How Much Money Do You Need to Buy a House?

The purchase of a home is a significant financial commitment. When looking for a property, it is important to understanding that fees will make up a significant portion of the total costs you will pay. Before committing to a monthly mortgage payment, it is essential to calculate how much it costs to buy a house by factoring in additional expenditures, such as those associated with the closing cost and those associated with insurance and taxes.

Current home prices in the US

According to data from 2024, the national median house price is now $428,700. The median in 2022 was $329,000. Thus this is an increase of 30%. Between 1980 and 2022, the average cost of a home in the United States climbed by 416%. Zillow estimates that the median price of a home in the United States is $354,649, based on data from their Home Value Index. Prices for single-family homes in the United States fell from 384,800 USD in September 2022 to 379,100 USD in October 2022.

Monthly payments on a median-priced home in the United States amount to 30.7% of the borrower's income. According to Zillow, purchasing a property in Hawaii is the most challenging in the country. Mortgages in this state cost an average of 78.3% of monthly take-home pay. According to Zillow, home prices in West Virginia are the lowest in the country, at 60% below the national average. The lowest mortgage payment share of median income in the country is in that state, at 16.5%.

How to estimate the cost of a house

Online mortgage calculators can help you get started. Still, they often use estimates and averages for statistics that can make a major difference in your finances. To estimate the costs of buying a house, you can take the following steps:

1. Specify a price for the purchase. You can conduct some quick math based on the listing price of a house you're interested in and then try to negotiate a lower price during the negotiating process. All figures are based on the home's purchase price.
2. Consider your down payment options. Even though a 20% down payment is standard, some mortgage lenders may allow for a smaller down payment in special cases. Calculate the down payment amount that is feasible for you.
3. Study the current interest rates. At these record-low interest rates, now is a great time to buy a home. However, the mortgage lender, credit score, loan type, and down payment all play a role in determining your actual interest rate.
4. Find the most suitable loan option for your needs. Housing loans come in a wide variety of forms. Although 30-year fixed-rate mortgages are the norm, VA and FHA loans, and adjustable-rate mortgages are also available. When looking for a mortgage, it is important to ask potential lenders about the many lending options available and the interest rates associated with those loans.
5. Determine a rough cost for house insurance. This can range from negligible extra cost to a substantial one, similar to taxes, according to your chosen carrier, residence, and location.
6. Calculate the mortgage payments for the month. When this is the case, using a mortgage calculator online is a safe bet. You can use your personal inputs for things like property tax, insurance, and interest rates in the many straightforward ones available to help you figure out your monthly payments.

The upfront costs

There are a few significant upfront costs that are obligatory for the purchase of a home, but they are paid only once.

Down payments

The down payment is likely to be the most important consideration for the upfront costs of purchasing a home. This is because unless you are getting a loan backed by the United States Department of Agriculture or the United States Department of Veterans Affairs, you must make a down payment on the property. Putting down 20% of the purchase price is not essential, although doing so would allow you to avoid paying mortgage insurance (more on this topic is provided below). According to the National Association of Realtors, the down payment for first-time buyers in 2021 was 7%, while the average down payment for repeat buyers was 17%. Your initial payment on the mortgage could be as little as nothing at all, depending on the financing you choose.

• Conventional Loan: Down payments as low as 3% may be acceptable with conventional financing.
• FHA Loan: Down payments on FHA loans, which are mortgages guaranteed by the Federal Housing Administration, can be as little as 3.5% of the total loan amount.
• VA Loan: Veterans and active-duty military can qualify for 100% financing on a home purchase with a VA loan, which the U.S. Department of Veterans Affairs backs.
• USDA loans: Buyers in rural areas may be able to put no money down when they use USDA loans from the United States Department of Agriculture.

Moving costs of buying a house

The initial costs of buying a home do not end when you sign the contract. Consider the expense of moving from your existing residence to your new residence. Professional movers are more expensive than a do-it-yourself move, but the added convenience may be worthwhile. The average cost of a local move is $2,300. However, the expense of a long-distance transfer beyond 100 miles increases. Long-distance migrations often cost $4,300.

