12 Costs Of Buying A House To Save For

As a potential home buyer, you’re probably planning for the obvious costs: The sale price and the monthly mortgage payment. But there are several other costs of buying a house you may not be thinking of. If you don’t plan for them, you could strain your finances or discover that you’re not as financially ready to purchase a home as you thought you were.

Before you decide if you should buy a house or wait and save up, it’s important to learn about all the fees associated with buying a house.

What’s The Average Cost Of Buying A House?

The median home sale price in the U.S. was $416,100 in Q2 of 2023, according to the Federal Reserve Bank of St. Louis.

To put this into perspective, think about two main fees – a down payment and closing costs. A 3% down payment (a typical minimum) on this house would cost you $12,483. Closing costs are typically 3% – 6% of the home’s price, which ranges from $12,483 – $24,966 for this house. In total, with a minimum down payment, you’d pay between $24,966 and $37,449 in addition to the price of the home.

You can get a more accurate estimate of home buying costs by finding the median home prices in your specific area. For now, we’ll show you an example of the main fees associated with buying homes at several different prices.

As you can see, these home buying costs will vary greatly, but you can use these ranges to help you decide how much to save for a house.

12 Fees When Buying A House

You can best prepare your finances by understanding each fee you’ll face when buying a house. Factor these costs in when deciding how much home you can afford and how much to save:

1. Down Payment

A down payment is the lump sum of money you contribute upfront toward the sale price of your home. It lowers the amount you need to borrow from your lender.

The minimum down payment needed to get a mortgage depends on the type of home loan you’re taking out. For example, Federal Housing Administration (FHA) loans require a minimum down payment of 3.5%. Conventional loan minimums can range from 3% – 5%, depending on your qualifications. VA loans have a 0% down payment requirement.

2. Closing Costs

Closing costs for a mortgage include all the expenses involved in the purchase of your property. Closing costs are typically 3% – 6% of the home’s total value and are either out-of-pocket expenses or rolled into your loan principal. Out-of-pocket means that you’ll be asked to pay for them upfront rather than through your loan. Many of the following fees are included in a buyer’s closing costs.

3. Appraisal Fee

A home appraisal is often required by lenders to ensure you’re requesting the right amount to finance the home and the amount of risk associated with lending that amount. The fee is paid to a third-party appraisal company, which conducts the appraisal, and usually costs between $600 – $2,000. The amount depends on the size of the home, the home’s location, the availability of appraisers in the area and the time and work required for the appraisal.

4. Credit Report Fee

Mortgage lenders look at your credit score and history to determine whether you qualify for the loan and establish your loan terms. Some lenders will charge a small fee in return for running a credit score report, which is usually around $20 – $30.

5. Home Inspection Fee

A home inspection is an important part of the home buying process. It ensures you’re purchasing a healthy home and making a good investment. A certified inspector will examine the home and let you know if anything inspected needs to be imminently fixed, or if there’s damage. They may also check for pests, lead-based paint or flood damage.

Home inspection costs are typically paid to the inspector on the day of the inspection and you can expect to pay anywhere from $300 – $450.

6. Title Search

A title search involves analyzing property records to make sure there’s no lien on the property or any other discrepancies. The title company typically charges a small fee for looking up the property title in public records. While the cost will depend on the location of the property, you can expect to spend around $75 – $200.

7. Origination Fee

A mortgage origination fee is what the lender charges to process your loan. This includes organizing and completing mortgage documentation and underwriting. This fee typically costs 0.5% – 1% of the loan amount.

8. Earnest Money

Earnest money is a commitment to the home sale. Buyers put money into an escrow account, where it’s held until all parties complete the necessary steps to finalize the sale. Once all conditions are met, the money is released and applied to your down payment or closing costs. Earnest money deposits protect all parties involved in the sale and are typically 1% – 3% of the sale price.

9. HOA Fees

Most condos, apartments and some neighborhoods have a homeowners association (HOA). HOAs help provide services, social activities and amenities to residents in the association. Of course, these things cost money, so residents are charged HOA fees. Most HOA fees are monthly expenses and usually cost between $200 – $500 per month. Depending on the association and when you move in, there may be some fees you pay at closing.

10. Private Mortgage Insurance (PMI)

You may not be required to have a down payment of 20% of the purchase price. But if you can’t put that much down, you’ll potentially be required to pay private mortgage insurance. PMI can equal up to 2% of the loan annually. It protects the mortgage lender if you default on the loan.

PMI is common for first-time home buyers. It stays in effect until the remaining principal balance on the mortgage falls below 80% of the home’s value, at which point you can request cancellation from your lender. After you’ve paid off at least 22% of the home’s value based on the original amortization schedule, your lender should automatically cancel PMI charges.

11. Homeowners Insurance

When getting a mortgage, you’ll likely be required to provide proof of homeowners insurance. Homeowners insurance is important because it protects your investment and saves you money if there’s damage to your home or any assets inside. If the home is damaged or destroyed, this insurance will cover most or all of the costs to restore it.

The cost of homeowners insurance depends greatly on the age and type of home you have and what you want covered. The cost also depends on if your home features any additional risks, like a swimming pool or wood-burning stove. The average cost of homeowners insurance per year is $1,582, but it can fluctuate based on the state you live in.

12. Property Taxes

Your state and county impose property taxes, which go toward local services and amenities, like schools, parks and police and fire departments. Rates vary by area and taxes change every year. Your taxes may go up over time, depending on factors such as road repair, states cutting funding, home value increases or real estate market changes.

To estimate how much you’ll pay in taxes, find your property’s assessed value and your municipality’s millage (mill) rate. Divide the mill rate by 1,000, then multiply that number by your home’s assessed value.

For example, say your home’s assessed value is $250,000 and the mill rate is 6. This is how you’d get an estimate of what you’d pay:

6/1,000 = $0.006

$250,000 ✕ $0.006 = $1,500

Your property taxes would be about $1,500.

FAQs About All Fees Associated With Buying A House

Now, let’s answer some common questions home buyers have about all the fees associated with buying a house.

What is a good budget for buying a house?

Using the chart from our example above, you’d need at least $12,000 saved up to cover a down payment and closing costs on a $200,000 home. You may choose to commit to a bigger down payment to avoid paying private mortgage insurance, which could increase your budget. You should also save for unexpected costs like urgent home repairs, moving or temporary housing.

How much is a down payment on a $200,000 house?

For a 3.5% down payment on a $200,000 FHA loan, you’d need $7,000 to meet the minimum requirements. For a conventional loan, you might put anywhere from 3% – 20% down – which would equal a down payment between $6,000 – $40,000.

Do buyers pay real estate agent commissions?

Buyers aren’t typically responsible for paying agent commissions – the seller is. This 5% – 6% is typically taken from the seller’s home sale proceeds.

The Bottom Line: Plan For All Home Buying Costs

Your down payment and your mortgage payment are big expenses to consider when buying a home. However, there are several other fees that, when added up, can also require a big chunk of change. The best way to prepare for these home buying costs is to learn what they are and their average costs.

Once you’ve decided you’re prepared to pay the costs associated with buying a home, start the approval process with Rocket Mortgage^®.