How much does it cost to buy and live in a new home?
To find out, The Balance collected data on home prices, closing costs, interest rates, and other expenses. Then we settled on two separate figures. The first: total costs at the outset of homeownership, which include expenses such as the down payment and closing costs. Next, we considered the ongoing monthly cost of homeownership. We then combined that data with regional income data to measure affordability—The Balance’s Home Affordability Index.
Learn how much it really costs to buy and live in a new home in the U.S., as well as all of the factors that will have an impact on the total cost.
- The average upfront cost to buy a new home in the U.S. is $40,224
- The average monthly cost of homeownership in the U.S. is $1,480
- The national homeownership expense ratio is 26.3%
- The three most affordable cities in our Index are: Detroit, Washington, D.C., and Atlanta
- The three least affordable cities in our Index are: Los Angeles, San Francisco, and New York
The Average Cost to Buy a New Home
The average upfront cost to buy a new home in the U.S. is $40,224. This cost includes 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 Philadelphia are about $900 apart in the first month’s costs—not that different—but Philadelphia residents pay more in closing costs.
A down payment is the amount you pay upfront, which can be expressed as a percentage of the total home price, ranging from 0% to 20% or more. Using a smaller down payment might seem appealing, but remember that loan costs can be reduced by paying more upfront. While lenders may allow you to put as little as 3% down for a conventional mortgage, you can save quite a bit by putting down at least 10% of a home’s cost, which is what 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, and 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, 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 after. 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 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, but 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 the subject of numerous consumer complaints. They usually don’t cover more expensive repairs, they often contain many exclusions and limitations, and they may require a copay on items they do cover. You may find a home warranty is an unnecessary expense.
The Monthly Cost of Homeownership
After making it past the first month’s significant expenses, homeowners need to plan for homeownership-related monthly costs. The average monthly cost of homeownership in the U.S. is $1,480. This figure includes the mortgage principal, interest, property tax, home insurance, costs for maintenance and upkeep, along with private mortgage insurance (PMI), which is usually required for loans with less than 20% down.
Principal & Interest
The principal and interest portions of a homeowner’s monthly payment are intertwined due to a process called amortization. With a fixed-rate interest loan, you’ll pay the same amount every month for the number of years it takes to pay off your loan. At first, you pay more in interest than principal due to a high loan balance.
However, as you pay down your principal, the interest cost decreases, with more of your monthly payment going to the principal. In the second year, you’ll pay a little bit less in interest than the first year, and by year 29 of a 30-year mortgage, most of your payment will go to the principal, but the total amount of your payment won’t change.
If you have an adjustable-rate mortgage, the amount you pay in interest can (and likely will) change. Often these mortgages begin with a low introductory rate for a specific period of time, and then adjust based on market rates. Make sure the PITI payment would still be within your budget if the interest rate were to reach the loan’s maximum permitted interest rate.
Property taxes are based on your home’s assessed value (which might not be how much you paid for the house) and your county and/or city tax rate. The national homeowner median for real estate taxes is 1.1%, but as you can see from the above chart, the total amount can vary quite a bit. For example, Phoenix and Philadelphia homeowners pay roughly the same amount per month overall, but Philadelphia homeowners pay far more in monthly taxes. This may be due to Arizona law that sets a limit on how much a home’s assessed value may increase year to year.
Homeowners insurance helps cover property and land loss or damage from common causes such as fire or burglary. However, it typically won’t cover loss or damage from flood or an earthquake—additional coverages that usually cost more to add on. The national median for homeowners insurance is $750 per year ($63 per month), but as you can see from the chart above, costs can vary.
These insurance costs often depend on your home, location, any discounts, and the types of coverage you’ve opted to purchase. Your insurance costs are often paid into an escrow account as part of your monthly payment, although it may be possible to pay insurance on your own.
Maintenance and Improvement
You should plan on spending around 1% of a home’s price on maintaining or repairing your home to prevent it from declining in value. Improvement costs are more optional and individual. For example, maintenance may include fixing a leaking sink, while improvement might focus on a bathroom renovation. Maintenance expenses and improvements aren’t part of your monthly mortgage payment but should be budgeted for and included in your savings goals.
Some homeowners can get help with home repairs and improvements (including weatherization) through federal or local grants and loans.
If you choose to renew your home warranty, you’ll likely pay out of pocket for that. As well, if you own a home in a particular neighborhood or own a condominium or co-op home, you will need to pay condo, co-op, or homeowners association fees. Usually, these fees are not included in your monthly mortgage payment but are paid separately.
