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The Costs Of Buying A House That First-Time Home Buyers Should Prepare For

Sarah Sharkey7-minute read

September 14, 2022

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The costs of buying a house can add up quickly. Although easy to overlook, it’s critical to take the fees and expenses when buying a house into account. We will take a closer look at the expenses and fees that all first-time home buyers should know about.

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How Much Does It Cost To Buy A House?

Whether you’re looking to become a real estate investor or you’re just trying to move out of your parents’ house, when you start shopping for a home, the listed purchase price might seem like the total cost for this major purchase. But unfortunately, the cost of buying a house goes beyond that sticker price.

As a first-time home buyer it’s easy to underestimate the complete cost of buying a place to call home. You’ll need to consider not only upfront costs to finalize your purchase, but also ongoing costs that you’ll face as a homeowner.

Upfront Costs To Buy A House

The upfront costs of buying a house are extensive. Let’s explore the one-time and upfront fees when buying a house that you should prepare for.

Down Payment

As a first-time home buyer, your largest expense will usually be your down payment. This is the first major payment you make toward your home purchase. Your down payment is calculated as a percentage of your new home’s purchase price. For example, if you buy a $200,000 home and you want to put 10% down, you’d bring $20,000 to closing. Your down payment is due when you close on your loan.

Many first-time buyers believe they can’t buy a home unless they put 20% down. This isn’t a requirement – it’s possible to buy a home with as little as 3% down on a conventional loan. Some government-backed mortgages even have 0% down payment requirements. However, there are a few benefits to making a larger down payment:

  • Avoid PMI. If you take out a conventional loan and you put less than 20% down, your lender will require you to pay private mortgage insurance (PMI). It’s added to your monthly payment and protects your lender if you default on your loan. If you have a 20% down payment, you can avoid paying PMI.
  • Secure a lower interest rate. The less money you borrow, the less of a risk you are to your lender. If you have a higher down payment, your lender can offer you a lower interest rate.
  • Qualify for a home loan with a lower credit score. You might still be able to get a mortgage if you have a lower credit score. If you take out an FHA loan and you have at least 3.5% down, you can qualify with a credit score as low as 580 with Rocket Mortgage®.
  • You can lower your monthly payment. Putting more money down lowers what you must pay your lender each month. Taking a little time to save more before you buy can make it easier to handle your mortgage in the coming years.

So, a large down payment isn’t a requirement to buy a home. But it can be helpful and allow you to unlock more mortgage options.

Be prepared to offer a portion of your down payment as earnest money prior to your closing date. Essentially, earnest money proves to the seller that you are serious about the purchase and it will be applied to your down payment or closing costs if the deal is finalized.

Closing Costs

Closing costs are fees you pay to your lender in exchange for originating your loan. Closing costs pay for things like your appraisal, title insurance, origination fee, lender fee and any inspections you must get before you close.

The specific closing costs you’ll need to pay for will depend on where you live, your loan size and the type of loan you take out. But as a general rule, expect to pay around 2% – 6% of your total loan amount in closing costs. This means that if you take out a mortgage loan worth $200,000, you’ll typically pay $4,000 – $12,000 in closing costs.

Like your down payment, your closing costs are due when you close on your loan and take control of your property.

Moving Costs

The upfront costs of buying a home don’t stop when you sign on the dotted line. You’ll also need to consider the cost of moving from your current place to your new home.

On average, the cost to move locally is $2,300. But the costs increase for a long-distance move of over 100 miles. Long-distance moves cost an average of $4,300.

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Ongoing Expenses When Buying A House

Homeownership comes with several ongoing expenses that you’ll need to factor into your budget. Here are some expenses when buying a house that could impact your home choice.

Property Taxes

You don’t pay property taxes when you rent a home or apartment. But you’ll need to plan ahead for taxes as soon as you own real estate.

Property taxes are paid to your local government for things like public schools, roads and fire departments. No matter where you live, you’ll pay some form of property tax. Most counties calculate your tax dues based on a percentage value of your home. If you live in a more expensive property or in an area with higher local tax rates, you’ll pay more.

