How Much Money Do You Need to Buy a House?
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When you're deciding whether you're financially ready to buy a house, it's important to account for both the upfront costs of homebuying and the expenses you'll need to budget for after closing.
Saving up for initial costs like the down payment is pretty major, but you’ll need to brace your bank account for the bills you'll pay every month — plus unexpected expenses that, as a homeowner, are your responsibility.
If you're thinking about becoming a homeowner, here's a rundown of the costs of buying a house.
How much does a house cost?
According to the National Association of Realtors, the national median price for new homes was $384,800 in September 2022.
But housing prices vary across the U.S., and in some areas, you’re likely to pay more. The Federal Reserve Bank of St. Louis reports these median prices by region, as of September 2022:
Northeast: $747,000.
Midwest: $399,800.
South: $426,100.
West: $569,200.
Unless you’re paying cash, you won’t pay for your new house all at once. However, you’ll need some cash on hand when you close on the sale. Exactly how much is relative to the total purchase price of your home.
One-time costs of buying a house
Down payment
Estimated cost: On average, 6%-7% of purchase price (for first-time buyers)
The down payment always looms large for folks considering buying a home. The good news? Though a 20% down payment would enable you to skip mortgage insurance — more on that below — putting 20% down isn't required. In 2021, the average down payment was 7% for first-time buyers and 17% for repeat buyers, reports the National Association of Realtors.
Depending on the type of home loan, your down payment could be as low as, well, nothing.
Conventional loans can allow for down payments as low as 3%.
FHA loans, which are backed by the Federal Housing Administration, can have down payments as low as 3.5%.
VA loans, which are guaranteed by the U.S. Department of Veterans Affairs, allow service members and veterans to get home loans with 0% down.
USDA loans, from the U.S. Department of Agriculture, let buyers in rural areas pay as little as 0% down.
Down payments can be a bit of a compromise, balancing what you can reasonably save with your desire to buy a home sooner rather than later. If you need a boost in the down payment department, explore local and state assistance programs.
» MORE: Ways to save for a down payment
Closing costs
Estimated cost: 2%-6% of the loan amount
Closing costs are lender and third-party fees paid at the close of a real estate transaction — in other words, they're part of the money you pay the day you sign off on all the paperwork and get the keys to the house. The buyer is responsible for most closing costs. The seller typically pays for a few, such as the commission for the real estate agent and often, a real estate transfer tax.
Closing costs are generally 2% to 6% of the loan amount. For a $350,000 home loan, you could expect to pay $7,000 to $21,000 in closing costs.
Closing costs can include:
Lender fees (origination, application, credit check and so on).
Prorated property taxes, homeowners insurance and homeowners association fees.
Home inspection (optional, but highly recommended) or a lender-required pest inspection.
Real estate attorney fees.
Closing costs for government-backed loans: If you have an FHA loan, your closing costs will include an upfront mortgage insurance payment equal to 1.75% of the total cost of the loan. VA and USDA loans do not require mortgage insurance, but they do have funding fees that are paid at closing. The VA funding fee ranges from 1.4% to 3.6%, depending on the size of your down payment and whether you've bought a home with a VA loan before. USDA loan guarantee fees also vary but are no higher than 3.5%.
When you're preapproved for any type of home loan, you will receive an official Loan Estimate that outlines all of the closing costs. This document will also make clear which costs you can shop around for and which are non-negotiable.
"No closing cost mortgages" exist, but these will cost you more over the life of the loan. Because the closing costs are rolled into the amount of the mortgage, you're borrowing more money — and paying interest on all of it. However, if your closing costs include a big-ticket item like FHA upfront mortgage insurance, a VA funding fee or a USDA loan guarantee, including these costs in the total mortgage amount may be more appealing than saving up that additional amount in advance.
Moving
Estimated cost: Under $2,500 for most local moves; higher for longer distances or heavier loads
Relocating is a cost, too, whether it's across the country or across town. Professional movers cost more than a DIY move, but you might find the convenience to be worth the price.