After you’ve paid down your mortgage balance or your house value increases to the point that you own 20% in equity, you can request a cancellation of PMI, which you may be paying monthly.
The Balance’s 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 26.3%. This means 26.3% of the average American homeowner’s income goes to housing costs. The color scale indicates where a city lays on the affordability index, with dark red Los Angeles being significantly less affordable than deep green Detroit, the most affordable place we examined.
Our 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 that it is within reach of many living there. 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 areas, sharing housing with other households, or cutting spending on food, transportation, education, or health care.
In the 1940s, housing was considered affordable by government housing programs if it cost no more than 20% of income. However, now housing is defined as affordable when it costs less than 30% of household income, which allows the household to spend 70% on other costs and financial goals.
As you can see from the tables above, affordability can range widely based on the metro area. In many cases, the proportion of income dedicated to monthly housing costs is under 30%, but more than 30% is going to housing in some cities, such as New York and Los Angeles. This situation can occur in one of two situations: When wages don’t keep up with steady housing prices or when housing prices vault ahead of income due to sudden changes in the market.
Still, despite the high costs, homeowners have significantly different experiences regarding housing compared to renters, even in high-cost cities such as Miami and San Francisco, according to an analysis from the Federal Reserve. The housing cost burden, which is defined as housing costs greater than 30% of gross income, is substantially higher among renters than among homeowners, and has sharpened since the most recent housing crisis, which peaked in 2009. Analysts cite low mortgage-interest rates as one factor driving the divergence.
Data for this project was derived from a number of different sources.
- Median home sale price for each metropolitan statistical area (MSA) is from Zillow housing market data.
- The mortgage loan interest rate for the same week as the Zillow home sale price data is from the St. Louis Fed (FRED) 30-Year Fixed Rate Mortgage Average in the United States.
- Median household income and median real estate taxes paid data for each MSA is from the 2019 Census American Communities Survey (ACS) 1-year estimates in the Selected Economic Characteristics Table (DP03) and the Financial Characteristics for Housing Units with a Mortgage Table (S2506), respectively.
- Estimates for median dollars spent on home maintenance yearly and median dollars spent on home improvement every two years are from the 2019 Census American Housing Survey (AHS). All Census derived data are statistical estimates with margins of error (MOEs) and not exact figures.
- Closing cost data was derived from a 2019 report on statewide average closing costs by ClosingCorp that included relevant taxes.
- Home Insurance costs are shown from statewide averages based on data from the National Association of Insurance Commissioners.
- All figures have been normalized for inflation.
Finally, 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.
How Much House Can I Afford?
By now you should have a good idea of all the costs that go into purchasing a home, both upfront and ongoing, but this is only one half of the equation. To figure out how much house you can actually afford you'll need to look at your income, savings, and other financial obligations.
As a threshold question, how much have you saved for a down payment? Any amount you pay upfront will reduce your mortgage loan. Then to get to the heart of affordability though, what's left over each month after you have paid all your bills? Your mortgage loan will add a monthly payment to your current budget that could be in place for 30 years. So your income should be enough to cover your current bills plus an additional mortgage payment, comfortably. There are a number of online calculators that can help you land on a price range for how much home you can afford by building up from your income and expenses. You can also work with a real estate professional or financial advisor for more personalized advice.
Frequently Asked Questions (FAQs)
How much money should I save up before buying a house?
When saving to buy a home, many people focus on the immediate costs, like the down payment and closing costs, and push the idea of the mortgage debt far into the future. The reality is that the first mortgage payment will come due after the first full month of closing (including PITI), and the second the next month, all while in the midst of other costs of moving, maintenance, and settling into your new home. Depending on your loan and financial situation, you should expect to save for a 10%, 20%, or larger down payment, plus closing costs. You should also save enough to have a couple months of mortgage payments on reserve. Lastly, it would be wise to have a cushion to pay for the costs of moving, and any unexpected maintenance needs that may come up.
When is the best time to buy a house?
You may have heard people refer to a "buyer's market" or a "seller's market." Like all markets, housing has its ups and downs. Many factors are at work when housing prices rise or fall, but if you're looking to save money, you're best off timing your homebuying process when the market is in your favor. In a buyer's market, more houses may be available, you may get a better loan rate, you'll have less competition from other buyers, and sellers may be more eager to sell.