Closing Costs?

Yes. In some transactions, buyers can negotiate seller concessions to help cover eligible closing costs.

For example, a seller might agree to contribute $5,000 toward a buyer's allowable closing expenses.

Seller concessions are subject to mortgage program limits, appraisal considerations, and contract terms. They generally cannot be used to fund the buyer's required down payment.

Whether a seller is willing to contribute depends on the property, competing offers, market conditions, and the overall purchase agreement.

This is one reason having an experienced real estate team representing your interests can make a meaningful difference.

Example: Buying a $250,000 Home With 3% Down

Let's look at a hypothetical home purchase in Fergus Falls, Minnesota.

In this example, the buyer could potentially purchase the home with approximately $10,000 in upfront funds, assuming the seller credit is negotiated, permitted by the loan program, and fully applicable to eligible costs.

That is considerably less than the $50,000 down payment someone might assume is required.

However, this example is not a loan quote or guarantee. It excludes certain potential expenses paid before closing, moving costs, and recommended savings reserves. Actual cash requirements will depend on the lender's final figures and the purchase agreement.

Are There First-Time Homebuyer Assistance Programs in Minnesota and North Dakota?

Yes. Depending on your eligibility, state and local homebuyer programs may help reduce the amount of money you need upfront.

Minnesota Homebuyer Assistance Programs

The Minnesota Housing Finance Agency, commonly known as Minnesota Housing, offers mortgage and down payment assistance options through participating lenders.

Programs may provide assistance with eligible down payment and closing costs, subject to requirements such as:

• Income limits
• Purchase price limits
• Credit and mortgage qualifications
• Homebuyer education requirements
• First-time buyer status for certain programs
• Specific loan and assistance program rules

Some assistance is structured as a repayable second mortgage, while other programs may have different repayment or forgiveness provisions.

Buyers looking in Fergus Falls, Detroit Lakes, Perham, Alexandria, and surrounding Minnesota communities should ask a participating lender which programs currently apply to their situation.

Learn more through Minnesota Housing.

North Dakota Homebuyer Assistance Programs

The North Dakota Housing Finance Agency offers homeownership financing and assistance programs for eligible buyers.

Depending on the program, assistance may be available to help with qualifying down payment and closing expenses.

Buyers considering Fargo, West Fargo, Horace, and other North Dakota communities should review current eligibility requirements with an approved lender.

Visit the North Dakota Housing Finance Agency for current program information.

Remember: Down payment assistance is not always free money. Some programs involve loans that must be repaid, including when you sell, refinance, or no longer meet certain occupancy requirements.

Your lender should explain the full terms before you accept assistance.

What About Earnest Money, Inspections, and Other Expenses?

Not every homebuying expense waits until closing day.

Earnest Money

Earnest money is a good-faith deposit that demonstrates your commitment to purchasing a property.

The amount is negotiable and depends on the purchase agreement and local market conditions.

For example, if you provide $2,500 in earnest money on an accepted offer, that amount is generally credited toward your required funds at closing.

It is not normally an additional cost on top of your down payment and closing expenses.

However, earnest money may be at risk if you fail to fulfill the terms of your purchase agreement.

Home Inspection

A professional home inspection can help identify potential problems before you finalize your purchase.

Inspection costs vary based on property size, age, location, and services requested.

Depending on the property, additional inspections or evaluations may be appropriate for:

• Radon
• Sewer lines
• Private wells
• Septic systems
• Structural concerns
• Moisture or water intrusion

For buyers considering lake homes or rural properties in the Minnesota Lakes Area, evaluating private wells, septic systems, shoreline conditions, and other property-specific features may be particularly important.

Appraisal

Most mortgage lenders require an appraisal to help determine whether the property's value supports the loan.

The appraisal fee may be paid before closing or included in closing expenses, depending on the lender and transaction.

An appraisal is different from a home inspection. It is primarily intended to evaluate the property's value for lending purposes, not identify every potential repair or maintenance issue.

How Much Money Should You Have Left After Buying a Home?

One of the smartest financial decisions you can make is to avoid using every dollar of your savings just to close on a property.

Beyond your down payment and closing costs, consider maintaining funds for:

• Unexpected repairs and maintenance
• Moving expenses
• Furniture and appliances
• Utility deposits and setup
• Insurance deductibles
• Seasonal property expenses
• Emergency savings

A common financial planning guideline is to maintain three to six months of essential living expenses in emergency savings, although the appropriate amount depends on your income stability, household needs, and financial obligations.

Lenders may also require additional cash reserves for certain loan programs or property types.

The goal isn't simply to qualify for a mortgage. It's to purchase a home you can comfortably afford to own.

How Much House Can You Afford?

The amount you need upfront is important, but your ongoing monthly payment is equally critical.

Your total monthly housing expense may include:

• Mortgage principal
• Mortgage interest
• Property taxes
• Homeowners insurance
• Mortgage insurance, if applicable
• Homeowners association dues, if applicable

Your lender will also evaluate factors such as your income, existing debt, credit profile, assets, and debt-to-income ratio.

A mortgage preapproval can help you understand the purchase price and loan amount for which you may qualify.

