Buying your first home is an exciting milestone, but it also comes with many questions—starting with, “How much money do I actually need?” Between down payments, closing costs, and ongoing expenses, the total cost of homeownership often adds up to more than the home’s sticker price.
Whether you’re just starting your savings plan or actively house hunting, this guide will help you break down the costs, prepare your finances, and move closer to turning your dream of homeownership into reality.
Understanding the Costs Involved
When buying a house, the upfront costs go far beyond the listing price. It’s essential to know these additional expenses and budget accordingly to avoid unpleasant surprises. Here’s what you should expect:
Down Payment
This is the portion of the home’s purchase price you pay upfront when buying a house. Typically, a down payment ranges from 3% to 20% of the purchase price. For example:
- On a $800,000 home, a 10% down payment equals $80,000.
- On a $1,000,000 home, a 20% down payment equals $200,000.
However, if 20% feels out of reach, don’t worry. Many first-time homebuyers qualify for loans with much smaller down payments. FHA loans allow for as little as 3.5%, while some conventional loans may require only 3%. However, smaller down payments often lead to higher monthly payments and may require private mortgage insurance (PMI).
Closing Costs
Closing costs cover fees associated with the home purchase, such as property appraisal, title insurance, and lender fees. These generally range from 2% to 5% of the home’s purchase price. For that same $800,000 home, you might expect to pay between $16,000 and $40,000 in closing costs.
Homeownership Expenses
Buying your first home is just the beginning. It’s essential to plan for ongoing expenses that come with being a homeowner.
- Maintenance & Repairs: Experts recommend budgeting around 1-3% of your home’s purchase priceannually for maintenance. For a $800,000 home, that’s $8,000–$24,000 per year.
- Property Taxes: Property taxes vary depending on your location, but they typically cost around 1% of your home’s value annually.
- Homeowners Insurance: Insurance is a must to protect your home and belongings, and costs vary based on factors like location and home size. The average premium in the U.S. is around $1,200 per year.
- HOA Fees: If your home is in a community with a homeowners association, you’ll be required to pay monthly or annual fees.
Moving Expenses
Although moving costs don’t come directly from your lender, they’re an inevitable part of the home-buying process. Whether you’re hiring professional movers or renting a truck to do it yourself, be sure to factor these expenses into your budget. Moving across town might run you a few hundred dollars, while cross-country moves could cost several thousand.
Calculating How Much You Can Afford
Now that you have a sense of the upfront costs, the next step is figuring out how much home you can afford. A good starting point is the 28/36 rule, a popular benchmark used by financial advisors:
- 28% Rule: Your monthly housing costs (mortgage, insurance, property taxes) should not exceed 28% of your gross monthly income.
- 36% Rule: Your total monthly debt, including housing, car loans, student loans, and credit card payments, should not exceed 36% of your gross monthly income.
If math isn’t your strong suit, there are plenty of free mortgage calculators online that can help you understand potential monthly payments based on your budget. Factor in local property taxes and insurance premiums to get a realistic estimate.
Creating a Savings Plan for Your Down Payment
Saving for a down payment can feel daunting, but breaking the goal into smaller steps makes it much more manageable.
Step 1: Set a Clear Goal
For example, if your goal is to save a $80,000 down payment, divide that by your desired timeline. If you want to save it in 4 years, that’s $80,000 ÷ 36 months = $1,667 per month.
Step 2: Make a Budget
Review your current spending and identify areas where you can cut back, such as eating out less frequently, canceling unused subscriptions, or finding a cheaper phone plan. Redirect the savings toward your down payment fund. Some popular methods include:
- Using a budgeting app like Mint or YNAB to track expenses.
- Adopting the 50/30/20 budget rule, where 20% goes directly into savings.
Step 3: Automate Your Savings
Set up automatic transfers from your paycheck or checking account to a savings account dedicated solely to your house fund. Automation keeps your savings on track and reduces the temptation to spend money elsewhere.
Step 4: Open a Dedicated Savings Account
Keep your down payment money separate from your other finances. A high-yield savings account can help your money grow faster with interest.
Step 5: Seek Down Payment Assistance
Many states, cities, and organizations offer grants or low-interest loans to help first-time buyers with their down payment. Research programs in your area to see if you’re eligible.
Meeting with a mortgage advisor can help you explore these programs and determine which one works best for you.
How Long Does It Take to Buy a Home?
The timeline for buying a home varies depending on how much you’ve already saved and how quickly you can find the right property. On average:
- Most buyers save for a down payment for 3-5 years.
- The home search typically takes 2-6 months.
- The closing process lasts around 30-45 days.
By setting realistic goals, you’ll be less stressed and better prepared for the road ahead.
Start Planning for Your Dream Home Today
Buying a house isn’t just a dream—it’s an achievable goal when armed with the right knowledge and a solid plan. By understanding the upfront costs, calculating what you can afford, exploring financing options, and creating a savings plan, you can confidently take the first step toward homeownership.
Ready to make the move into a new home? SummerHill Homes can help. We have several new home communities throughout the Bay Area. Visit us online at SummerHillHomes.com to view our new home communities, available homes, virtual tours, and more.