It’s a seemingly simple question, with a complicated answer. We’ll do our best to simplify how much money you’ll need to have saved up in order to buy your first home, but a good place to start is (a) looking at the homes for sale in your area and then (b) checking out this affordability calculator, to see what a down payment and monthly payment might look like.
Now, there’s a lot of tax benefits to owning a home and, overall, buying a home is a great investment. So we’d encourage you to think about what it’ll take to get into a “starter home” that might be a little smaller and less expensive than the dream home you always wanted. And, of course, an affordable home price range for you is based on more than the cash in the bank—it’s based on your income, desired down payment, location, credit score, and any debt payments you have.
But for most people the biggest barrier is the up-front costs. So let’s see what that might be for different price scenarios.
What costs are included in buying a house?
The main costs of buying a house are your down payment, closing costs, prepaid costs, earnest money, savings, moving costs, and ongoing costs of owning a home. But to simplify the answer, we can bundle all these together into the following:
| Costs | $250,000 home | $500,000 home | $750,000 home |
| Minimum down payment (3%) | $7,500 | $15,000 | $22,500 |
| Closing costs (roughly 3% for taxes and fees) | $7,500 | $15,000 | $22,500 |
| Savings and emergency funds (cover 6 months of loan payments) | $15,000 either in cash, or as a 401k withdrawal | $30,000 either in cash, or as a 401k withdrawal | $45,000 either in cash, or as a 401k withdrawal |
| Possible Buyer’s Agent Commission (Historically ~2.5-3% of the home purchase price, but since the NARS settlement this could evolve to be 1%, a flat fee or an hourly rate). | $6,250 (2.5% of the home’s value) | $12,500 (2.5% of the home’s value) | $18,750 (2.5% of the home’s value) |
| Total | $36,250 | $72,500 | $108,750 |
Some closing costs are inherently tied to purchasing a home with a mortgage. Other costs, such as origination fees, are dependent on the lender. These are known as lender controlled costs, the closing costs which your lender can change and manipulate. Tomo Mortgage, unlike other lenders, does not charge any origination fees.
What is a down payment?
A down payment on a house is the upfront cash you put down when you buy a home. The typical first time home buyer puts around 6% of the total purchase price down for their down payment, however you can put as low as 3% down.
Generally repeat buyers make higher down payments, with the average being putting around 17% down. If you put 20% down or more you can avoid fees for things like private mortgage insurance. See our guide on how much you should put down on your down payment.
What are closing costs?
Closing costs are all the expenses needed to seal the deal on your home purchase, beyond the negotiated purchase price of the property. They include fees for paying for the appraisal of the property you are buying, any points you may decide to purchase to buy down your interest rate (see our what are points guide here) and more (click here to see what’s included in closing costs).
Closing costs usually shake out to be around 2-6% of the home price, So, on a $450,000 loan, you’re looking at closing costs ranging from $9,000 to $27,000.
What are escrow payments?
Escrow payments also known as prepaid costs are upfront payments the buyer makes that are put into their escrow account, an account monitored by a neutral third party. The escrow account pays for things like your property taxes and homeowners insurance. If your offer on a home falls through, the balance of your escrow account will be returned to you.
What is earnest money?
Earnest money is a deposit you make when you offer to buy a home. Think of it as a way to show the seller you’re serious about the purchase. This deposit, usually ranging from 1% to 3% of the home’s price, helps make your offer stand out. Yes, earnest money does go towards your down payment. If your offer is accepted, the earnest money you’ve already paid is applied to your down payment or closing costs. For instance, if you’ve put down $5,000 in earnest money and your total down payment is $20,000, you’ll only need to pay the remaining $15,000 at closing.
What savings do I need?
Your lender will expect you to have proof of savings to have faith that after you close on your property, you will be able to consistently pay your mortgage payments. Lenders generally expect several months of your monthly payment on your mortgage in savings. These savings may also be called your cash reserves. You’ll want to ensure you can cover about 6 months of mortgage payments by the time you’re ready to close, if you were to suddenly lose your source of income.
What should I save for moving expenses?
You might be running low on cash, but you will likely need to hire movers or ship things between houses, etc. At the very least you’ll need to buy your best friends some pizza. Usually, moving costs range between several hundred to several thousand dollars depending on how many items you have and how far you are moving them.
What are the ongoing costs of owning a home?
Maintenance costs are a significant expense that many homebuyers often overlook. On average, you should budget between 1% and 4% of your home’s total price per year for maintenance and upkeep. For a $300,000 home, this translates to approximately $3,000 to $12,000 annually. For a $500,000 home, expect to spend between $5,000 and $20,000 each year.
These costs cover a range of needs, including plumbing, landscaping, routine inspections, and repairs. While you might handle minor tasks yourself, more substantial repairs, such as roof work or electrical issues, often require professional help. To stay prepared, it’s wise to set aside 1% to 4% of your home’s value annually, even if you don’t use it immediately. This approach will help you manage maintenance expenses effectively over time.
How much is the average house?
As of July of 2024, the median home price in the United States was around $412,000. The cost of living varies greatly by state and city. For example, in California the median home price is in the $800,000 range, and you can expect homes in San Francisco to be much more expensive than Stockton. In Texas, by comparison, the median home price is in the $300,000 range, and homes in Austin are pricier than El Paso.
Can you buy a house with no money down?
Unfortunately 0% down payment options are pretty tight when it comes to buying a home. If you qualify for a VA loan you can access a 0% down payment (for people who have served in the military or their spouses), and some USDA (Rural Development Guaranteed Housing Loan) loans offer 0% down if you are buying in a rural area.
So while you may not be able to put 0% down if you or your spouse has not served in the military and you are not buying land with agricultural plans in mind, it is worth exploring what down payment assistance programs you may qualify for, based on where you are looking to purchase.
If you’re ready to start your journey to homeownership, get pre approved with Tomo Mortgage today.
