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How much money will you need to buy a home? The answer depends. If you have good credit and solid employment, you can buy a home with absolutely nothing out of your pocket. Should you do this? Probably not if you have some money to put down on the home.
The reason that I say this is because the more money you put down, the better the interest rate that you're going to get. This is due to the fact that the higher the LTV (Loan To Value) the riskier the loan. If we've lent you 100% of the value of the home and you don't make the payments, by the time we have foreclosed on the home and sold it, chances are that we are going to lose money on that transaction.
The lender can require you to buy an insurance policy called PMI (Private Mortgage Insurance) if you put less than 20% of the purchase price down. This insurance can be fairly expensive, especially if you have some derogatory credit.
Another option if you want to avoid PMI is to borrower the money in two loans. A "first deed of trust" for 75% or 80% of the purchase price and 20% or 25% in the form of a "second deed of trust". The interest rate on the second is going to be higher than the first, but the two payments combined will be less than the cost of doing one mortgage and paying a PMI payment.
No matter which choice you go with you can generally negotiate the closing costs to be paid for by the seller. You have to remember that the seller is going to be concerned with where they net out at and if you ask them to pay for your closing costs and/or pre-paids, this is the same thing as asking them to reduce their price. It's a seller's concession.
If you have the money to put 20% down, then you avoid the whole PMI thing and sometimes you'll get a better rate due to the fact that the loan will only be an 80% LTV. Putting additional money into the transaction above and beyond the 20% down payment level doesn't really benefit you except in the fact that your payment will be lower the more money that you put down.
As discussed elsewhere on this site, there is an argument to be made for not locking your money up into equity in your property due to the fact that you will miss out on tax advantages, investment opportunities and you could possibly be putting yourself into a position where you might find yourself in a liquidity crunch if you ever need to get your money back out of the house.
So, to answer the original question, you can buy a home with very little out of your pocket as long as you have at least half way decent credit. The worse your credit is, the more that you'll need to put down in order to make the lender feel secure that you're not going to default on the mortgage. The more that you put down the better the interest rate you will get up to a point. The magic down payment levels are 3%, 5%, 10% and 20%.
Your closing costs can be paid for by the seller, but if they do, that is the same thing as a seller's concession and should be factored in when making your offer.
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