However, the maximum amount a lender approves is not necessarily the amount you should spend.

Think about your other financial goals, lifestyle expenses, and the level of monthly payment that feels sustainable.

Why Local Property Taxes and Insurance Matter

Two homes with the same purchase price can have different monthly ownership costs.

Property taxes vary by location and property characteristics. Homeowners insurance can also differ based on construction, replacement cost, coverage, and risk factors.

For example, a home in Fargo, North Dakota, may have different property tax and insurance considerations than a similarly priced home in Moorhead, Minnesota.

Likewise, a lakefront property near Detroit Lakes or Perham may have different insurance and maintenance considerations than a traditional residential property.

Buyers should compare actual property-specific estimates rather than assuming every $300,000 home will have the same monthly payment.

Can You Buy a Lake Home With a Low Down Payment?

Possibly, but financing a lake home depends heavily on how you intend to use the property.

Primary Residence

If you plan to live in your lake home as your primary residence and the property meets lender requirements, you may qualify for certain low-down-payment mortgage programs.

Second Home or Vacation Property

If you're purchasing a vacation home on Otter Tail Lake, near Detroit Lakes, or elsewhere in the Minnesota Lakes Area, financing requirements may be different.

Conventional second-home financing commonly requires a larger down payment than some primary residence programs. Certain qualified buyers may find options starting around 10% down, but actual requirements vary.

Second homes also generally must meet specific occupancy, property, and underwriting standards.

Investment or Rental Property

If you're purchasing a property primarily to generate rental income, the lender may classify it as an investment property.

Investment property loans often require larger down payments and may have different rates, reserve requirements, and qualification standards.

Important: You cannot simply designate an investment property as a primary residence or second home to obtain more favorable financing. Your intended occupancy must accurately reflect how you plan to use the property.

For Fargo–Moorhead residents considering a Minnesota lake property, discussing your intended use with a lender early in the process can help avoid financing surprises.

Should You Wait Until You Have 20% Saved?

Not necessarily.

Saving 20% can offer meaningful benefits, including a smaller mortgage balance, potentially lower monthly payments, and avoiding PMI on many conventional loans.

However, waiting to save that amount is not automatically the best choice for everyone.

Consider these questions:

1. Can you comfortably afford the total monthly payment?
2. Do you have adequate emergency savings?
3. Are you eligible for a lower-down-payment mortgage?
4. Would buying now or continuing to rent better support your financial goals?
5. Are there assistance programs or seller concessions that could reduce upfront expenses?
6. How long do you realistically expect to own the home?

There is no universal answer.

The best decision depends on your financial readiness, the home you're considering, and the terms of available financing.

Frequently Asked Questions About Buying a Home

Can I buy a house with $5,000 saved?

Potentially. Some eligible buyers may qualify for zero-down-payment financing or assistance programs that reduce their upfront cash requirements.

Whether $5,000 is sufficient depends on the home price, loan program, closing costs, assistance eligibility, and other expenses.

Do first-time homebuyers need 20% down?

No. Some qualified first-time buyers can obtain conventional financing with as little as 3% down, while FHA loans may allow 3.5% down. Eligible VA and USDA borrowers may qualify for zero-down-payment options.

Can I buy a home with no money down?

Some eligible borrowers can purchase a home without making a down payment through VA or USDA financing.

However, zero down payment does not necessarily mean zero cash required to close. Buyers may still need money for closing costs, prepaid expenses, inspections, or other transaction costs.

What credit score do I need to buy a house?

Credit requirements depend on the mortgage program and lender. FHA guidelines may permit qualifying borrowers with scores as low as 500 when making a larger down payment, but individual lenders can apply stricter standards.

Conventional and other mortgage programs have their own eligibility requirements, and credit score is only one part of loan approval.

Is earnest money part of my down payment?

Earnest money is generally credited toward the buyer's required funds at closing. It is not normally an extra fee added to the purchase price.

Can I use gift money for my down payment?

Many mortgage programs allow eligible gift funds from approved sources, subject to documentation and program rules.

Your lender can explain who may provide the gift, whether repayment is prohibited, and what documentation is necessary.

Should I get preapproved before looking at homes?

Yes. Getting preapproved before seriously shopping for a home can help you establish a realistic price range, estimate your upfront costs, and understand financing requirements.

Preapproval is not a final loan commitment, but it is an important early step in the homebuying process.

Ready to Find Out What You Can Actually Afford?

You may be closer to homeownership than you realize.

Whether you're buying your first home in Fergus Falls, moving to the Fargo–Moorhead area, exploring homes in Alexandria, or searching for a property in Detroit Lakes, Perham, or the surrounding Minnesota Lakes Area, understanding your financing options is the first step.

The team at Ryan Hanson Homes can help you understand the local housing market, explore available properties, and navigate the buying process. We can also help connect you with mortgage professionals who can evaluate your financing options and estimated cash requirements.

For mortgage information, you can also explore resources from Envoy Mortgage. Mortgage programs, rates, and eligibility requirements should always be confirmed directly with a licensed mortgage professional.

You don't need to have every answer before you start. You just need to know your next step. Connect with our team and let's find out what buying a home could look like for you.