When you come across a favorable mortgage offer, you may think, “Great! I can afford my dream home.” You may be able to, but the costs associated with buying a home go beyond the mortgage payment. To determine how much house you can afford, it’s important to factor in additional expenses, such as closing costs, insurance and taxes, before committing to a mortgage.

Current home prices in the U.S.

The price of a property is undoubtedly the biggest and most important cost to consider when you’re shopping for a home. While there will be additional costs associated with your purchase, a home’s price—and how much you can afford—are the first things to consider. As of March 2022, the median existing-home price was $375,300, according to the National Association of Realtors, a 15 percent increase from the same time a year ago. Existing single-family home prices rose to a record high of $382,000, a 15.2 percent hike from last year. Meanwhile, the median price of a new-construction home surged to $377,700, according to the U.S. Department of Housing and Urban Development.

Keep in mind that home prices in your market might be much higher or lower than these national figures, and the price you’ll pay also depends on the type of property you buy.

Complete costs of buying a house

Matt Hester and Ross Hester, father and son co-founders of The Hester Group, Harry Norman Realtors in Atlanta, Georgia, encourage all their clients to prepare for the funds needed to purchase.

“If you do not consider all the costs, your monthly expense budget can be flipped on its head,” Matt Hester says.

The costs associated with purchasing a home fall into two basic categories, upfront and ongoing, and can be broken down as such:

Upfront costs

  • Down payment
  • Closing costs
  • Reserves

Ongoing costs

  • Mortgage payments
  • Property taxes
  • HOA fees
  • Homeowners and mortgage insurance
  • Home maintenance, repairs and utilities

Read on for a deeper dive into each of these specific costs.

The upfront costs

Down payment

The down payment is the part of the home’s purchase price you pay upfront, rather than financing it through a mortgage. If you’re buying a $200,000 home, for example, and put 10 percent down, or $20,000, you’d be getting a mortgage for $180,000.

If you choose a conventional or FHA loan, a down payment is required. The amount of the down payment that’s needed is based on the home’s price and property type, as well as the loan product.

For a conventional loan, exactly how much down payment you need depends on the lender and loan type — you might put down 3 percent, 10 percent, 20 percent or more. With an FHA loan, you could be able to put down as little as 3.5 percent.

It’s important to note that there are loans without a down payment requirement: USDA loans, for borrowers buying in designated markets (generally rural), and VA loans, for eligible service members and veterans.

Closing costs

To close on your home loan and get the keys to the property, you’ll need to pay closing costs, which are all the fees associated with the mortgage. These range typically from 2 percent to 5 percent of the loan principal, and can include:

  • Application fee: Certain lenders charge a fee to initiate a loan application
  • Appraisal fee: Getting the house professionally appraised is critical to verifying it’s worth—lenders want to ensure that the amount of their loan to the borrower does not exceed the value of the property
  • Home inspection fee: While not required, having a property’s systems and overall soundness professionally inspected before a deal goes through is highly recommended and can be worth every penny
  • Credit check fee: Lenders charge a nominal fee to make sure a borrower’s credit is in order
  • Origination and/or underwriting fees: This is essentially the administrative fee that the lender charges for generating and processing the loan; fees usually start at .5 percent of loan amount
  • Title insurance: This protects the lender in the event that there are problems with the borrower’s ownership once the sale goes through; fees usually start at .5 percent of loan amount
  • Title search fee: If you’re purchasing anything other than a new-build home, a title search company will need to consult property records to verify that there are no encumbrances such as liens on the property’s title
  • Transfer tax (if applicable): This is the fee paid to transfer the title from the seller to the buyer (amount varies by location)

“There are a number of standard closing table items for which the actual cost will vary based on the value of the home and also the partners you work with,” Ross Hester says.

If you’re lean on savings, however, many lenders offer a no-closing-cost mortgage option, in which the closing costs are added to your loan principal or otherwise paid for in the form of a higher interest rate. Both save you from having to bring cash to the closing upfront, but can cost you more in the long run, especially if you intend to stay in the home long-term.


