How much does it cost to buy a new home?
To find out, The Balance collected data on home prices, closing costs, interest rates, and other expenses associated with buying residential real estate. We then settled on two figures. The first is total cost at the outset of homeownership, including expenses such as the down payment and closing costs. We combined that data with regional income data in 21 of the largest U.S. metro areas to measure affordability (The Balance’s Home Affordability Index). We also compared costs from last fall, when The Balance last compiled the data, to spot differences.
Learn how much it really costs to buy a new home in the U.S. and factors that could impact the total cost of your potential abode.
- The average upfront cost to buy a new home in the U.S. is $43,874.
- The three most affordable cities to own a home in The Balance’s Home Affordability Index are St. Louis, Baltimore, and Detroit.
- The three least affordable cities to own a home in The Balance’s Home Affordability Index are Los Angeles, San Francisco, and San Diego.
Average Cost To Buy a New Home
The average upfront cost to buy a new home in the U.S. is $43,874. This cost includes the down payment, closing costs, and the first monthly payment. We’ve included a national average in the data as a baseline, but these costs often depend on the city and region. For example, Dallas and Tampa are about $705 apart in the first month’s costs—not that different—but Tampa residents pay more in closing costs.
We also calculated the average monthly cost of owning a home in the U.S.: $1,634. To learn more about the ongoing costs of homeownership, how The Balance calculated them, and more, see The Average Cost of Owning a Home.
A down payment is the upfront amount you pay to buy a home. The down payment can be expressed as a percentage of the total home price, ranging from 0% to 20% or more.
A smaller down payment might seem appealing, but paying more initially reduces loan costs. While lenders may allow you to put as little as 3% down for a conventional mortgage, you can save by putting down at least 10% of a home’s cost, which we assumed for our calculations here. As you can see from the chart above, a down payment takes the lion’s share of the upfront costs, no matter where the buyer lives.
You might be able to access no-down-payment or down-payment assistance options if you’re a veteran, first-time homebuyer, or in another particular category, but be aware this may mean higher monthly payments.
Typically, closing costs are 2% to 5% of the home’s purchase price. Closing costs might include appraisal fees, title insurance, prepaid property taxes, insurance, and interest. Closing costs might also include points—a percentage of the total loan that can be used to lower your interest rate. Closing costs can differ by location. Washington, D.C., Philadelphia, Baltimore, Seattle, and New York stand out for their higher closing costs in proportion to the buyer’s down payment.
You can shop around for or negotiate some closing costs, so compare loan estimates from at least three lenders.
Your first monthly payment, including principal, interest, tax, and insurance (PITI), isn’t due alongside the other upfront payments. Instead, PITI is typically due on the first day of the second month after closing. Depending on when you close, your first payment could be due a little over a month after completing the purchase, or up to two months later. We’ve included it here as an upfront cost because it is an expense you will have to cover close on the heels of a significant outlay.
Private mortgage insurance, or PMI, will likely be required if you put down less than 20% on a home. This insurance protects the lender if you don’t pay your mortgage. PMI costs are usually added to your monthly mortgage payment, but might also be required upfront at closing (FHA loans, for example, require an upfront PMI payment). The cost for your PMI insurance is based on how much you’re borrowing, your credit score, and how your loan winds up on the secondary mortgage market.
A warranty may be included with your purchase, too. A new home may include a free builder’s warranty, which covers workmanship and materials for specific, permanent features of the house for a limited time. For example, the builder may warrant that the new home doesn’t have electrical or plumbing system defects for two years or structural defects for five years.
The other type of warranty is a home warranty or extended warranty. This isn’t a true warranty; it’s an optional service contract that might, under certain conditions, repair particular features of your home. These typically cost around $500 or more for a year’s coverage and are renewable. But they are also the subject of numerous consumer complaints. As the warranties usually don’t cover more expensive repairs, they often contain many exclusions and limitations, and could require a copay on covered items or service calls. You may find a home warranty is an unnecessary expense.
According to the data we collected, buying a home will cost more in spring 2022 than in fall 2021, when The Balance last compiled the data. Our research showed that it costs 9% more to buy a home in May than it did in October, after figuring in the down payment, closing costs, and first monthly payment. However, closing costs were slightly down in 2022 compared to 2021, based on our calculations.
Regional costs were up overall, as well, in every MSA we reviewed. Buyers aren’t getting any relief from rapidly climbing home prices, whether based in San Francisco or Detroit. However, there are differences in just how expensive buying became. As an example, buying in Miami increased by 15.7%, while buying in Detroit only increased by about 4.7%.
The Balance Home Affordability Index
While a general idea of how much an area costs to live in is useful knowledge, affordability is an important piece of the overall puzzle. One way to measure home affordability is to calculate the ratio of housing expense to income—the housing expense ratio. A housing expense ratio of less than 30% is considered affordable; a ratio greater than 30% is considered unaffordable.
The national homeownership expense ratio is 30.2%. This means 30.2% of the average American homeowner’s income goes to housing costs. The color scale indicates where a city lies on the affordability index, with dark-red Los Angeles being significantly less affordable than deep-green St. Louis, the most affordable place The Balance examined.
The Balance’s index relies on regional data for both the cost of housing and income. So while few would consider Washington, D.C., real estate to be “affordable,” the relatively high regional income in our data suggests it is within reach of many living there (at least for the well-heeled). Conversely, Los Angeles’ relatively lower income in our data highlights the housing affordability crisis in that region.
When housing costs exceed 30% of income, households may respond by moving into more distant yet affordable neighborhoods or areas. Households may also start sharing housing with other households, or cutting spending on food, transportation, education, or health care.
Data for this project was derived from a number of different sources.
- Home prices were sourced from Zillow’s weekly median list price by MSA & US, smooth and seasonally adjusted for all homes data.
- Mortgage interest rates for each state were sourced from the CFPB and nationally were sourced from Freddie Mac via FRED.
- Median real estate taxes and median household income for each MSA were sourced from the U.S. Census Bureau’s American Communities Survey five-year 2020 estimates.
- Home maintenance and improvement costs were sourced from the US Census Bureau’s American Housing Survey from 2019.
- Average closing costs for each state were sourced from ClosingCorp’s Purchase Mortgage Closing Cost Report for 2021.
- Insurance premiums for each state were sourced from the National Association of Insurance Commissioners' Dwelling, Fire, Homeowners Owner-Occupied, and Homeowners Tenant and Condominium/Cooperative Unit Owner’s Insurance Report: Data for 2019.
- Private mortgage insurance rate was sourced from the Urban Institute’s Housing Finance at a Glance monthly chartbook from August 2021.
- All figures have been normalized for inflation. Inflation adjustment data was sourced from the U.S. Bureau of Labor Statistics’ Consumer Price Index.
Due to the inclusion of estimates and statewide averages, pricing points for individual components and aggregate costs for each MSA should not be interpreted as exact figures, but rather used to compare pricing between regions and to national figures.
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