Ongoing costs

There are recurring costs associated with homeownership that should be accounted for when setting a budget. Here are some costs associated with purchasing a property that may influence your final decision.

Closing costs

Lender and third-party fees are referred to as closing costs, and they are paid in full at the closing of a real estate transaction. This is the day the buyer officially acquires property ownership, and the seller hands over the deed. Purchasers often pay the lion's share of these fees. A handful of these costs are normally covered by the seller, including the real estate agent's commission and sometimes even a real estate transfer tax. A typical range for closing fees is 2-5% of the total loan amount. Closing expenses on a $350,000 mortgage might run you between $7,000 and $17,500. The following are examples of closing costs:

• Lender fees (origination fee, application, credit check, and others);
• Share of common expenses, including property taxes, homeowners' insurance, and HOA dues;
• A home inspection or a lender-required pest inspection;
• Appraisal fees;
• Real estate agents' fees;
• Title insurance.

Mortgage payments

As a homeowner, your monthly mortgage payment will very certainly be the recurring cost that is the most significant to you. Your monthly mortgage payment will include the interest and the principal, or the amount you borrowed to purchase the home.

Property taxes

Property taxes are a yearly fee levied by local governments and must be paid for while you are the legal owner of a home. Unlike interest and principal, property tax is typically rolled into the monthly mortgage payment. The annual property tax on a home with a $100,000 assessed value and a 2% tax rate would be $2,000, with an additional $167 applied to each of the 12 monthly mortgage payments during the year. Remember that the assessed value of your home may differ from the price you paid for it. You may have to pay extra in property taxes if the local government decides to assess your home at a higher value because of a rise in home prices.

Homeowners and mortgage insurance

For purchasing a home, there are two different forms of insurance to think about: homeowner's insurance and private mortgage insurance, also known as PMI. It is important to have homeowners' insurance in case your property is damaged by a natural disaster, burglary, or vandalism, as these can all result in costly repairs. Mortgage lenders typically request homeowners' insurance even if it is not mandated by law. Prices vary widely depending on the provider, so shopping around is essential for finding the most affordable alternative.

If you acquire a traditional loan and your down payment is less than 20%, PMI is typically required. Mortgage insurance protects the lender from a loss if you fail to repay the loan and will likely boost your monthly premiums. Urban Institute estimates put annual PMI premiums between 0.58% and 1.86% of the loan amount. Unfortunately, PMI is just temporary. Building equity in your house enables you to cancel private mortgage insurance as you pay down your mortgage.

HOA fees

If you buy a condo or another sort of home in a neighborhood that is managed by a homeowner's association (HOA), it's possible that you'll be forced to pay a monthly cost that is referred to as an HOA fee. This price is known as a homeowners' association fee. The costs associated with HOAs are set by the association, which can result in a wide range of prices. This money is used to pay for the various services that are provided by the association, such as landscaping and maintenance, as well as other amenities, such as a pool or a gym. In addition, homeowners' associations have the ability to levy ad hoc special assessment fees to cover unexpected maintenance costs. When buyers total up the expenditures of purchasing a property, they can forget about these financial commitments, but they soon mount up to a significant sum.

Home maintenance, repairs, and utilities

You might have been responsible for some of the utility costs at the time of your lease. Your landlord may also be paying some of your regular expenses. You, the homeowner, are responsible for paying the entire bill for utilities such as heating, cooling, and lighting. Many first-time homeowners are unprepared for the potentially massive utility bills that can accrue quickly. The costs for heating and cooling your home can be significantly more than that of a comparable apartment because homes tend to be larger. Utilities cost roughly $270 per month for the typical American residence.

Think about impending maintenance and repairs in addition to utility expenses. As the property owner, you are responsible for paying for and performing any necessary upkeep or repairs. For instance, if the water heater breaks or the air conditioner conks out, you'll have to pay to get them fixed. Many homeowners are unprepared for the actual cost of maintenance and repairs. Repair and maintenance costs for a single-family home typically range from 1% to 3% of the property's value annually. If your home is worth $200,000, that might mean an annual savings of $2,000 to $6,000. If your home is older or in need of repairs, you may find that your annual costs become even more.

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