HomeAdvisor reports that local moving costs (with two professionals and a truck rental) typically range from about $900 to about $2,500. Costs go up from there if you’re traveling a greater distance, such as out of state. Long-distance moves can easily climb beyond $6,000.
You’ll also pay more if you have more stuff to haul or are using additional services such as packing or unpacking, assembling furniture or moving oversized items (like a piano or swingset). Moving costs are higher during times of peak demand, such as summer weekends.
If you're doing it yourself, your out-of-pocket costs will be lower (though your back might not be happy!). But you’ll still have to budget for packing materials, such as boxes and tape.
Example: Upfront costs of buying a $350K house
Based on the estimates above, let’s look at what upfront costs you might have on a $350,000 house.
Item | How much? | Low estimate | Medium estimate | High estimate |
|---|---|---|---|---|
Down payment | Minimum of 3% for some conventional loans; 20% to avoid private mortgage insurance. | $10,500 (3%). | $24,500 (7%). | $70,000 (20%). |
Closing costs | 2% to 6% of loan amount. | $6,510 (2% of $325,500 loan). | $11,392 (3.5% of $325,500 loan). | $19,530 (6% of $325,500 loan). |
Moving expenses | $900 to $2,500 for most local moves; higher for longer distance, more stuff or additional services. | $900. | $2,500. | $6,000. |
Total | $17,910. | $38,392. | $95,530. |
Leave some wiggle room in your budget for trips to the home improvement store — especially if you’re a first-time buyer. Homeowners are responsible for repairs and maintenance, so it’s wise to invest in reliable tools, cleaning supplies and lawn care equipment. You might also want to budget for upgrades to fixtures, appliances or furnishings.
The initial costs of homeownership are just the beginning. Next, let’s estimate some of the routine expenses you can expect after you become a homeowner.
Ongoing homeowner expenses
Mortgage payments
How much it costs: Varies; national median is $1,672 per month
Your mortgage payment will probably be your biggest ongoing expense as a homeowner. Mortgage payments include the principal, or the amount you borrowed to buy the home, as well as interest.
According to the 2021 American Community Survey, the national median mortgage payment is $1,672. However, this varies widely based on the price of your house and the cost of living in your area.
Typically, your mortgage payment amount won't change over time (unless you have an adjustable-rate mortgage or you opt to make a change, like refinancing). However, the mix of how much of the payment goes toward principal versus interest will change over the life of the loan. This is called amortization.
How to save on monthly mortgage payments: Buying a less expensive home is obviously one way to keep your mortgage payments low, but affordable houses are scarce in many markets. Regardless of your home's price tag, you can rein in your monthly mortgage payments by comparing multiple mortgage lenders to get the best interest rate. Though those fractions of a percentage might seem like small differences, they could save you hundreds of dollars per year — and over the life of a loan, that can really add up.
» MORE: Calculate your mortgage payment
Property taxes
How much it costs: Varies; national average is 1.08% of property value
Property taxes are generally due once or twice a year, but property tax laws and policies vary by state and county. You can find local tax information online; that can help you determine whether a town or neighborhood will be in your price range.
In 2020, the national average property tax rate was 1.08% of your property value, reports tax policy research organization the Tax Foundation. New Jersey had the highest state average at 2.21%, and Hawaii had the lowest state average at 0.31%.
Local governments can raise property taxes to cover municipal projects or expenses, so don’t assume yours will hold steady. Increases in the home’s assessed value, whether due to renovations or overall market conditions, can also cause property taxes to rise.
Many homeowners opt to have their mortgage servicers pay property taxes on their behalf, keeping the money in an escrow account. That means if your property taxes increase, your monthly mortgage payment will go up in order to cover the tax bill.
» MORE: Can you deduct property taxes?