To make sure that a borrower isn’t completely wiping out their bank account to complete a real estate transaction, lenders may require borrowers to show that they’ve got additional cash at their disposal. This acts as a form of guarantee that the borrower will be able to make mortgage payments. Typically a borrower is required to have two months’ worth of mortgage payments as reserves.

The ongoing costs

Mortgage payments

Your mortgage payment will almost certainly be your biggest recurring house expense. Start with this monthly number when you’re budgeting for costs and then build around it.

Property taxes

In most places, your city or county government requires you to pay property taxes on your home for as long as you own it. Typically, property tax is included in your monthly mortgage payment, but separate from the interest and principal.

For instance, if you own a home with an assessed value of $100,000, and the tax rate is 2 percent, your annual property tax would be $2,000, paid in $167 increments added to each of your 12 monthly mortgage payments throughout the year.

Keep in mind that the assessed value is not the same as the price you paid for your home. If home values go up in your area, your city or county could assess your home at a higher value, meaning you’ll pay more in property taxes.

Homeowners and mortgage insurance

When buying a home, there are two kinds of insurance to consider: homeowners insurance and private mortgage insurance, or PMI.

Homeowners insurance protects you financially from unexpected events that damage your home, such as natural disaster, theft or vandalism. Though homeowners insurance isn’t required by law, most mortgage lenders require it in some form. The cost significantly varies, and there are many options, so it’s best to compare offers to keep the expense as low as possible.

If you get a conventional loan, PMI is generally required if you put less than 20 percent down. This kind of insurance protects the lender if you default on the loan, and can considerably increase your mortgage payment. According to the Urban Institute, annual PMI premiums range from 0.58 percent to 1.86 percent of the loan amount.

PMI isn’t permanent, however. As you pay down your mortgage and build equity in your home, you can get rid of PMI.

HOA fees

If you’re buying a condo or another kind of home in a community overseen by a homeowners association (HOA), you’ll likely be required to pay a monthly fee, known as an HOA fee. HOA fees are determined by the association, and highly variable. These funds go toward the services the association provides, which may include security, a pool or gym and landscaping and maintenance.

HOAs can also charge occasional special assessment fees for urgent repairs. These financial obligations may be overlooked when buyers tally up the costs of buying a home, but they add up quickly.

Home maintenance, repairs and utilities

No matter where you live, you’ll need to plan for home maintenance and repairs. Wear and tear happens, so it’s important to have extra funds on hand for repairing or replacing appliances and major structures and systems, such as the roof or HVAC.

Many experts recommend budgeting 1 percent of your home’s value for home maintenance each year, as well as maintaining an emergency fund to address urgent, non-budgeted concerns as they crop up.

You’ll also need to pay for utilities, likely including water, sewer, gas and electricity. These costs vary according to location, but the general rule of thumb is the larger the property, the more utilities will cost.

An example of what this all might look like

Let’s say you’ve purchased a new home for $500,000, and you’ve put down 20 percent, or $100,000 as a down payment. That means you’ll have secured a loan for the remaining $400,000.

Before the deal went through, you had to cover the closing costs. Let’s say these netted out at 3 percent of the loan principal, which is roughly average. So you’ll have paid $11,700 in closing costs.

Your monthly mortgage payments will be $2,300, so you’ll likely need $4,600 in your bank account as reserves to secure your loan.

That’s a total of $116,300 for upfront costs.

Purchase price: $500,000<
Down payment 20% of purchase price $100,000
Closing costs 2 to 5 percent of loan amount
application fee $100
appraisal fee $500
home inspection fee $500
credit check fee $100
originator/underwriting fees $3,000
title insurance $3,000
title search fee $500
transfer tax $4,000
Reserves Two months’ mortgage payments $4,600

For ongoing costs, factor in the $2,300 monthly mortgage payment, plus property taxes, homeowners insurance, utilities and any associated HOA fees. And many experts recommend stashing 1 percent of your home’s value each year to cover routine maintenance and repairs.

Bottom line

The costs of buying and owning a home can add up quickly, so it’s important to prepare. You’ll want to save money, improve or maintain your credit and compare lenders to get the best mortgage rates possible.

“When it comes to determining their budget based on their individual situation, lenders, accountants, financial planners are the folks I recommend buyers reach out to,” says Matt Hester.