How Much Does It Cost To Buy A House? A Complete Guide

Buying a home is a huge milestone. Also, becoming a homeowner requires a large time and financial investment. If you’re thinking about taking the financial plunge of purchasing a home, it’s critical to understand how much it costs to buy a house to make sure you can afford one. Read on to learn about the cost of buying and owning a house and how to prepare your finances accordingly.

Average Cost Of A House In The U.S.

The median sale price of a home in the U.S. in 2023 was $382,600, according to the National Association of Realtors. However, the cost of a house can vary considerably based on its location, size, quality of construction, condition, home features, and type. Also, the real estate market conditions, comparable sales (comps), home interest rates, and the buyer and seller’s motivation can all impact the cost of a house.

The Costs Of Buying A House: At A Glance

Upfront costs, incurred at the time of purchase, involve expenses such as the down payment, closing costs and other fees. Ongoing costs, incurred regularly after purchasing, include monthly mortgage payments, property taxes, homeowners insurance and ongoing maintenance expenditures. It’s critical to consider upfront and ongoing expenses when budgeting for a home.

Upfront Costs When Buying A House

Home buying costs encompass factors beyond the property's purchase price and your down payment.

Down Payment

The down payment is often the biggest upfront cost for many home mortgages. Unfortunately, it can be a major obstacle to homeownership, requiring some people to save for years. Although traditional wisdom may say you need a 20% down payment, this isn’t necessarily true.

You can likely put less than 20% down, depending on the type of mortgage loan, the purchase price of the property, your credit score and employment history.

• Conventional loan: Although it depends on the lender and the loan, the down payment for a conventional loan can be as little as 3%
• Federal Housing Administration (FHA) loan: The minimum down payment for an FHA loan is as little as 3.5% but can vary depending on your credit score.
• U.S. Department of Agriculture (USDA) loan: The typical down payment for a USDA loan is around 0% to 3.5% of the home's purchase price, as USDA loans are designed to assist low to moderate-income buyers. It's important to note that our friends at Rocket Mortgage^® currently do not offer USDA loans.
• Department of Veterans Affairs loan: Government-backed VA loans typically have a 0% down payment and are designed to assist eligible military service members, veterans, and their surviving spouses in accessing homeownership.

Closing Costs

The closing costs for buying a home are fees that you end up paying when purchasing a home.

• Home inspection fee: During a home inspection, an inspector highlights current or potential maintenance issues. It’s an excellent opportunity to better understand the condition of the house and to ask questions about its maintenance. The cost typically ranges from $300 to $500, depending on the home's size and the complexity of the inspection.
• Home appraisal fee: A home appraisal is a professional assessment of a property's value conducted by a licensed appraiser to determine its fair market value. The typical cost of a home appraisal is around $600 – $2,000, although prices may vary depending on factors such as the location, size, and complexity of the property.
• Origination fees: Lenders commonly charge origination fees, which typically range from 0.5% to 1% of the total loan amount and cover the costs associated with processing a mortgage application, including underwriting and administrative expenses.
• Title fees: This expense covers the cost of a title search, title insurance, and associated administrative expenses to ensure the property's ownership is clear and legally sound. Typically ranging from 0.5% to 1% of the home's purchase price, these fees can vary based on the location and the complexity of the property title.
• Underwriting fees: During the underwriting process, the lender assesses your loan application, determining its risk and feasibility. This stage is an opportunity for the lender to address any concerns and seek clarification. Underwriting fees typically range from $500 to $1,000, varying based on the loan amount and complexity of the underwriting process.

Moving Costs

Relocating to a new home can be expensive, especially if it is far from your current location. Moving costs can vary widely, ranging anywhere from $1,700 to $4,800 or more, especially when moving across long distances.

Here are some of the expenses you may need to budget for when relocating:

• A moving truck
• Movers for loading and unloading the truck
• Travel expenses such as gas for the moving truck, meals, and accommodations
• Moving boxes, tape, and packaging supplies
• Storage fees if your belongings need to be placed in storage
• Pet care, such as boarding or transporting a pet

Cash Reserves

Buying a home can come with unexpected expenses. Cash reserves are money that homebuyers set aside, separate from the down payment and closing costs, to cover unforeseen expenses during the home buying process. Having a buffer of savings separate from your down payment can help home buyers feel more secure and able to weather any unexpected expenses.

Ongoing Costs When Buying A House

Homebuyers encounter various ongoing expenses after closing. Understanding these ongoing costs is crucial for prospective buyers to budget effectively and be financially responsible.

Monthly Mortgage Payments

It’s essential to figure out your monthly mortgage payments to determine how much house you can afford. You must make home loan payments if you need to borrow money to buy a house. A mortgage payment typically consists of principal and interest payments. The principal payment goes toward repaying the loan amount, while the interest payment covers the cost of borrowing.

Both the interest and the principle are amortized to be fully repaid over the loan term. When you first repay the loan, most of your payment goes to interest, not the principal. However, this shifts over time, and your loan payments go almost entirely to the principal towards the end of the mortgage term.

Property Taxes

Local governments administer property taxes to fund public services, such as schools and infrastructure. The amount of the taxes is impacted by your assessed property value and the mill rate.

Many homeowners pay their property taxes through an escrow account associated with their mortgage. This makes it easier to gradually allocate money towards the tax bill instead of paying a lump sum.