Your mortgage company might hold your property taxes in an escrow account. An escrow account is a neutral third-party account that holds funds for a future purpose. Many mortgage companies add your property tax to your monthly payment. Then they move those funds to an escrow account until your taxes are due.

This method is beneficial for both you and your lender. You can pay your taxes in small increments throughout the year instead of worrying about a large single payment. Your lender gets the assurance that you won’t get a lien put on your house for failure to pay taxes. If you don’t have an escrow account, you’ll need to anticipate your local taxes yourself and plan ahead for them.

Insurance And HOA Fees

Insurance is another unavoidable cost that comes with homeownership.

As a home buyer, you’ll need to consider the cost of homeowners insurance. This type of insurance protects you against covered losses or damage to your house. For example, let’s say that your homeowners' insurance policy comes with protection against fallen trees. If a tree falls on your house, the insurance company would help pay for the costs of repairing your home.

It’s worth mentioning again that if you have less than 20% down on a conventional home loan, mortgage insurance will be an added expense to your monthly payment. But instead of protecting your home against loss, it protects the lender in case you default on the loan.

You may also need to budget for homeowners association fees. These cover the cost of maintaining common community areas. The amount you’ll pay in HOA fees depends entirely on where you live. HOA fees can be anywhere from a few hundred dollars a year to thousands of dollars a month, depending on your amenities. The average owner of a single-family home pays $200 – $300 a month in HOA fees.

Utilities, Maintenance And Repair Costs

You may have paid a portion of your utilities when you rented a space. Your landlord might also have agreed to take care of a few monthly bills on your behalf. As a homeowner, you’ll need to cover 100% of the cost of heating, cooling and lighting up your home.

Home utility expenses can quickly turn into a much larger bill than most new homeowners expect. Homes are typically bigger than apartments, which means they can cost much more to heat and cool. The average homeowner in America spends about $270 a month on home utilities.

Beyond utility costs, you’ll need to keep upcoming maintenance and repairs in mind. As the homeowner, you are on the hook for all repairs and regular maintenance. For example, you’d have to pay to fix the water heater or HVAC if either stopped working.

Many homeowners underestimate just how much maintenance and repairs can cost. If you own a single-family home, you can expect to pay 1% – 3% of your home’s value in repair and maintenance costs. That can be $2,000 – $6,000 annually if you own a home worth $200,000. You might spend even more each year if your home is older or in need of repairs.

It can be a good idea to start an emergency fund before you think about buying a home. An emergency fund can help you cover costly repairs if an urgent situation arises. Your emergency fund should be separate from your down payment and in a place where you can access it quickly, like in a savings account. Covering repairs quickly can help you avoid long-term damage to your property. For example, if a pipe breaks, you’ll want to have cash on hand to call a plumber immediately.

Decorating Costs To Make Your House A Home

As a homeowner, you have the freedom to decorate and renovate your home to meet your exact specifications.

But depending on the condition and size of your home, this can quickly become an expensive endeavor – for example, you might spend $1,000 or more on a new sofa.

There are a few ways you can reduce your furniture expenses. Try to reuse any furniture you already have to complete your home. When summer rolls around, you can often find furniture and small appliances at garage sales at a fraction of their retail prices. Online sale sites like eBay, LetGo and Craigslist have great deals year-round, as do local thrift or consignment stores. If you’re feeling especially handy, you can also breathe new life into old furniture pieces by DIYing them. For example, some sandpaper and a fresh coat of lacquer can make an old coffee table shine for less than $50.

You may also need to buy appliances for your new home. When you shop for a home, ask the previous owner if the house comes with appliances and which they’re taking along with them. You might be able to get a great deal on large appliances by offering to buy them from the seller when they move out and you can include that language in your agreement.

The Bottom Line

The costs to buy a house add up. But with a little bit of planning, you can be prepared to pay for everything that comes along with the list price. That might involve choosing a home with a lower purchase price to make sure that your budget can comfortably support added expenses.

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Sarah Sharkey

Sarah Sharkey is a personal finance writer that enjoys helping readers learn more about their finances. She has an MS in Business Management from the University of Florida. You can connect with her on LinkedIn or Instagram @adventurousadulting.