The Money Muse

Buying a home is one of the largest financial commitments you’ll make in your lifetime. While the excitement of purchasing a property is undeniable, it’s essential to understand the full scope of costs involved in the process. Many first-time homebuyers, or even seasoned buyers, can be surprised by how much money they actually need to close on a home. Understanding the breakdown of expenses and planning accordingly will help ensure you’re financially prepared and avoid unexpected financial strain.

According to data from the National Association of Realtors, the median price for an existing home – one that’s already standing, not new construction – was $398,400 as of February 2025. In this article, we’ll walk through the various costs that go into buying a home, using a $400,000 home as an example. These figures may vary depending on your location, lender, and other factors, but they will give you a solid idea of what to expect.

1. Down Payment

The down payment is one of the most significant upfront costs you’ll need to cover when buying a home. It’s a percentage of the home’s purchase price that you pay upfront. While there are loan programs that require as little as 3% down, putting down 20% allows you to avoid private mortgage insurance (PMI), which is an additional monthly cost.

• 20% down payment on a $400,000 home: $80,000

The larger your down payment, the less you will need to borrow, and the better your loan terms may be. It’s important to note that if you’re aiming for a smaller down payment, you should budget for PMI, which can range from 0.3% to 1.5% of the original loan amount.

2. Closing Costs

Closing costs are the fees associated with finalizing your home purchase, including loan fees, title insurance, appraisal fees, and more. These costs typically range from 2% to 5% of the home’s purchase price. For a $400,000 home:

• Closing Costs (3%): $12,000
• Closing Costs (5%): $20,000

These costs can include:

• Lender fees
• Title insurance
• Appraisal fees
• Homeowner’s insurance premiums
• Property taxes (prorated)
• Recording fees

Some of these costs may be negotiable or covered by the seller, but it’s important to factor them into your budget.

3. Home Inspection and Appraisal

Before finalizing the deal, it’s essential to have a professional home inspection and an appraisal. The inspection ensures the home is in good condition, while the appraisal confirms that the home’s value matches the purchase price.

• Home Inspection: $300–$500
• Appraisal: $300–$600

While these costs might seem like just another hurdle, they are crucial for ensuring that you’re not buying a money pit. You might discover issues with plumbing, electrical work, or the roof, which could impact your decision to proceed with the purchase.

4. Moving Expenses

Once the deal is done, you’ll need to plan for the costs of moving into your new home. Whether you’re renting a truck, hiring movers, or both, moving expenses can add up quickly.

• Local Move: $500–$1,500
• Long-Distance Move: $2,000–$5,000

These costs will depend on how much stuff you’re moving and how far you’re going. It’s worth getting quotes from moving companies to get an accurate estimate.

5. Emergency Fund and Home Maintenance

Beyond the initial purchase, you’ll want to have an emergency fund in place. This fund should cover unexpected costs like home repairs, maintenance, or medical bills.

• Emergency Fund: Recommended 3–6 months of living expenses
• Home Maintenance: 1% of the home’s value annually ($4,000/year for a $400,000 home)

Owning a home means regular maintenance and occasional repairs. This cost is something to consider before you buy, so you can budget for it in the years to come.

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Summary of Estimated Costs for a $400,000 Home Purchase:

• 20% Down Payment: $80,000
• Closing Costs: $12,000–$20,000
• Inspection and Appraisal: $600–$1,100
• Moving Expenses: $500–$5,000

Total Estimated Upfront Costs: $93,100–$106,100

Note: These estimates can vary based on location, lender requirements, and personal circumstances.

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When you’re considering buying a home, it’s easy to focus on the down payment and mortgage payments. However, it’s essential to remember that there are many additional costs to factor into your budget. Closing costs, inspections, moving expenses, and home maintenance can quickly add up, and it’s important to be prepared for these expenses.

By thoroughly understanding these costs and planning ahead, you’ll be better positioned to make informed decisions when buying your home. Remember that buying a home is a long-term investment, and proper financial preparation will help ensure that you’re able to enjoy the rewards of homeownership without financial strain.