Prepare for the Costs of Buying and Owning a Home

The down payment is the amount you’ll need to pay upfront when buying a home. You may have heard you need a 20% down payment to buy a home, but you may be able to buy with as little as 3% down.

Explore available down payment assistance programs to see if you qualify for additional support in purchasing your home.

Closing costs are fees ranging from 2% to 5% of the purchase price. Buyers pay closing costs in addition to the down payment at the time of closing. These costs vary by location, home purchase price, and loan terms. Costs can also vary by lender. When you’re ready to buy, requesting loan estimates from different lenders may help reduce your closing costs and ensure you’re getting the best terms for you.

At closing, you can typically anticipate four main categories of costs:

• Lender fees: Also called origination fees, these costs may include origination and application processing fees, as well as any applicable discount points. This category may also include the appraisal fee, which your mortgage lender often requires to determine the property's fair market value.
• Settlement and title fees: These include expenses such as settlement fees, title search fees, title insurance fee, notary fee, courier fees, digital signing fees, document prep fees, and wire-transfer fee. Depending on your state, an attorney fee may also be included.
• Third-party fees: These fees may include homeowners insurance (prepaids and initial escrow payment), inspection fees, and real estate broker commission.
• Taxes and government fees:These may include property taxes (prepaids and initial escrow payment) and recording fees. Depending on your state, you may also see large costs for tax stamps or transfer tax fees.

Buyers demonstrate their commitment to purchasing a home by submitting an earnest money deposit. This money is held temporarily in an escrow account along with their offer.

Earnest money deposits range from 1% to 3% of the home's purchase price. At closing, these funds are typically applied toward either the closing costs or the down payment. It's important to note that if you decide not to buy the home, the terms outlined in your sales contract will determine whether you get back the deposit or not.

When a homebuyer puts down less than 20% for a conventional loan, the lender may request they pay private mortgage insurance (PMI). PMI protects the lender if the buyer stops making loan payments. The expense for PMI can be paid either monthly or upfront at closing. Generally, you can request to have PMI removed from your monthly payments once you have reached 20% equity in your home; that is, once your loan balance reaches 80% of the home's purchase price.

Your monthly payment covers a number of things, including principal, loan interest, and the lender escrow deposit (the funds set aside to pay for property taxes and/or insurance fees), if you have one. The cost structure of your monthly payment is referred to with the acronym PITI:

Your monthly payment might also include the fees paid to a homeowners association (HOA) on your property.

If you are using an escrow account, a portion of the monthly mortgage payment goes into the account. Then, your mortgage company can make property tax and/or insurance payments on your behalf.

From boxes and packing supplies to moving trucks and even new furniture, moving has a lot of costs. It’s important to include these costs in your budget for buying a home if possible.

From electricity and water to heating and Wi-Fi, your home wouldn’t be home without working utilities. Prices vary based on location and your home’s size. Researching prices in your area could help you better prepare for these monthly expenses.

As a homeowner, you'll need to prepare for unexpected expenses, such as repairs to your heating, ventilation, and air conditioning (HVAC) system, or replacing appliances. Saving three to six months' worth of essential expenses in a "rainy day fund” can create a safety net for when these expenses come or situations like a loss of employment or large medical expenses.

Depending on the type of property you buy or the neighborhood you choose, you might encounter homeowner association (HOA) or condo fees. These fees are typical when purchasing a condominium, townhouse, or single-family home within a planned community. These fees can be quarterly, monthly, or annual and contribute toward various expenses such as ground maintenance, upkeep of community facilities, and lawn and garden care. Be sure to research and include these fees in your budgeting when planning for your new home.