How Much Money Do I Need to Buy a House?

Even before you start looking at real estate, asking yourself how much money you need is a very good place to start in the home-buying process. If you're already aware of down payments and closing costs, you can give yourself a pat on the back, but make sure you plan for all costs and expenses, even the smaller ones that you might forget about.

So, how much money do you need to buy a house? Honestly, it's probably going to be even more than you thought.

But this is no reason to despair. Armed with knowledge of the required costs and a thorough budget, you will be in a good place to start the home-buying process.

Continue reading for detailed information on specific costs involved in buying a house, as well as a handy calculator that can help you see how much money you might need to buy a house.

Down payment

Maybe you’ve heard before that you need to make a 20 percent down payment to buy a home. While this can significantly reduce the size of your loan and cut out the cost of paying mortgage insurance, saving you more money on your monthly mortgage payment, this doesn’t mean that you must pay 20 percent down.

In fact, most people make a down payment of 6 to 12 percent. And, there are mortgage loan options that only require 3 to 5 percent down, or no down payment at all:

FHA loan — insured by the US Federal Housing Administration and intended for low-credit score borrowers with a minimum down payment of 3.5 percent
VA loan — guaranteed by the US Department of Veteran Affairs with a 0 percent down payment
USDA loan — offered to rural property owners by the US Department of Agriculture with a 0 percent down payment

The majority of loans offering low down payments are backed by government entities, but that doesn't mean that you must pay 20 percent down if you choose a conventional mortgage loan. In many cases, you will be able to negotiate your down payment on a conventional loan, but you will likely get a higher interest rate because your loan will be backed by a private lender instead of a government entity or agency.

Dan Green; CEO of Homebuyer

Industry Expert

What size down payment should you make?

Down payment requirements are flexible, and it’s important to stay within your means. Just because you can make a large down payment doesn’t mean that you should. To find a suitable down payment figure, calculate how much money you’ll need for six months of living expenses and set that money aside. Whatever you have left is safe to use for buying a home.

If you would like help in making a down payment, you can look into payment assistance programs. There are 2,000 of these programs available nationwide, and they are generally run by state, county, or city governments. Most down payment assistance can be broken down into two categories: grants or second mortgages.

Determining the best down payment for you depends on your personal finances, but there are some helpful things to consider that can help you in that decision process:

When is it best to make a large (or at least the 20%) down payment?

If you have the means and financial stability, making a larger down payment can significantly cut down your monthly mortgage payments. But, you should consider how much more you will then be paying up front, which may be a large financial hit that could be difficult to recover from.

“It's not always better to make a big down payment. The best down payment is the one that doesn't deplete your savings. Life rarely moves in straight lines. It's important to keep cash for emergencies,” says Green.

When is it best to make a small down payment?

“Small down payments work best when you earn good monthly income and don't have big savings,” adds Green.

Especially for first-time homebuyers, it is wise to make a smaller down payment, as this will provide you with greater cash flow in the future, as opposed to putting a large amount of money down up front and depleting your savings.

Closing costs

While the down payment on a home is a large and important expense, don’t forget about closing costs.

Closing costs cover a myriad of fees involved in processing and finalizing a mortgage, and generally come out to 2 to 5 percent of your loan amount. This may not sound like a lot, but say you buy a $300,000 home, your closing costs would range from $6,000 to $15,000.

Closing costs generally include the following:

Loan application, origination, and underwriting fees
Home inspection and appraisal fees
State recording fees
Property taxes
Homeowners insurance
Private mortgage insurance (PMI)
Escrow fees
Warranty
HOA costs

If you would like to lower your closing cost, since it can be quite a hefty amount of money, there are a few options you could look into, such as grants, or simply asking about discounts and rebates. However, the best thing you can do is plan ahead so that you won't be surprised when it's time to close on your home.

Additional costs/fees

After determining what percent down you will put on your house and how much money you will need to put aside for closing costs, there are just a few more costs to consider:

Moving expenses

Unless you have a lot of charitable friends with trucks and a day to spare, you will likely need to consider what it could cost to hire a moving company and/or rent a moving truck. Especially if you are moving across state or across the country, it is very important to consider how much it will cost you to move.

On average, the cost of hiring professional movers for a local move will range from $300 to $1,500, according to Move Buddha; if you are moving a long distance it could cost you $2,400 to $5,000. If you’re moving across the country, your costs will increase, and there are other important considerations like the cost of shipping a car.

Depending on the distance of your move, be prepared to set aside at least $300 if not more.

Home furnishing and maintenance

If you don’t have many belongings and/or pieces of furniture to move into your new home, consider the cost of home furnishing. This could include couches, a dining room table, rugs, etc. It is also important to set money aside for home maintenance, such as gutter cleaning or yard upkeep.

Be sure to budget for the items you know you will need up front, as this will save you from financial stress down the road.

Jeff Beck, CEO and President of Leaf Home Solutions, expands on these points:

“According to a recent report, lumber costs have surged more than 170% over the past year, which can add nearly $24,000 to the cost of a new home. Materials such as concrete, metal products, appliances, and other expenses are also increasing due to supply chain disruptions caused by COVID-19 shutdowns.

Many first time home buyers, especially in this market, are so motivated to put in the highest potential offer, that they aren’t thinking about maintenance expenses. For example, if gutters are not cleaned within the first six months of owning your new home and water overflows from the gutters, it can fall along the foundation of your home, freeze, and result in cracks. Gutters should be cleaned at least twice a year to prevent damage to your roof and foundation. Certain homes, potentially both new and old, don’t always have proper windows installed to match the weather conditions of the area. Areas susceptible to hurricanes and tornadoes need to consider storm tight windows that properly seal, which as a new owner, you may not notice right away.

The upkeep of maintaining a home through your changing needs is important. Many of our customers invest in their homes by introducing features and amenities that represent convenience and accessibility, such as walk-in tubs and high-quality stair lifts. Our products and installations provide peace of mind to customers that their home is secure for every phase of life.”

How can I save money on my home purchase?

After reading through all the costs involved in buying a home, making some estimated total cost calculations, and likely coming face-to-face with one intimidatingly big number, you might be wondering if there is any way that you could save money on your home purchase.

You might be able to save some money, but the truth is, it really comes down to the mortgage lender you choose.

From our review data, we were able to get an idea of some of the “cost experiences” consumers were having with different mortgage lenders in the industry:

(*Note: “reliable” and “unreliable” costs refer to whether or not costs changed from application to closing)

5% of all reviews mentioned costs — either low or high costs, or getting hit with costs they weren’t aware of when they applied with a mortgage lender.
21% of reviews mentioned NBKC Bank’s low and reliable costs*.
12% of reviews mentioned Quicken Loans’ high and unreliable costs*.

*Taken from a sample of 121 reviews.

If you are looking to keep costs as low as possible, NBKC Bank may be a good choice. Of the more than 400 customer reviews, 95 percent of customers award NBKC Bank 5 stars, highlighting low rates and fees, and a painless process with no surprises. NBKC Bank is an online bank with physical branch locations in the Kansas City area, and it also offers a discount to Costco members.

Read NBKC Bank customer reviews

As a well-known mortgage company, Quicken Loans is a popular choice, but customer reviews are almost an even split between 1 and 5 stars. Many positive reviews highlight good experiences with customer service, but many negative reviews outline very high costs which, in some cases, were tacked on at the end of the loan process, giving customers a rude awakening.

Read Quicken Loans customer reviews