Buying a home: How much money will I really need?

When you ponder the cost of a house, it's easy to fixate on the purchase price and your mortgage payment. But the total cost of owning a home goes well beyond that.

If you take on too big of a commitment, you could put yourself and your financial goals at risk. By understanding the many expenses involved in homeownership, you can approach the challenge with both eyes open and avoid surprises that knock you off balance.

Earnest money

When you make an offer on a home and enter into a purchase agreement, you'll need to come up with what's called earnest money. This shows the seller that you're serious about buying the home, and it usually amounts to 1% to 2% of the purchase price. If your deal goes through, this money will be applied to the purchase. Be sure to talk with your agent about certain opt-out rights you have that may protect you and your earnest money in certain situations.

Down payment

The size of your down payment depends on several factors, including:

• The type of mortgage. In most cases, mortgages guaranteed by the Veterans Affairs don't require a down payment. Other mortgages could require a down payment of 3%, 5%, 10% or 20% — or more — of the purchase price.
• Your credit score. A lower score may require a higher down payment to give a lender enough confidence in the deal.
• Your preference. The larger your down payment, the lower your mortgage payment and the less interest you'll pay over time.

Closing costs

Closing is the process that initiates your mortgage and facilitates the transfer of property ownership.

There are many expenses associated with closing, and the costs generally amount to 2% to 5% of the purchase price. Common fees include charges for:

• Appraisal
• Credit report
• Home inspection
• Title insurance
• Document preparation
• Homeowners insurances
• Taxes
• Flood determination
• Discount points

Avoid any surprises when you get to closing. Lenders must give you a detailed list of the projected costs within three business days of applying for a loan. Review this carefully.

Moving expenses

These can vary from near zero to thousands of dollars, depending on:

• Who's paying. An employer-paid move could take a lot of the financial weight off your shoulders.
• How far you're going. Moving across town will cost far less than moving to a different state or country.
• How much you own. Even if your employer is paying, there's probably a limit to how much they'll move. No matter who's paying, it's smart to shed extra stuff before the move.
• Lodging needs. You may have hotel or apartment expenses if you're moving a long distance or if you must move out of your old place before moving to the new one. If you have pets, that may mean some time in a boarding facility.

Move-in

Getting your home ready to live in could require utility deposits, new locks, a home security system and painting or other changes you want to make right away.

Nesting

In addition to furniture, window treatments and decor, you may need to get some essential homeowner items, such as appliances, snowblower, lawn mower, throw rugs, trash cans and more.

Ongoing expenses

There are several expenses you'll have throughout your time as a homeowner, including:

• Your mortgage payment. Your monthly payment has four components: principal and interest on the loan, property taxes and homeowners and mortgage insurance premiums. Even if you have a fixed-rate mortgage, your payment will likely change over time with changes in taxes and insurance premiums. Keep in mind you're still on the hook for property taxes and homeowners insurance even after you pay off your mortgage.
• Homeowners association dues. If your neighborhood has one and you're required to join it, the dues you pay typically go toward the upkeep of shared resources such as roads, sidewalks, swimming pools and tennis courts.
• Repairs and maintenance. From time to time, every homeowner faces the cost of repairing and replacing things that are damaged or worn out. You may want to consider buying a home warranty plan, which covers many things that aren't protected by homeowners insurance. As part of your bargaining, you can ask the seller to provide one for the first year.
• Utilities. When you're looking at a home, it's smart to ask about energy bills. Depending on where they're situated, even two homes of the same size can have widely different utility bills, thanks to shade, insulation, window quality and other factors.

Planning for the unexpected

Even with homeowners insurance and a home warranty, you'll still face out-of-pocket costs because of deductibles and items that fall outside the coverage those plans provide.

That's why it's important to have an emergency fund that can cover your living expenses for 3 to 6 months. When calculating that, you should plan on your total living costs, not just housing.

If you're considering using your retirement accounts to serve as an emergency fund you should contact a tax advisor for more guidance. Withdrawals could trigger a hefty tax bill. You may consider building up cash in a savings account.

Learn more about buying, selling, owning, and insuring your home.

The USAA Advice Center provides general advice, tools and resources to guide your journey. Content may mention products, features or services that USAA Federal Savings Bank does not offer. The information contained is provided for informational purposes only and is not intended to represent any endorsement, expressed or implied, by USAA or any affiliates. All information provided is subject to change without notice.