Homeowners and hazard insurance
How much it costs: Varies; average is $1,784 per year
Like taxes, these two types of insurance vary by state and region and can also be paid by your lender from an escrow account. According to NerdWallet's analysis, the average cost of homeowners insurance is $1,784 a year. The cost of hazard insurance, which is generally part of homeowners insurance policies, is determined by the risk factors in your area, such as floods and earthquakes.
You can usually keep your costs lower if you bundle homeowners with your auto or life insurance policies.
Mortgage insurance
How much it costs: Up to almost 2% of the loan amount annually
If you make a down payment of less than 20% on a conventional loan, you’ll have to pay private mortgage insurance, also known as PMI. The typical cost of PMI ranges from 0.58% to 1.86% of the original loan amount annually, according to the Urban Institute's Housing Finance Policy Center.
These premiums protect the mortgage lender in the event you default on the loan. PMI payments are generally included in your monthly mortgage payment. Once you have at least 20% home equity, mortgage insurance can be canceled.
FHA mortgage insurance: With an FHA loan, the rules are a bit different. In addition to that one-time fee of 1.75% at closing, you'll make monthly mortgage insurance payments equal to 0.45% to 1.05% of the total loan amount. If you made a down payment that's less than 10%, FHA mortgage insurance lasts for the life of the loan — the only way out is to refinance to a conventional loan or sell the home. If you put down 10% or more on an FHA loan, you'll pay FHA mortgage insurance for 11 years.
VA and USDA loans don't require mortgage insurance, but you will pay a one-time funding fee, as described above.
HOA, co-op or condo fees
How much it costs: Varies; national average is $331 per month
If you’re buying a house in a planned development with a homeowners association, or you’re buying a condo or co-op, you’ll probably have a monthly HOA fee on top of your mortgage payment. That fee pays for shared amenities, such as landscaping or pools, or maintenance and repairs to the building or shared community spaces.
According to the U.S. Census Bureau’s American Community Survey, the national average HOA fee was $331 per month in 2015. Due to inflation, though, today’s average fees are likely to be higher.
In pricey urban areas, HOA fees can rival mortgage payments, so pay close attention to those costs before buying. You should also consider whether the complex is due for a major upgrade, which could lead to a special assessment — an additional bill to cover each homeowner's share of the joint improvement.
» MORE: Buying a condo vs. a house
Utilities and maintenance
How much it costs: Varies, at least $450 per month for the basics
Some monthly bills, like Wi-Fi, won't be any different from renting. However, others might take a bigger bite out of your budget. (Unsurprisingly, heating and cooling an entire house can cost considerably more than keeping a one-bedroom apartment comfortable.)
As a homeowner, your essential utility bills might include:
Gas.
Water and sewer.
Trash and recycling.
Home internet/Wi-Fi.
The Federal Reserve Bank of St. Louis, using Consumer Price Index data from the U.S. Bureau of Labor Statistics, reports that the average monthly cost for electricity, heating and cooling is $311.69 for urban consumers in September 2022. The average water bill will set you back around $83 a month, according to the Environmental Protection Agency.
Trash and recycling costs vary by area: Sometimes you pay privately, other times your city or municipality handles one or both services. Generally, trash pickup bills range from $15 to as high as $100 per month.
Home internet bills typically range from $36 to $58 per month depending on the speed you choose, reports the 2022 Broadband Pricing Index.
You may also want to pay someone else to take care of routine maintenance that might have previously fallen on your landlord, such as snow removal, yard care or HVAC tuneups.
Home emergency fund
How much it costs: Recommend saving 1% of your home’s value each year
You may want to create an emergency fund that's specifically for home-related expenses — think the fridge unexpectedly dying or a plumbing debacle. Having some money set aside for unexpected household expenditures will help keep you from tapping into your last-resort emergency savings or taking on credit card debt.
Consider stowing at least 1% of the home's market value in savings each year as your long-term household maintenance and repair fund.
