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When buying a home, it is important to understand all the costs involved. The purchase price that you negotiate when buying a home is the starting point, not the final amount.

Most people immediately think of closing cost when assessing home ownership – which generally makes up about two to five percent of the purchase price. Based on the median sales price of $321,100 for a home in the U.S. in 2017, you might pay between $6,422 and $16,066 in closing costs.

how much does it cost to buy a house

Moving will add, on average, an additional $1,100 to $5,630 to your tab, depending on whether you’re relocating within the same or to another state, according to the U.S. News and World Report.

Typical buyers of existing homes spend around $8,233 on furnishings, appliances and remodeling during the first year after closing, according to the National Association of Home Builders. Buyers of new-construction homes, the group says, spend $10,601 in the first year after purchase.

In other words, buying a median-priced home could cost up to an additional $38,719, after you factor in the costs of closing, moving and furnishing. And there could be more.

Don’t let the extra expenses come as a frustrating surprise. In this article, we break down the most common costs you need to anticipate when buying a home. We’ll highlight which are negotiable, which occur once, and which, as a homeowner, you might face throughout the life of your home.

Down Payment

Depending on the type of loan you get, your down payment could range from zero to 20 percent of the purchase price of your home.

Major financial institutions, like banks and credit unions, offer two types of loans: conventional and government-insured. The loan you choose will have a huge impact on the down payment required.

cost of buying a house woman calculating

Conventional loans are loans where the lender is not insured or backed by the federal government. These loans often have excellent interest rates but require bigger down payments.

Lenders often require borrowers to put a minimum of 10 percent down to qualify for conventional financing, although they may offer better interest rates to buyers who come to the table with 20 percent down.

Government-insured loans include FHA loans, VA loans and USDA loans. With these types of loans, the lender is insured by the federal government. This insurance protects the lender in case the homebuyer defaults, which lenders worry could happen if the buyer has less of their own money invested in the purchase.

Thanks to this federal backing, lenders require a smaller down payment for these types of loans.

      • Federal Housing Administration loans (FHA loans) are available to most qualified borrowers — regardless of income, age or homeownership experience — and require a minimum of 3.5 percent down.
      • Department of Veteran’s Affairs loans (VA loans) are available to military service members, veterans and their families and require zero down.
      • U.S. Department of Agriculture loans (USDA loans) are available to rural homebuyers whose income is no higher than 115 percent of the adjusted area median income, a figure that varies by county. These also require zero down.

Mortgage Insurance

Conventional borrowers who make a down payment of less than 20 percent are typically required to purchase private mortgage insurance (PMI). The cost varies depending on the percentage you’re borrowing (your loan-to-value ratio), but you can expect to pay between $360 to $840 annually for every $100,000 borrowed, according to Freddie Mac.

FHA and USDA borrowers with less than 20 percent down are required to pay a mortgage insurance premium (MIP) for the lifetime of the loan. This cost also varies based on your loan-to-value ratio, but it ranges between 0.25 to 0.60 percent of the loan and is paid annually, according to the Department of Housing and Urban Development.

VA borrowers don’t need to purchase mortgage insurance.

Discount Points

You might choose to pay discount points on either a conventional or government-backed loan. Discount points, also known as upfront points or simply as points, are an upfront fee that borrowers pay to reduce their mortgage interest rate. One point equals one percent of the loan amount, or $1,000 for every $100,000 borrowed.

Why pay more upfront? In some scenarios, the interest you’d save over the life of the loan by paying for discount points exceeds what you’d pay initially. Paying for points could be a wise move if the following is true:

      • You plan on living in the property for a long time or you plan on holding the property as a rental upon move-out, and
      • You’re not interested in paying off your mortgage quickly (e.g., wiping out your 15-year mortgage in only 9 years).

how much does it cost to buy a house appraisal

Closing Costs

In addition to the down payment and any discount points, you’ll also need to pay closing costs when you purchase a home. You may be able to negotiate with the seller to cover some of these fees; we’ll discuss this in detail below. First, here are the expenses you can expect:

      • Loan origination fees: They are a collection of fees that can include underwriting, processing, and application fees. These fees will be broken out on your closing statement. This is generally about one percent of the loan amount, according to Motley Fool.
      • Inspection fees: Home inspectors examine the property and create a full report of any damage or red flags. Many buyers feel more secure getting an inspection, and some lenders require it. This typically costs a few hundred dollars according to Bankrate.com.
      • Appraisal fees: You’ll pay a certified appraiser to determine the value of the home. Most lenders mandate this. This also typically costs a few hundred dollars.
      • Surveying fees: You might need to get a professional surveyor to determine the boundaries of the property. This isn’t required in all cases, but sometimes a lender mandates it.
      • Title search and title insurance:The legal ownership of a home is called the title. You’ll need verification that the seller is the legal owner of the property and insurance in case anyone makes a claim on the property in the future. Who pays can be negotiable.
      • Broker fees: Real estate agents representing the transaction receive a commission on the sale. While this commission is negotiable, the commissions often total five to six percent of the purchase price. Roughly half goes to the seller’s agent (also called the listing agent) and half goes to the buyer’s agent.
      • Home warranty: This is optional, but you may choose to purchase a home warranty, which covers repairs to many of the major components in your home. This cost is often paid at closing.
      • Transfer tax: Your city, county or state may charge a transfer tax, which is a transaction fee on the sale of every property. Either the seller or buyer could be responsible for this payment, depending on location. The rate varies based on location.
      • Prepaid taxes and insurance: As part of getting a loan, you’ll need to pay a pro-rated share of the property taxes and homeowners insurance that covers the timespan between closing and your first mortgage payment.

