When you come across a favorable mortgage offer, you may think, “Great! I can afford my dream home.” Even if you are able to, 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 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 of 2023, the median existing-home price in the U.S. was $375,700, according to data from the National Association of Realtors. This is a drop of 0.9 percent increase from the same time a year ago, reflecting a slight cooling of the market — however, it’s about $100,000 more than the median price just three years ago, in March 2020. Meanwhile, the median price of a new (not pre-existing) home surged to $438,200 as of February, according to the U.S. Department of Housing and Urban Development.

Given all this fluctuation, it’s reasonable to wonder whether you should buy a home now or wait. Making that decision will depend on your finances, credit and long-term goals — and also on the prevailing mortgage rates, which currently remain high and reduce your purchasing power.

Complete costs of buying a house

Matt Hester and Ross Hester, father and son co-founders of The Hester Group with 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.

Keep in mind that home prices in your area might be much higher — or lower — than national figures, and the price you’ll pay depends heavily on the type of property you’re looking to buy. Your credit score also matters, as a higher score will qualify you for the best possible mortgage rate. And the size of your down payment plays a large role as well: The more you pay upfront, the less you have to borrow, which means lower monthly payments.

The costs associated with purchasing a home fall into two basic categories:

Upfront costs

  • Down payment
  • Closing costs
  • Reserves
  • Moving

Ongoing costs

  • Mortgage payments
  • Property taxes
  • HOA fees
  • Insurance
  • Maintenance

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

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.

The amount of down payment required will be a percentage of the home’s overall price and depends on what type of mortgage loan you get — different types of loans might require anywhere from 3 to 20 percent down, and if you’re eligible, some require no money down at all.

Closing costs

To close on your home loan and get the keys to the property, you’ll need to pay all the associated closing costs. These can vary by state, but range typically from 2 percent to 5 percent of the loan principal, and can include:

  • Application and credit fees: Many lenders charge nominal fees to initiate a loan application and check your credit.
  • Appraisal: Getting the house professionally appraised is critical to verifying its worth — lenders want to ensure that the amount they offer does not exceed the value of the property.
  • Home inspection: While not required, having a property professionally inspected before a deal goes through is highly recommended. It can uncover minor problems before they become major ones.
  • Origination and underwriting fees: These are essentially the administrative fees that the lender charges for generating and processing the loan; fees usually start at 0.5 percent of loan amount.
  • Title insurance and search fees: Title insurance protects against ownership problems; fees usually start at 0.5 percent of the loan amount. If you’re purchasing anything other than a new-build home, a title search company will consult property records to verify that there are no encumbrances or liens on the property’s title.
  • Transfer tax: Most states charge a transfer tax, covering the cost to transfer the title from the seller to the buyer (the 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. 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 pay upfront but can cost you more in the long run, especially if you intend to stay in the home long-term.


To make sure a homebuyer isn’t completely wiping out their bank account, lenders may require them 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 at least two months’ worth of mortgage payments in reserve.


When working through your budget, don’t forget that, whether you do it yourself or hire professionals, you will incur moving costs. Hiring a pro can cost between $913 and $2,531 according to HomeAdvisor, and expect to pay more for a long-distance move.

Ongoing costs

Mortgage payments

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

Property taxes

Typically, property taxes are 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.


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

Most mortgage lenders will require you to take out a homeowners insurance policy, which protects you against damage from unexpected events such as natural disasters, theft or vandalism. The cost significantly varies, especially in areas at high risk of hurricanes, tornadoes and the like, and there are many options, so it’s smart to compare offers to keep the expense as low as possible.

Private mortgage insurance is generally required for conventional loan borrowers who put less than 20 percent down, to protect the lender if you default on the loan. PMI can considerably increase your mortgage payment, but it isn’t necessarily permanent: As you pay down your mortgage and build equity in your home, it’s possible to 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. 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 might also charge occasional special assessment fees for urgent repairs.


No matter where you live, you’ll need to plan for general home maintenance, upkeep and repairs. Wear-and-tear happens, so it’s important to have extra funds on hand. 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.

Don’t forget that you’ll also need to pay for basic utilities, like 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.

Cost breakdown example

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 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 — 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.

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 don’t forget to keep enough left over to cover routine maintenance and repairs.

Next steps

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 score and compare lenders to get the best mortgage rates possible. Before you get started, find a local real estate agent to guide you through the homebuying process — interview several candidates to find someone who you trust and can work well with. Professional expertise can make all the difference.


  • The income needed to buy a $400,000 house will depend on a few factors, such as the down payment you’ve saved, the term of your mortgage and the loan’s interest rate. Assuming a 20 percent down payment on a 30-year loan with a 6.88 percent interest rate, you’ll likely need to earn at least $105,864 per year to comfortably afford a home of this price.
  • Down payment requirements differ depending on the type of loan you choose. For most people, FHA loans have the lowest minimum down payment at 3.5 percent. Some types, like VA or USDA loans, might have lower or no down payment requirements (if you qualify). To avoid paying private mortgage insurance, you’ll typically have to put at least 20 percent down.
  • The seller is typically responsible for paying the commissions on a real estate transaction. Homebuyers do usually need to pay closing costs, though. However, almost everything is negotiable — you will lay out the details of who pays what in your purchase and sale agreement.