How Much Money Do I Need to Buy a House?

Buying a home is one of the biggest financial decisions you’ll ever make, and it’s not just about the sale price. From the down payment to closing costs, there are a lot of expenses to consider. So, how much money do you really need to buy a house? Whether you’re buying a house in Seattle or a home in Denver – this Redfin guide will break down every major cost to help you budget effectively and avoid surprises.

How much money do you need to buy a house?

When purchasing a home, you’ll need to budget for more than just the down payment. Here are the key expenses:

• Earnest money deposit
• Down payment
• Closing costs
• Prepaid costs (taxes, insurance, interest)
• Moving costs
• Mortgage payments
• Mortgage insurance (if applicable)
• HOA fees (if applicable)

We’ll use the median U.S. home price—about $420,000—as a benchmark for estimating these costs.

Earnest money deposit

Earnest money is paid after a seller accepts your offer on a house. Buyers pay this amount prior to closing on a home. The purpose of paying the earnest money deposit is to assure the seller that you are acting in good faith as a buyer. The money serves as a form of compensation if you end up backing out of the deal without a valid reason. It typically ranges from 1% to 3% of the home price. For a $420,000 home, expect to pay $4,200 to $12,600. This amount is usually applied toward your down payment or closing costs.

Down payment

Your down payment is a percentage of the home price paid upfront. While some loans allow down payments as low as 3-5%, many buyers aim for 20% to avoid private mortgage insurance (PMI). Based on a 15% median down payment, here’s what that looks like:

• 3% down: $12,600
• 5% down: $21,000
• 10% down: $42,000
• 15% down: $63,000
• 20% down: $84,000 (avoids PMI)

A higher down payment can reduce your monthly mortgage and total interest paid over time.

Closing costs

Costs associated with the purchase and sale of a home like taxes, title insurance, and lender fees, are considered closing costs. Although they can vary based on the loan program, you can typically expect to pay between 2% and 5% of the purchase price as a homebuyer.  For a $420,000 home, you can expect to pay $8,400 to $21,000.

What’s included in closing costs?

• Appraisal
• Inspection
• Earnest money
• Loan origination fee
• Loan processing fee
• Private mortgage insurance (PMI)
• Homeowners insurance
• Title insurance

Prepaid costs

Prepaid costs are upfront payments that homebuyers make to cover expenses in advance. These are paid prior to the actual due date. While some might lump them together with closing costs, prepaid costs are kept in an escrow account that your lender distributes payments from as needed. These include:

• Property taxes: Usually 1-2% of the home price annually, with 2-3 months prepaid at closing.
• Homeowners insurance: Typically costs $1,500-$3,000 per year, with 2-3 months prepaid.
• Mortgage interest: Prorated interest for the remaining days in the month of closing, ensuring your first full mortgage payment aligns with your loan schedule.

Prepaid costs help ensure you stay current on taxes and insurance, preventing late payments or lapses in coverage.

Mortgage interest, homeowners insurance. property taxes, and the initial escrow deposit all fall under the umbrella of prepaid costs.

Monthly mortgage payments

Mortgage payments are made monthly to cover the cost of purchasing a house. The mortgage payment has two components: the principal, which gets paid down over time, and the interest. Homebuyers who make larger down payments end up with lower principal amounts and, in most cases, lower interest rates. A mortgage calculator can help you determine how much you can expect to pay each month. For a $420,000 house with a 20% down payment and 7% interest rate, this comes out to a monthly payment of $2,029.

Mortgage insurance

PMI, or private mortgage insurance, is an expense paid by homebuyers that protects the lender in case you default on your mortgage. If you put less than 20% down on your house, you’ll likely be required to pay this additional cost. On average, PMI costs between 0.5% and 1.5%.

• Estimated PMI on a $336,000 loan (20% down): $1,680 to $5,040 annually

. Factors such as your credit score and the term of the loan can impact exactly how much you’ll end up paying for PMI. PMI is removed once you reach 20% equity in your home.

HOA fees

Some housing developments, especially townhomes and condos, are managed by organizations known as homeowners associations (HOA). The HOA funds repairs, maintenance, and security for the community. These funds are collected through HOA fees, which homeowners pay every month. The amount you pay varies depending on your particular housing development. In most cases, HOA fees usually cost you between $200 and $300 per month. In communities that offer lots of extra amenities, you can expect to pay a higher amount. If you live in a city with a higher cost of living, like San Francisco, you’ll likely have to spend more to fund your HOA.

Moving Costs

Moving costs can vary significantly based on the distance, the size of your home, and whether you hire professionals or opt for a DIY move. Here’s what you can expect:

• Local move (within the same city/state): ~$1,250 on average.
• Long-distance move (out of state or across the country): $2,500-$5,000+, depending on mileage and load size.
• DIY move: Renting a moving truck and handling the move yourself can significantly reduce costs, with truck rentals typically ranging from $100 to $1,500, plus fuel and supplies.

Additional factors such as packing services, moving insurance, and storage fees can also impact total expenses. Careful planning and price comparisons can help keep moving costs manageable.

How much money should I save to buy a house?

As a general rule, it’s recommended that you save at least 25% to 30% of the price of the home you wish to buy. Keep in mind that you have to cover more than just the initial down payment. 

Estimated Savings Needed for a Home at Different Price Points:

FAQs About Homebuying Costs

What other ongoing costs should I consider after buying a home?

Beyond your mortgage, property taxes, and insurance, you’ll also need to budget for maintenance, repairs, utilities, and possibly HOA fees. Experts recommend setting aside 1-3% of your home’s value per year for maintenance expenses.

What is an escrow account, and why do I need one?

An escrow account is a special account held by your lender to cover property taxes and homeowners insurance. A portion of your mortgage payment goes into this account each month, ensuring these bills are paid on time.

Are there any first-time homebuyer programs that can help with costs?

Yes! Many states and cities offer down payment assistance programs, grants, and low-interest loans for first-time homebuyers. FHA, VA, and USDA loans also provide options with lower down payment requirements.

How can I reduce my mortgage interest rate?

You can lower your rate by improving your credit score, making a larger down payment, or buying discount points (paying extra upfront to reduce your interest rate over the loan’s lifetime).

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