Collectively, these closing costs typically add two to five percent to the purchase price of your home. The good news? You won’t need cash upfront to cover closing costs. These can get rolled into your mortgage.

Can you avoid any of these closing costs? Maybe.

You could negotiate for the seller to cover some or all of the closing costs. When you make an offer on the home, you could include a condition such as “seller pays closing” or “seller pays three percent of the purchase price towards closing.” It’s up to the seller to decide whether to accept that, counter it or decline it.

However, a negotiation is a give-and-take. If you’re in a competitive market and the seller receives multiple offers, asking the seller to cover closing costs might result in losing the bid. And it’s possible for the seller to demand a higher sales price in exchange for agreeing to cover the closing costs.

Then again, there are many factors that play into a negotiation: the offer price, the closing costs, the contingencies (such as a home-sale contingency or a financing contingency), the length of time until closing, and more. If you’d like to successfully negotiate for the seller to cover closing costs, it can be helpful to be more flexible in another arena.

One-Time Costs: Moving

Costs don’t stop at the closing table. Buying a home also means you’ll need to cover moving-related costs. These costs could include:

      • Paying for two mortgages simultaneously, if your former home doesn’t sell before you move into your new home – or paying rent and mortgage simultaneously, if you close on your new home before your
        current lease expires.
      • Checking into a hotel or finding a short-term rental if you move out of your previous home before you close on your new home
      • Storing your belongings during that transition period
      • Renting a moving truck
      • Buying boxes and packing equipment, and possibly hiring movers
      • Paying for childcare, elderly care or pet boarding during the move
      • Losing income if you take unpaid time away from work in order to move

One-Time Costs: Furnishings

The costs don’t stop there. You may need new home furnishings, such as a dining table, couches, bookshelves and beds, particularly if your new home is larger than your former residence. You might also need window treatments, such as blinds or curtains.

You may also find that smaller items, such as plates or lamps, were either lost or broken during the move.

cost of buying a home furniture

If the previous owner took the appliances or fixtures, you may need to purchase replacement items, such as a washer and dryer or overhead light fixtures. You may also need to pay professionals to deliver and install these items.

If your new home contains a yard, and you’ve never had one before, you’ll need some tools, like a garden hose and lawnmower. You may also need gutter cleaning tools, ladders and a set of battery-powered devices, such as a cordless drill and an impact driver, which are handy for many household projects.

There’s a silver lining to all these costs, in that many only happen once, and you can delay some of them. You could hold off on buying a dining table if your new kitchen features a breakfast bar. You likely only need one lawnmower, and it should last awhile.

The Cost of Owning

Of course, the cost of buying a home is only the beginning.

Once you’re comfortably settled in your new home, you’ll need to pay for ongoing costs related to homeownership. These include:

      • Utilities Electricity, gas, water, sewer, internet and trash service could add up to a substantial amount. The average homeowner spent $4,633 on utilities and $745 on water and public services in 2016, according to the Bureau of Labor Statistics’ Consumer Expenditure Survey.
      • HOA Many homes are located in areas that collect mandatory Homeowners Association (HOA) dues. These average between $200 and $300 per month for a typical single-family home, according to Realtor.com, although the price varies depending on location, home size, and amenities such as a community pool or gym.
      • Maintenance and Repairs “Maintenance” refers to ordinary, recurring expenses such as lawn mowing, gutter cleaning and carpet cleaning. “Repairs” refer to fixing anything that breaks, such as a leaky toilet. The average homeowner spent $2,289 on maintenance and repairs in 2016, according to the CES.

The recurring costs of homeownership may also rise over time. At a minimum, these costs are likely to keep pace with inflation. Furthermore, you may find yourself spending more money on repairs and maintenance as your home ages and its components wear out over time.

Buying vs. Owning

When people talk about the costs of homeownership, they often focus on the costs of owning a home. These include recurring costs like utilities, repairs, maintenance and HOA dues.

The cost of buying a home, by contrast, consists primarily of one-time expenses, such as mortgage closing costs, moving, furnishings and appliances.

Takeaways

Buying a home is one of the biggest purchases of your life. Consider the costs of both buying and owning a home. Weigh all your options carefully and determine what will work best for you. If you’d like to save money over the long-term, focus on reducing these recurring costs. You could look for an eco-friendly home with a smaller footprint, for example, which will reduce your utilities costs, or you could search for a home located in a neighborhood without HOA dues.

While buying a home is an expensive undertaking, the joy of owning your home is often worth it.

Related guides and blog articles

→ How to buy a house
→ Checklist for first-time home buyers (infographic)
→ How to determine how much home can you afford
→ How to make the most out of home tours