Exploring the Total Costs of Buying a House

The purchase price is just one of the costs you’ll cover when you buy a house. Loan fees, vendor fees, and costs involved in transferring the deed from the seller’s name to yours typically drive up the total amount you’ll pay by 2% to 5%. Your closing statement will disclose all of these additional costs a few days before closing, but understanding them well in advance will help you set savings goals and budget for your purchase.

Breaking down closing costs

Buyers and sellers both have closing costs to pay. Generally speaking, if the cost is for a service that benefits you, you’re responsible for paying it. But there are exceptions.

While real estate commissions are always negotiable, sellers traditionally have paid buyers’ broker commissions, albeit indirectly — they pay their broker, and their broker pays the buyer’s broker. That might or might not be the arrangement you make with the seller in your own sale. 

Generally speaking, though, buyers are responsible for recurring and non-recurring closing costs, says John Aguirre, owner of John Aguirre Home Loans, which serves buyers in California, Florida, and Texas. 

Non-recurring fees

“The non-recurring portion of fees can be thought of as settlement service fees — i.e., anyone who works on the transaction will be paid through the closing of the sale,” Aguirre says. “These fees come from the bank, escrow and/or title company, and the government.”

Non-recurring fees include:

• Down payment
• Loan origination fee
• Points
• Application fee
• Appraisal
• Title search and title insurance
• Recording fee
• Transfer tax
• Real estate broker commission, if applicable
• Broker administrative fees, if applicable

Local conventions might influence who pays what. 

“In Colorado, the lender's title policy is customarily paid by the seller or split,” according to Reed Letson, owner of Elevation Mortgage in Colorado Springs. 

However, who pays for the closing costs ultimately depends on the market. “In a seller's market, buyers will almost always pay for all closing costs, but in a buyer’s market, the sellers will contribute,” Letson says.

Recurring fees

“The recurring portion of the fees is for property taxes, insurance, and interest due at closing,” Aguirre says. “We call them recurring because the buyer will have to pay these costs throughout the life of the loan, and some will be paid as long as the property is owned.”

Lenders usually deposit those initial property tax, homeowners insurance, and mortgage insurance and homeowners association fees, if applicable, into an escrow account for safekeeping until the bills are due. Often, the annual cost is divided into 12 installments and added to your monthly mortgage payment. The installments also go into escrow so that the lender can pay the bills on an ongoing basis.

Understanding down payment requirements

Unlike the earnest money deposit, which you pay when you make your offer, the down payment is paid at closing. 

The median down payment among all buyers was 18% in 2024, according to the National Association of REALTORS® Profile of Home Buyers and Sellers. However, the median for repeat buyers is 23%; first-time buyers put down a median of just 9%, according to the report.

Although your down payment amount depends in part on your financial situation and personal preferences, your loan type dictates the minimum you must pay.

The following table shows minimum down payment amounts for the most popular mortgage loan types:

If you have the cash available, a down payment of 20% or more usually lets you avoid having to pay mortgage insurance, which reduces your closing costs and ongoing expenses.

A higher down payment also lets you borrow less. A smaller loan can save you money on the origination fee, which is based on the loan amount, and also save you on interest.

Additional expenses in the homebuying process

Not all homebuying expenses are paid at closing. For example, you might also need to cover these costs:

• Earnest money: This is a deposit that you pay as soon as your offer is accepted. The deposit is credited against the purchase price at closing.
• Home inspection: You’ll likely order your inspections right after the seller accepts your offer. While not required, an inspection can reveal problems the seller isn’t aware of. Depending on the type of loan you have and the location of the home, you might also need (and need to pay for) a wood-destroying insect inspection. 
• Mortgage application fee: You typically submit this fee, which can run about $500, when you submit your mortgage application.
• Survey: If there are any questions about the property’s boundaries, a survey will resolve them, and it might be required by your state. You’ll pay the surveyor directly.
• Appraisal: In some cases, the buyer pays for the appraisal at the time of service rather than at closing. This typically costs $300 to $500. 
• Moving expenses: As Letson points out, moving can be a considerable expense, even if you do it yourself. In addition to the transportation costs, you’ll also be responsible for utility connection fees and deposits.

How to budget and plan for buying a house

For most buyers, the first step to buying a home is to plan and budget for the purchase. 

A good first step is to check your credit report and credit score. The Consumer Financial Protection Bureau recommends doing so as early as possible to give yourself time to correct errors and make improvements, if necessary, before you apply for a home loan. Paying bills on time and paying down debt can be the quickest ways to improve your score, and it’s also a good idea to avoid opening any new lines of credit.

Next, figure out how much you can afford. According to Freddie Mac, a good rule of thumb is 2.5 times your annual pre-tax income. So, if you earn $70,000 per year, a $175,000 home should be your target, though you might need to adjust that figure based on mortgage rates and your financial situation. Still, you can use the target amount to set a savings goal for your down payment and closing costs.

With that information in hand, you can use a mortgage calculator to estimate your monthly principal, interest, taxes, and insurance (PITI) payment. Ideally, your total debt-to-income ratio (DTI), including the house payment and all other debt payments, will equal no more than 43% of your monthly income. You can borrow with a higher DTI, but it’s riskier.

Once your credit is in good shape and you’ve saved the cash you need for your down payment, closing costs, and other expenses, it’s time to get a mortgage pre-approval.

“This means meeting with a lender to review your financial situation and getting an official letter that states how much you can borrow,” says Michael Branson, CEO at All Reverse Mortgage, which operates in over a dozen states. “It helps you understand your budget, could make you a more attractive buyer to sellers, and may speed up the process once you find the right home. It’s one less thing to worry about when you’re ready to make an offer.”

Aguirre noted one additional benefit to getting a pre-approval: It will prepare you for 99% of the expenses you’ll encounter before closing.