HOA Or Condo Fees

Understanding whether your new neighborhood or condo complex has an association is important. If it does, you’ll will likely pay monthly or quarterly dues, covering expenses for maintaining communal facilities like common areas, gyms, and pools. Not typically part of the escrow account, the condo or HOA fees are usually paid directly to the association.

Homeowners Insurance

Homeowners insurance is a policy that provides financial protection for a house and its contents against damage or loss from covered perils like fire, theft, and storms. Policies may cover dwelling and personal property, liability and additional living expenses.

Supplemental policies, such as flood and pest insurance, can address specific gaps. Some mortgages require home insurance or an escrow account to ensure coverage, emphasizing the importance of safeguarding the property.

Mortgage Insurance

Mortgage insurance is a policy that protects lenders in case the borrower defaults on their mortgage. Typically required for down payments below 20%, it covers the lender's financial risk. It's crucial to check with lenders if mortgage insurance is necessary. To avoid paying mortgage insurance, aim for a 20% down payment if getting a conventional loan or consider alternative loan options.

Maintenance And Utilities

Homeowners are responsible for maintaining their property and covering utility costs. Unexpected expenses, like a new water heater or HVAC unit, can arise. Building cash reserves is essential to handle such surprises.

Take note during the home inspection of maintenance issues that may require attention in the near future to help with financial planning. It's advisable to save at least 1% of the home's annual value to ensure financial preparedness for ongoing maintenance and unforeseen repairs.

Homeowners will also need to budget for utilities. The cost of utility bills for a home varies based on factors like climate, home size, and energy-efficiency. Contact the local utility providers for the property, or ask the seller for past utility bills to estimate your utility bills.

How Much It Costs To Buy A House: An Example

In this scenario, you're purchasing a $400,000 house with a 30-year fixed-rate mortgage and opting for a 10% down payment. Let’s also say your mortgage interest rate is fixed at 6.5%. The down payment amounts to $40,000. Closing costs, typically ranging from 3% to 6% of the loan amount, so we’ll add an additional $12,000.

Your monthly mortgage payment in this scenario would likely be $2,275. Cash reserves, equivalent to 2 months' worth of mortgage payments, are set at $4,550. This accounts for unexpected expenses.

To find the total upfront cost, add the down payment, closing costs, and cash reserves:

$40,000 + $12,000 + $4,550 = $56,550.

Understanding both upfront and ongoing costs provides a comprehensive view of the financial commitment associated with purchasing a home. It's important to note that this calculation excludes ongoing expenses, including property taxes, homeowners insurance, homeowners association (HOA) or condo fees, utilities and routine home maintenance expenses.

How To Prepare For Fees When Buying A House

It’s critical to carefully plan for buying a home so you can properly budget your money and make smart financial decisions.

Calculate What You Can Afford

Before buying a new home, it's crucial to determine how much house you can afford. Consider your income, existing debt payment, and available savings. A simple guideline known as the percentage-of-income rule or 28% rule can help you budget and estimate home costs, including property taxes and insurance. This rule sates that no more than 28% of your gross income should go towards your mortgage payment.

Another option is to use tools like the Rocket Mortgage home affordability calculator to get a more precise estimate tailored to your financial situation. Understanding what you can afford ensures a smoother and more informed home shopping experience.

Review Your Budget

Before diving into homeownership, thoroughly assess your budget. Consider various ways to budget for a house and choose one that aligns with your financial goals. Lowering your current debt-to-income ratio (DTI) is helpful as it is a key factor in mortgage approval.

Also, factor in future expenses like car repairs, retirement savings, medical bills, or other factors that could change your finances.

Compare Lenders

When exploring mortgage options, take the time to compare lenders. The type of mortgage you choose significantly impacts your upfront costs. Consider interest rates, terms, and fees offered by different lenders. A loan officer can guide you through the approval process, providing valuable insights to help you make an informed decision.

FAQs About How Much It Costs To Buy A House

Let’s examine some of the common questions you may have about buying a new house.

How much money should I have before buying a house?

How much money you should have before buying a house depends on your loan type, interest rates and other unique financial factors. Generally, you’ll need a down payment of 3.5 – 20% of the purchase price, cash reserves to cover about 2 months’ worth of mortgage payments, 3-6% of the purchase price for closing costs, and additional funds for ongoing maintenance.

What’s the minimum down payment necessary to buy a house?

The minimum down payment to buy a house typically ranges from 3% to 20% of the home's purchase price, depending on the loan you choose. Conventional loans often require 5-20%, while FHA loans may accept as little as 3.5%. VA and USDA loans offer zero-down payment options but have eligibility criteria. Assess your financial situation, credit score, down payment savings and loan type to determine the most suitable down payment for your home purchase.

Who pays for closing costs?

Closing costs for a home are usually paid by the buyer, although in some cases, sellers may contribute. Costs include fees for loan processing, appraisal, title insurance and more. Negotiating with the seller or exploring assistance programs can help offset these expenses, but you should budget for these costs during the home buying process if possible.

The Bottom Line

It’s critical to carefully plan for buying a home by saving an adequate amount to cover upfront and ongoing expenses. Also, determine if you qualify for programs that require a smaller down payment on a new house, reducing the savings you will need. Proper preparation helps ensure that homeownership is rewarding and a smart financial decision.

Our friends at Rocket Mortgage can help you get started on the mortgage process. Contact us today to get started.