Guide · Home Buying
Published 2026 · RealEstateTools
The True Cost of Buying a Home: Beyond the Down Payment
The down payment is just the beginning. On a $400,000 home, you'll need $16,000–$28,000 in closing costs before you move in, then $8,000–$12,000 per year in ongoing ownership costs. Most buyers discover these numbers only after they've committed.
Closing costs: the full breakdown
Closing costs are fees paid at the final step of your home purchase. They typically range from 2–5% of the purchase price. On a $400,000 home, expect $8,000–$20,000 in closing costs. Here's where that money goes:
Lender fees (1–2% of loan amount): Loan origination fee ($1,000–$2,000), application fee ($200–$500), credit report fee ($30–$50), underwriting fee ($400–$900), processing fee ($200–$500), flood certification ($15–$25), tax service fee ($50–$100). These vary by lender — always request a full fee estimate before committing.
Title insurance and services (1–1.5%): Title search ($200–$400), title insurance lender's policy ($500–$1,500), title insurance owner's policy ($1,000–$3,000, optional in some states but recommended), settlement/closing fee ($500–$1,500), recording fees ($50–$250). Title insurance protects against ownership disputes, liens, and fraud discovered after purchase.
Escrow and prepaid items (2–3%): Homeowner's insurance (first year premium: $1,200–$4,000), property tax escrow (2–6 months of taxes: $1,000–$5,000), mortgage interest prepaid (daily interest from closing to end of month: $200–$800), HOA proration (if applicable: $500–$2,000). These are deposits into escrow accounts that fund your ongoing insurance and tax payments.
Third-party services ($500–$2,000): Home inspection ($300–$600), appraisal fee ($400–$700), survey ($300–$800), pest inspection ($75–$200), radon test ($150–$300). Some of these are negotiable; the appraisal and inspection are mandatory for most lenders.
State and local transfer taxes (0.5–2%): Many states charge a transfer tax or recording tax at closing. In New York City, this can be as high as 2.825% of the purchase price — a staggering $11,300 on a $400,000 home. Other states have no transfer tax at all. Check your local requirements.
Ongoing costs of homeownership
Once you own the home, these costs arrive monthly, quarterly, or annually — and they're not optional.
Property taxes: The median U.S. property tax rate is approximately 1.1% of assessed value, but this varies enormously. New Jersey averages 2.2%, while Hawaii averages 0.3%. On a $400,000 home, that's $1,200–$8,800 per year. Taxes can increase as your home appreciates and as local governments raise rates.
Homeowner's insurance: National average: $2,300/year ($192/month). Coastal areas, flood zones, and high-risk wildfire areas can push this to $5,000–$10,000+ annually. Insurance costs have risen 20–40% in many states since 2022 due to increased climate risk and rebuilding costs.
Maintenance and repairs: Budget 1–2% of your home's value annually. On a $400,000 home: $4,000–$8,000/year. This covers HVAC servicing ($150–$400/year), roof maintenance, gutter cleaning, appliance replacement, plumbing repairs, and the inevitable surprises (water heater failure, furnace breakdown, tree removal).
HOA fees: If applicable, $200–$800/month ($2,400–$9,600/year). HOA fees cover common area maintenance, insurance, reserves, and sometimes utilities. They increase over time — typical annual increases are 3–5%.
Utilities: As a homeowner, you pay the full utility bill — no landlord subsidizing it. Average monthly utilities (electric, gas, water, sewer, trash): $250–$500 depending on climate, home size, and efficiency.
The 28/36 rule for affordability
Lenders use the 28/36 rule to determine how much you can afford:
28% rule: Your total monthly housing cost (PITI + HOA + mortgage insurance) should not exceed 28% of your gross monthly income. On a $120,000/year salary ($10,000/month gross), your maximum housing payment is $2,800/month.
36% rule: Your total monthly debt payments (housing + car loans + student loans + credit cards + any other debt) should not exceed 36% of your gross monthly income. On $10,000/month gross, total debt payments can't exceed $3,600. If you have $400/month in car and student loan payments, your housing budget drops to $3,200.
The problem: These are maximum thresholds, not comfortable budgets. Buying at the maximum you qualify for leaves no room for lifestyle changes, income disruptions, or unexpected expenses. Financial advisors recommend targeting 25% of gross income for housing costs — well below the lender maximum.
Our home affordability calculator applies these rules to your specific income, debts, and down payment to show what you can actually afford.
Hidden costs buyers forget
Moving costs: Local move: $800–$2,500. Long-distance: $2,500–$7,000+. Full-service packing: add $1,000–$3,000. Most buyers underestimate this by 30–50%.
Immediate repairs: Nearly every home needs something fixed within the first month. Budget $2,000–$5,000 for immediate repairs: HVAC servicing, gutter cleaning, lock rekeying, window treatments, minor touch-ups. Even new construction often requires warranty work.
Furniture and furnishings: A new home often means new furniture. Budget $5,000–$15,000 for essential furniture, especially if you're upgrading from an apartment to a house. Curtains, area rugs, outdoor furniture, and smallwares add up quickly.
Opportunity cost of down payment: If you put $80,000 down, that money is no longer invested in the stock market (historically 7–10% annual returns). At 8% annually, that $80,000 would grow to $172,700 in 10 years. This is real cost — you're forgoing investment gains to own the home.
Closing cost on sale: When you eventually sell, you'll pay 6–8% in agent commissions, transfer taxes, and closing costs. On a $500,000 sale, that's $30,000–$40,000 — a cost that many buyers never factor into their purchase decision.
Use our closing costs estimator to get a precise estimate for your specific state and purchase price.
Worked example: $400K purchase — total first-year cost
Here's what buying a $400,000 home actually costs in year one:
Upfront costs:
Down payment (10%): $40,000
Closing costs (3.5%): $14,000
Moving: $2,000
Immediate repairs: $3,000
Furniture: $5,000
Total upfront: $64,000
Year 1 ongoing costs:
Mortgage P&I ($360K at 7%): $28,734
Property tax (1.2%): $4,800
Homeowner's insurance: $2,400
Maintenance (1.5%): $6,000
PMI (0.5% of loan): $1,800
Total year 1 ongoing: $43,734
Total year 1 cost: $107,734 — of which only $2,934 went to principal (building equity). The rest was consumed by interest, taxes, insurance, maintenance, and transaction costs.
That $64,000 upfront plus $43,734 in carrying costs is the true price of homeownership. Whether it's worth it depends on whether the home's appreciation, tax benefits, and utility value exceed those costs over your ownership timeline.
The bottom line
The down payment is the sticker price of buying a home. Everything else — closing costs, taxes, insurance, maintenance, hidden fees — is the actual cost of owning one. Before you commit, calculate the full picture, not just the mortgage payment. The buyers who thrive are the ones who budget for the true cost and are surprised by nothing.
Use our closing costs estimator for a detailed breakdown of your specific closing costs, and the home affordability calculator to determine what you can truly afford based on your income and existing debts.
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