What Are the Costs of Buying a Home?

Buying a home can seem daunting for many people. After all, how are we supposed to save up enough money for a home? The reality is that homeownership is achievable for most people as long as we approach the idea with open eyes. Here’s what you need to know to prepare for affording homeownership. 

What Are the Current Home Prices in the U.S.? 

The costs of buying a home can vary based on its price. The average home price can also be very different depending on where in the United States the house is. The home's age, condition, and size can also determine home prices.

Let’s look at the median home prices in various states to give you an idea of current home prices. California and Massachusetts have some of the highest home rates, with California’s being $787,000 and Massachusetts’s being $601,000. Some states with the lowest median home prices include Ohio with a median price of $235,000 and Louisiana with a median price of $243,000. 

What Are the Costs of Buying a House?

The sale price of a house is not the only cost you need to consider. There are many other costs involved, some of which — such as the down payment — can be directly impacted by the home's sale price. When creating your budget, it’s important to consider the big picture and include ongoing costs as well as the upfront costs of your new home. 

Upfront Costs of Buying a House

When buying a house, the upfront costs are probably what you’ll hear about the most. These are the costs you should be prepared to pay before you make an offer on a home. If your offer is accepted, the closing process and the countdown clock to your upfront costs begins.

Down Payment

The down payment on a home is the initial amount you will pay out-of-pocket on your closing date. It is a percentage of the total home sale price — the rest of the home sale price can be rolled into a mortgage.

A common rule of thumb is that you need to be able to spend 20% of the home’s sale price on a down payment. However, that is not entirely accurate. Many lenders will allow you to make a lower down payment if you pay for Private Mortgage Insurance (PMI) which is rolled into your monthly payments. Some mortgage programs may even allow for 0% down payments. 

Closing Costs

Closing costs encompass several fees that must be on the closing date. The closing costs you must pay can depend on your mortgage program and lender. Common closing costs include:

• Appraisal Fee: Average costs range from $600 to $2,000
• Credit Report Fee: Typically less than $50
• Origination Fee: Often between 0.5$ and 1% of the mortgage loan amount
• Home Inspection Fee: Usually at least $300
• Title Search Fee: Typically between $75 and $200
• Title Insurance: Typically between 0.5% and 1% of the home’s purchase price

Earnest Money

Earnest money is the first upfront cost you’ll pay. When you make an offer on a home, you’ll include the amount you are willing to put forth as earnest money. This can also be referred to as a good-faith deposit. When your offer is accepted, the money will be placed into an escrow account and held until the purchase transaction is finalized. You can offer as much or as little as you want in earnest money. In most cases, offering 1% or 2% of your offer price is recommended, though you may want to offer more in competitive markets. 

Reserves

In some cases, a lender might require reserves to approve your mortgage. Reserves are liquid assets that show a lender that you have the resources to make your mortgage payments even if your income is interrupted. Reserves are typically only required if the applicant has a fair credit history or if the home purchased is a second home or investment property. 

Moving Costs

Moving costs are an important factor to consider. You’ll need to think about the actual cost of moving your belongings. This could include hiring a moving truck to transport your belongings alone or hiring a moving service to move them for you. The costs can vary based on how much you have to move and the distance of your move. 

Ongoing Homeowner Costs

The costs of homeownership go beyond the upfront costs of purchasing your home. There are several ongoing costs, especially if this is your first time owning a home. 

Mortgage Payments

Your mortgage payments are monthly payments to pay off your home. They cover the principal and interest in the house. Your monthly mortgage payments depend on your loan amount, loan term, and interest rate. If you have a fixed-rate mortgage, you can expect the mortgage payments to remain the same throughout the loan's lifetime. However, the monthly payments may change if you have a variable or adjustable-rate mortgage. 

Property Taxes

You’ll also need to pay property taxes when you own a property. These taxes vary depending on where you live. The national average is 1.1% of the home’s assessed value, but your property taxes could be higher or lower depending on your region.

HOA, Co-Op or Condo Fees

If your home is part of a homeowners’ association (HOA) or condominium association, you must pay fees for those. These fees go toward property care for the entire association, such as garbage collection or lawn maintenance. There could also be additional costs for projects that benefit the entire community. 

Homeowners Insurance

Homeowners insurance is necessary for any homeowner taking out a mortgage, as lenders will require proof of homeowners insurance. These insurance policies cover your home structure and personal property. Like most insurance plans, you can take out a policy in amounts that reflect the value of your home and personal property. These policies can also cover other expenses, such as your liability if a guest is injured in your home.

Mortgage Insurance

Mortgage insurance — also known as private mortgage insurance (PMI) — protects the mortgage lender if the borrower does not pay their mortgage on time. Some lenders might require borrowers to pay toward mortgage insurance in their monthly mortgage payments to reduce their risk of lending the money. 

Utilities, Maintenance and Repair Costs

One of the main differences between renting and owning your home is the responsibility of maintenance and repair costs. In most cases, if you’re renting a property, maintenance and repair of the appliances or home systems is covered by your rental property. However, when you own a home, you should be prepared to pay for general home maintenance, repairing HVAC systems, and replacing appliances as needed. You will also be responsible for the cost of utilities, including heating, water, electricity and more. Some of these costs may be included in your HOA fee if you are part of an HOA.

Decorating Costs

You will have new spaces to furnish and decorate when you purchase a home. Decorating is not always an essential expense, but you should consider the size and spaces in your new home. Those costs must be considered if you are moving to a larger property or want to redo some of the spaces in your new home. 

Compare Best Mortgage Offers From Benzinga’s Top Lenders

The best way to proceed is to find the right mortgage lender for your needs. Your mortgage lender will be an important partner in your process and choosing the right lender can help you save money in the long run. 

How Much Do I Need to Save Up to Buy a Home?

The amount you need to save up before purchasing a home depends on several factors. A major consideration is the average cost of homes where you are looking to buy a house. Consider the mortgage programs and other programs that you might qualify for. Having reserves to cover your homeownership costs is always a good idea even if your income is disrupted or your lender doesn’t require it. 

Frequently Asked Questions