How Much Does it Cost to Buy a House? 12 Common Home Buying Expenses

Cost of Buying a Home

Although buying a home is an exciting prospect, it’s important to be aware of the costs associated with it. There are a variety of expenses to consider, from the down payment and closing costs to monthly mortgage payments and property taxes. By understanding these costs upfront, you can better plan for your home purchase and avoid any surprises down the road.

The cost of buying a home can vary greatly depending on a number of factors, including the type of home you purchase, the location of the property, and the real estate market conditions at the time of purchase. In addition to the purchase price of the home, there are also a number of other costs associated with buying a property, including closing costs, loan origination fees, and appraisal fees. Here's a closer look at the costs associated with buying a home.

Mortgage Principal Cost

The mortgage payment is the largest monthly expense associated with owning a home. Your mortgage payment is made up of two parts: the principal, which is the amount you borrowed to purchase the property, and interest, which is the cost of borrowing money from the lender. The interest rate on your mortgage will determine how much you pay in interest each month.

Your mortgage payment will also vary depending on the term of your loan. A shorter loan term will result in a higher monthly payment, but you'll pay less interest over the life of the loan. A longer loan term will have a lower monthly payment, but you'll pay more interest over time.

Average Sales Price Monthly in the Seattle Area from 2019–2022

Graph of the Cost of Buying a Home Over Time Based on Active Monthly Listing Inventory

Here's a breakdown of the average sales price per month from 2019 up to 2022. From the past 4 years, 2022 has the highest average sales price, with a peak of $1,111,201 in April, while the lowest average sales price was $671,049 in January 2020.

Check the graph below to see the flow of changes each year.

Graph of the Cost of Buying a Home Over Time Based on Sales Price

Interest on Your Loan

The interest rate on your mortgage will have a big impact on your monthly payment, as well as the total amount of interest you pay over the life of the loan. Interest rates can vary greatly depending on economic conditions, your personal credit history, and the type of loan you choose.

A fixed-rate mortgage has an interest rate that stays the same for the entire term of the loan, while a variable-rate mortgage has an interest rate that can fluctuate over time.

If you're considering a variable-rate mortgage, be sure to ask your lender about the terms of the loan and what could happen if interest rates rise. You may want to consider a fixed-rate mortgage if you're concerned about rising interest rates.

30-Year Fixed Interest Rate from 2019–2022

Table of Interest Rates Over Time

As you can see in the table, we have the data of 30 Year Fixed Rates Monthly for the past 4 years. Interest rates had gone up to the highest point of 6.18% in September 2022. It's a huge difference from the lowest rate of 2.84% in January 2021, and these changes have been affecting the real estate business lately. 

Check the graph below to see the flow of changes each year.

Graph of Interest Rates Over Time

30-Year Fixed Mortgage Principal & Interest Payments from 2019–2022

Graph of the Cost of Home Payments With a 20% Down Payment and Interest Rates

Listed on the table are the 30-year fixed mortgage payments with a 20% down payment from the years 2019 to 2022. We can see how the monthly mortgage rises each year. For the past 4 years, the lowest mortgage was $2,516.75 in January 2020, while the highest was $5,395.58 in September 2022.

Check the graph below to see the flow of changes each year.

Graph of Mortgage Payments Over Time

Current Mortgage Rates

Here you can view an up-to-date graph of current mortgage rates from Mortgage News Daily. The MND Rate Index is an authoritative source for tracking mortgage rate changes in real-time, and this mortgage rate chart covers trends in mortgage rates for 15- and 30-year fixed-rate mortgages, FHA loans, jumbo loans, adjustable-rate mortgages, and VA loans. Click on each type of loan to see its accompanying graph.

Down Payment

The amount you'll need for a down payment depends on the type of loan you choose and the price of the home you're buying. Generally, you'll need a down payment of at least 3% of the purchase price to qualify for a conventional mortgage. If you're buying a high-priced home or an investment property, you may need a larger down payment.

The minimum down payment for an FHA loan is 3.5%. With a VA or USDA loan, you may be able to buy a home with no down payment at all. Talk to your lender about your options if you're not sure how much of a down payment you can afford.

Closing Costs

In addition to your down payment, you'll also need to pay closing costs when you purchase a home. Closing costs are fees charged by the lender and other parties in the real estate transaction. They can include origination fees, points, appraisal fees, and more.

You can typically expect to pay 2% to 5% of the purchase price in closing costs. So, on a $250,000 home, you might pay as much as $12,500 in closing costs.

You may be able to negotiate with the seller to have them pay some or all of your closing costs. And some lenders offer programs that can help you with the cost of closing.

Private Mortgage Insurance (PMI)

If you put less than 20% down on a conventional loan, you'll have to pay private mortgage insurance (PMI). PMI is insurance that protects the lender if you default on your loan, the cost of which varies depending on your credit score, the size of your down payment, and the type of loan you choose.

You can typically expect to pay between 0.58% to 1.86% of the loan amount in PMI each year. So, on a $250,000 loan with a 5% down payment, you might pay as much as $4,557 per year – or $379 per month – in PMI.

The good news is, you can cancel PMI once you reach 20% equity in your home. So, if you make extra payments to pay down your loan balance, you may be able to get rid of PMI sooner than you think.

Homeowner’s Insurance

Homeowner’s insurance is required if you have a mortgage. This type of insurance protects you from damage to your home caused by fires, storms, and other events. It also covers liability if someone is injured on your property.

The cost of homeowners insurance varies depending on the location and value of your home, but you can expect to pay $500 to $1,000 per year on average. Some lenders require you to pay for a full year of insurance at closing, so be sure to factor that into your budget when you're planning your home purchase.

Property Taxes

Your property tax bill is based on the value of your home. The tax rate is set by the municipality or county in which your home is located, and the money collected is used to fund local schools, public safety, and other services.

Property taxes vary widely depending on where you live. In some states, like Hawaii, property taxes are very low. In others, like New Jersey, they're quite high.

You can typically expect to pay 1% to 2% of your home's value in property taxes each year. So, on a $250,000 home, you might pay as much as $5,000 in property taxes annually.

Other Homebuying Costs and Fees

When you're taking out a mortgage to buy a home, there are a few additional costs you'll need to budget for beyond the purchase price of the property itself. These include (but aren't limited to) the following:

  • Loan origination fees
  • Appraisal costs
  • Home inspections
  • Moving costs
  • Utility connection fees
  • Decorating and furnishing costs
  • Any seller-associated costs the buyer chooses to cover to make a more competitive offer

These costs, as well as others, can add up, so it's important to be aware of them when budgeting for your new home.

Speak with an Expert to Start Your Home-Buying Journey

As you can see, there are quite a few costs associated with buying a home. Some of these costs, like the down payment and closing costs, are one-time expenses. Others, like mortgage interest, property taxes, and homeowners insurance, are ongoing costs that you'll pay every month. Be sure to factor all of these costs into your budget when you're considering whether or not you can afford to buy a home.

If you're not sure how much house you can afford, try using our mortgage calculator. This tool will help you figure out how much you can afford to spend on a home based on your income, debts, and other factors.

You may also want to talk to a financial advisor about whether or not buying a home is the right decision for you. A financial advisor can help you understand the potential risks and rewards of homeownership and help you create a plan to reach your financial goals.

For informational purposes only. Always consult with a licensed professional for the most accurate and current information.

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