What Is the True Cost of Buying a House in 2024?

Today’s housing affordability crisis doesn’t inspire much optimism, but buying a home isn’t impossible. 

Expensive home prices and high mortgage rates coupled with low housing inventory are creating ongoing challenges for prospective and first-time homebuyers. According to the most recent Home Purchase Sentiment Index from Fannie Mae, just 19% of people believe it’s a good time to buy a home. If you’re determined to become a homeowner in 2024, you’ll need to go in willing to compromise. 

You’ll also need a solid grasp of the total cost of owning a home — not only the listing price but loads of one-time transaction fees, which you’ll need to include in your budget before attending open houses and planning a move. Read on to get a better idea of how much you need to buy a house in 2024.

How much money do you need to buy a home?

When you start thinking about buying a house, you’re likely focused on the amount you have in your bank account for a down payment. While a down payment is one of the biggest components, there are many other costs to consider.

Down payment

Your down payment is your upfront contribution to your home purchase. The more you contribute to your down payment, the better off you’ll be. 

A higher down payment means you’ll borrow less money, which will lower your monthly mortgage payment and save interest in the long run. A higher down payment also means you’ll get a better interest rate, since lenders typically offer the lowest rates to less risky borrowers. And if you put down 20% or more, you won’t have to pay for private mortgage insurance. 

However, a smaller down payment isn’t the end of the world. You can buy a home with a minimal upfront contribution — often just 3% of the purchase price. In most cases, you’ll need to pay a premium for private mortgage insurance to help offset the additional risk your lender is assuming.

Closing costs

You’ve got your down payment, so you’re all set, right? Not so fast. Closing costs are an often-overlooked set of expenses you’ll need to be prepared to pay on the day you sign your paperwork. These include fees for:

• Getting the home appraised.
• Recording the transfer of ownership.
• Paying real estate transfer taxes on that transfer of ownership.
• Title insurance for you, the new owner.
• Title insurance for the lender.
• Lender fees for originating the loan.

Depending on where you’re buying, closing costs can be really expensive or relatively cheap, ranging from 1% to 6% of the purchase price. 

Sellers often cover a portion of closing costs. You also might be able to negotiate them covering a bigger portion if you uncover any minor issues during your home inspection. Some lenders offer a no-closing-cost option, where they roll the costs into the loan. For example, if you’re paying $6,000 of closing costs on a $300,000 loan, a no-closing-cost option makes that a loan for $306,000. You’ll have an easier time now, but you’ll pay interest on a bigger loan.

Prepaid costs

You’ll also need to consider paying for certain expenses upfront. For example, your lender might require you to pay for the next installment of property taxes and the first three months of homeowners insurance premiums at closing. 

You should also be prepared to make an earnest money deposit within a few days of signing your purchase agreement to demonstrate to the seller that you’re serious about the deal and won’t back out. An earnest money deposit will typically cost you between 1% and 3% of the purchase price — though it could be up to 10% in a competitive market. 

For example, you might write a check for a small amount — $5,000, for example — that will be held in escrow. Then when it’s time to close, the earnest money goes toward your final bill. 

Don’t be surprised if your lender wants to see a decent pile of money leftover in your bank account — cash reserves — after the closing, either. These aren’t actual costs, but instead a piece of reassurance that you’ll be able to pay back the mortgage. In some cases, lenders will want to see six months of cash reserves, i.e., a balance to cover six months of mortgage payments.

Moving costs

You’re buying the place, and now it’s time to put your belongings there. Unless you have a lot of generous friends, you’re going to need to hire movers. If you’re buying a place across town from your current place, it’s not going to be an overwhelming expense: HomeAdvisor estimates that a local move will typically cost between $900 and $2,400. 

However, if you’re moving across state lines — or across the entire country — you’re going to shell out a lot more cash. HomeAdvisor pegs this anywhere between $2,600 and $6,900. Long-haul movers tend to price based on the number of boxes and their weight, so the more items you need to move, the more you’re going to pay. 

Monthly payments

All these one-time expenses influence the payment that will stay with you every month for the next 15 or 30 years. The bulk of your monthly mortgage payment is made up of two key factors: the principal and interest. In many cases, your lender will also bundle the cost of insurance, property taxes and mortgage insurance (if you’re required to pay it) into the payment.

The length of your home loan also plays a key role in your interest rate and your monthly mortgage payment. Shorter-term loans usually have lower interest rates but higher monthly payments because you’re paying it off in a shorter period. With a longer-term loan, you’ll pay more in interest, but you’ll have the benefit of lower monthly payments. Using CNET’s Mortgage Calculator, let’s look at interest rate and loan term, with an eye on how both will affect your payments.

The following chart shows a comparison for a home with a purchase price of $500,000 and a 10% down payment of $50,000.

