When it comes to purchasing a home, it’s not just about the price tag of the house. From down payments to closing costs, there are various expenses to consider. So, how much money do you really need to buy a house? Whether you’re looking to buy a house in Seattle or a home in Denver, this guide from Redfin will outline all the major costs to help you budget effectively and avoid any surprises.
Understanding the Cost of Buying a House
When buying a home, it’s essential to budget for more than just the down payment. Here are the key expenses to consider:
- Earnest money deposit
- Down payment
- Closing costs
- Prepaid costs (taxes, insurance, interest)
- Moving costs
- Mortgage payments
- Mortgage insurance (if applicable)
- HOA fees (if applicable)
We’ll use the median U.S. home price of about $420,000 as a reference point for estimating these costs.
Breaking Down the Costs
Let’s dive into the various costs associated with buying a house:
Earnest Money Deposit
Earnest money is a payment made after a seller accepts your offer on a house. It typically ranges from 1% to 3% of the home price, so for a $420,000 home, expect to pay between $4,200 to $12,600.
Down Payment
Your down payment is a percentage of the home price paid upfront. Higher down payments can lead to lower monthly mortgage payments and less interest paid over time.
Closing Costs
Closing costs include taxes, title insurance, and lender fees, typically ranging from 2% to 5% of the purchase price. For a $420,000 home, expect to pay between $8,400 to $21,000.
Prepaid Costs
Prepaid costs cover expenses like property taxes, homeowners insurance, and mortgage interest. These costs are paid upfront to ensure you stay current on payments.
Monthly Mortgage Payments
Mortgage payments consist of principal and interest, with higher down payments resulting in lower monthly payments. Use a mortgage calculator to estimate your monthly payment based on your specific situation.
Mortgage Insurance
Private mortgage insurance (PMI) is an additional cost for homebuyers who put less than 20% down on a house. PMI can be removed once you reach 20% equity in your home.
HOA Fees
Homeowners association (HOA) fees are common in certain housing developments and cover community maintenance and amenities. These fees typically range from $200 to $300 per month.
Moving Costs
Moving costs can vary based on distance and size of your home. Whether you opt for a local move or a long-distance move, careful planning can help keep costs manageable.
Saving for Your Home Purchase
It’s recommended to save at least 25% to 30% of the price of the home you intend to buy to cover all the upfront costs. Consider not only the down payment but also closing costs and other expenses.
|
Home Price
|
20% Down | Closing Costs (3%) | Total Upfront Cost |
| $300,000 | $60,000 | $9,000 | ~$75,000 |
| $420,000 | $84,000 | $12,600 | ~$105,000 |
| $600,000 | $120,000 | $18,000 | ~$150,000 |
FAQs About Homebuying Costs
What ongoing costs should I consider after buying a home?
In addition to your mortgage, property taxes, and insurance, budget for maintenance, repairs, utilities, and potentially HOA fees. Experts recommend setting aside 1-3% of your home’s value per year for maintenance.
What is an escrow account, and why do I need one?
An escrow account is a special account held by your lender to cover property taxes and homeowners insurance. It ensures these bills are paid on time.
Are there first-time homebuyer programs that can help with costs?
Yes, many states and cities offer down payment assistance programs, grants, and low-interest loans for first-time homebuyers. FHA, VA, and USDA loans also provide options with lower down payment requirements.
How can I reduce my mortgage interest rate?
Improving your credit score, making a larger down payment, or buying discount points can help lower your mortgage interest rate over the loan’s lifetime.