Buying a home: the costs and mistakes nobody tells you about

The money on closing day

The down payment is only part of the cash you need. The Consumer Financial Protection Bureau (CFPB) says closing costs typically range from 2% to 5% of the purchase price, not counting the down payment: on a $375,000 home, that’s $7,500 to $18,750. They cover the lender’s fees and a list of services, from the appraisal to title insurance. The lender’s title policy is usually required; an owner’s policy, which protects you, is optional.

Before that, when you sign the purchase contract, you’ll usually put down earnest money to show good faith. At closing, it can go toward your costs or down payment; it’s returned if the contract ends for a reason the contract allows, but you can lose it if you don’t act in good faith.

In the UK, the big extra is different: in England and Northern Ireland, Stamp Duty starts above £125,000, first-time buyers pay none up to £300,000 on homes up to £500,000, and there are survey, solicitor and search fees on top.

The monthly bill is more than the loan

The mortgage payment covers principal and interest: $300,000 over 30 years at 6.5% is $1,896.20 a month. Property taxes and homeowners insurance come on top, often through an escrow account that many lenders require. The CFPB warns that taxes and premiums can change from year to year, and your total monthly payment changes with them.

With less than 20% down on a conventional loan, you’ll likely pay private mortgage insurance (PMI) too. It doesn’t have to last: you can ask to cancel it when your balance is scheduled to reach 80% of the home’s original value, and it must end automatically at 78% if you’re current on payments. FHA and VA loans follow different rules.

Standard homeowners policies usually don’t cover flooding. Flood insurance through the National Flood Insurance Program generally starts 30 days after you buy it, with no waiting period if you buy it together with a new mortgage.

The costs after you move in

Owners pay for their own repairs. In the Census Bureau’s American Housing Survey, 59% of homeowners made improvements between 2021 and 2023, spending a median of $6,500; the median roof job cost $10,000, and a heating and cooling (HVAC) job $5,500. The 1% of the home’s value a year often used for upkeep, including in the rent-or-buy calculator’s example, is a rule of thumb, not an official figure: before you buy, check the age of the roof, the heating system and the water heater.

Keep a cushion after closing, too. Putting every dollar into the down payment leaves nothing for the first repair, so an emergency fund matters even more once you own.

The mistakes that cost the most

• Taking the first offer. Lenders must send a Loan Estimate within three business days of your application, on the same standard form, so offers are easy to compare. The CFPB says buyers can potentially save $600 to $1,200 a year by getting offers from several lenders, and mortgage credit checks within 45 days count as a single inquiry on your credit report.
• Skipping the inspection. The appraisal estimates the home’s value for the lender; as HUD puts it, it doesn’t replace a home inspection. With an inspection contingency in your contract, you can cancel without penalty if the results don’t satisfy you.
• New debt before closing. The CFPB warns against big purchases on credit until you close: even financing a new refrigerator could make it harder to get your loan. Tell your lender about any change in your income or job.
• Wiring money to a scammer. Criminals send emails that pretend to come from your agent or settlement agent, with new wiring instructions. Confirm by calling a number you saved earlier, never one from the email. If money goes to the wrong account, call your bank at once and report it at ic3.gov: every hour counts.

Before you sign

At least three business days before closing, you’ll receive the Closing Disclosure. Compare it line by line with your Loan Estimate and ask about anything that changed. If this is your first home, a HUD-approved housing counselor can walk you through the process, often at little or no cost.