Today’s housing market is defined by elevated interest rates. Mortgage rates started close to 3% at the beginning of 2022 and skyrocketed to around 7% by the end of last year, due mainly to inflation and the Federal Reserve’s efforts to tame it by hiking short-term interest rates. Annual inflation has cooled significantly, but mortgage rates remain well above 6%. 

However, the average rate isn’t necessarily the one you’ll end up with. Your rate could be higher — or lower — depending on your financial circumstances. 

What’s the trick to scoring a lower interest rate? It all starts with your credit score. Lenders tend to offer the lowest available rates to borrowers with excellent credit scores of 740 and above. A lower credit score means more risk for the lender, which means a higher rate for you. But not every lender has the same rates and fee structures: Shop around and compare multiple offers to find a lender that will offer you the best deal. 

It’s also important to understand how private mortgage insurance affects your monthly payment. In the example above, with a down payment of 10% on a $500,000 home, Freddie Mac’s PMI calculator estimates a PMI premium of $293 per month. A higher down payment of 15% will shrink that premium to just $119 per month. The magic number to eliminate PMI is a down payment of 20%, which would equal $100,000.

Other homeowner costs

After you officially buy the home, it’s time to celebrate. Then you’ll need to set aside more money for more costs, including taxes, utilities and repairs. A 2023 study from Zillow and Thumbtack revealed that the average homeowner pays $14,155 in additional expenses each year on top of their payments for principal and interest. That’s another $1,180 each month. 

As you calculate your additional costs of owning, be sure to think about these:

• Property taxes
• Homeowners insurance
• HOA fees
• Utility costs
• Maintenance and repair (you can’t call your landlord to fix the plumbing anymore)

Other tips to buy a home

Once you’re confident that you want to buy a home, take a thoughtful approach to the process and study home price trends. Don’t rush out and start looking at homes or talk to a real estate agent quite yet. Remember, you’re going to live in the home for a long time — and pay back a lot of money for that privilege. In addition to maximizing your savings and creating a budget, here are some extra steps to make sure you’re putting yourself in a position for a good deal. 

Get your credit in tip-top shape: Check your credit report and think about ways you can work to boost your score over the next six to 12 months. If you’re carrying a lot of debt on your credit cards, focus on paying them down. You’ll make a quick impact on your credit utilization ratio, which can improve your score significantly. 

Know your timeline: Ultimately, you want only one housing payment. As you’re looking ahead to the right time to buy, it’s critical to have a plan to avoid having to make both rent and mortgage payments. Negotiating a month-to-month rental agreement with your landlord can give you extra flexibility to appropriately time your move. 

Lock your rate: Interest rates move up and down constantly. A lender might offer you a 6.5% rate on a 30-year mortgage today, but that deal can turn into 7% next week. If you see a rate that looks especially attractive, lock it in so it doesn’t slip away.

How much income do you need to buy a $500,000 house?

Most financial experts recommend spending no more than 28% of your gross monthly income on your housing payment. 

With that in mind, consider the example of a borrower putting $50,000 down (10%) on a $500,000 property with a 30-year mortgage that has a 7% interest rate. To keep your housing payment at the 28% marker, you should earn $144,000 in gross income per year. However, the math isn’t that simple. That assumes you have no other monthly debt obligations. If you’re paying back student loans, a car loan or other debts, you’ll likely need a larger salary to satisfy your lender’s conditions for the best offer.

How to save for a down payment

According to data from Redfin, the median price of a home in the US was $412,227 in February. If you’re trying to squirrel away funds for a down payment, this means you’ll likely need a minimum of $12,366 for a 3% down payment — and $82,445 for a 20% down payment. If you aren’t sitting on a mountain of money, here are three tips to come up with the funds.

1. Look for down payment assistance programs: Depending on where you’re trying to buy and how much money you earn, you may be able to qualify for help from your state or local housing authority. These programs are typically designed to help low- or moderate-income borrowers with affordability concerns. And for first-time homebuyers, make sure you explore all these options that can make the process more affordable.

2. Stash your cash in a high-yield savings account: If you’re storing all your money in a bank account that’s paying a measly 0.01% APY, you’re missing out on the potential to earn interest. The best high-yield savings accounts are paying rates around 5% APY. You can also consider certificates of deposit, or CDs, but that can create a challenge: If you find a home you love before the maturity date arrives, you’ll likely be hit with an early withdrawal penalty. High-yield savings accounts and money market accounts have top-tier savings rates and let you store your money with no concerns about fees.

3. Create a budget: Don’t just make a one-time deposit to that high-yield savings account. Look at all your current expenses and separate them into nonessential versus essential costs. You absolutely need your car, but you may not need your current cable package. If you can find opportunities to spend less, you’ll automatically create opportunities to save more.

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