The True Cost of Buying a Home: What You Need Beyond the Down Payment

Chrissy Peterson

Oct 1

6 min read

You’ve saved for the down payment. Does that mean you’re financially ready to buy a home?

Maybe — but there are a few other expenses you'll want to plan for.

One of the biggest misconceptions I see with first-time buyers is thinking the down payment is the only cash they'll need to purchase a home.

Then suddenly they're hearing terms like earnest money, inspection, appraisal, closing costs, prepaid taxes and homeowners insurance.

It can feel like a lot.

But here's the good news:

These expenses aren't nearly as intimidating when you know about them ahead of time and have a plan.

So, before you start house hunting, let's walk through some of the costs you may encounter beyond your down payment.

1. Your Down Payment

Let's start with the expense everyone knows about.

Your down payment is the portion of the home's purchase price you're paying upfront rather than financing through your mortgage.

And no — you don't necessarily need 20% down to buy a home.

Depending on your qualifications and loan program, there are conventional loans with lower down-payment options, FHA financing with relatively low down payments, and VA or USDA programs that may allow eligible borrowers to finance a home with no down payment.

The right option depends on your finances, qualifications and the property you're purchasing.

That's why one of the first steps I recommend is talking with a knowledgeable lender.

Before we start shopping, let's understand your numbers.

2. Earnest Money

Here's one that often confuses first-time buyers.

Earnest money is not an additional down payment.

It's money you provide after your offer is accepted to demonstrate that you're serious about purchasing the home.

The amount can vary based on the property, purchase price, market conditions and terms of your offer.

If the transaction proceeds to closing, earnest money is generally credited toward the funds you owe at closing.

However, what happens to earnest money if a transaction doesn't close depends on the terms and contingencies in your purchase agreement.

That's why it's important to understand those terms before signing your offer.

3. The Home Inspection

I strongly believe buyers should understand what they're purchasing.

That's where a home inspection can be incredibly valuable.

A professional inspector evaluates many of the home's accessible systems and components and helps identify potential concerns.

The buyer typically pays the inspection fee directly, and the amount will vary depending on the property and the inspections you choose.

You may also decide to add specialized inspections or testing depending on the home — for example, sewer, radon, well, septic or other evaluations when appropriate.

Think of an inspection as part of your due diligence, not simply another expense.

A home is a major investment. Knowing more about its condition before closing can help you make an informed decision.

4. The Appraisal

If you're financing your purchase, your lender will generally require an appraisal.

An appraisal is an independent opinion of the property's value performed by a licensed or certified appraiser.

Why does the lender care?

Because the home is collateral for the mortgage, and the lender wants to evaluate whether the property's value supports the loan.

The appraisal is different from the home inspection.

An inspection focuses primarily on the home's condition. An appraisal focuses primarily on value for the lending transaction.

Depending on the loan and lender, the appraisal fee may be collected before closing or incorporated into your closing-related charges.

Your lender can explain exactly how it will be handled for your loan.

5. Closing Costs

This is probably the biggest category buyers need to plan for beyond their down payment.

Closing costs can include a variety of loan and transaction-related expenses, such as:

Lender fees
Title-related charges
Appraisal fees
Recording fees
Certain taxes or government charges
Other loan and settlement expenses

The exact amount varies based on your loan, lender, purchase price, property and transaction.

The good news is that you shouldn't arrive at closing and suddenly discover what you owe.

For most mortgages, you'll receive a Loan Estimate after applying that provides estimated loan terms and closing costs. Before closing, you'll also receive a Closing Disclosure showing the final details of your mortgage transaction.

Your lender and title company can walk you through those numbers.

And please ask questions!

You should understand where your money is going before you sign.

6. Prepaid Taxes and Homeowners Insurance

Not everything you bring to closing is technically a “closing cost.”

Some funds may be collected in advance for expenses associated with owning the home.

Depending on your mortgage and closing date, that can include homeowners insurance, property taxes and initial funding of an escrow account.

If your mortgage includes escrow, part of your monthly mortgage payment will typically go toward future property tax and insurance expenses.

Your lender will estimate how much needs to be collected at closing based on your specific transaction.

This is one reason your cash to close can be higher than your down payment alone.

7. Moving Expenses

You got the keys!

Now you actually have to move.

This is one of those expenses that's easy to forget while you're focused on the mortgage.

Your moving budget might include:

Movers.

A moving truck.

Boxes and packing materials.

Storage.

Utility setup.

Cleaning.

Furniture delivery.

Changing locks.

And, of course, the inevitable trip to the store for all those little things you suddenly realize you need.

It doesn't have to be a huge expense, but it's worth including in your budget.

8. The “First Few Weeks” Fund

This isn't an official mortgage expense, but I think every buyer should consider it.

There's almost always something you want or need shortly after moving in.

Maybe it's a lawn mower.

A snowblower — because, yes, this is Minnesota.

Window treatments.

A washer and dryer.

A few tools.

New locks.

Paint.

Furniture.

Or twenty other things you didn't realize you needed until you owned a home.

Try not to spend every available dollar getting to the closing table.

Leave yourself some breathing room.

9. Your Emergency Reserve

This might be the most important money we talk about — and it isn't something you hand over at closing.

It's the money you keep.

Once you're a homeowner, there isn't a landlord to call when something breaks.

The furnace stops working.

The water heater leaks.

An appliance quits.

A tree needs attention.

Something unexpected happens.

That's homeownership.

How much you should keep in emergency savings depends on your finances, home and comfort level, but having reserves can make an unexpected repair much less stressful.

My goal isn't simply to help you qualify for a home.

I want you to be able to comfortably own it after closing, too.

Can the Seller Help With Some of These Costs?

Sometimes.

Depending on the loan program, market conditions and individual transaction, buyers may be able to negotiate seller contributions toward certain allowable closing costs.

That doesn't mean every seller will agree or that every expense can be paid by the seller.

But it's absolutely something we can evaluate when we're putting together your offer.

Sometimes negotiating help with closing costs may benefit a buyer more than negotiating the same amount off the purchase price.

That's why I like to have your lender involved when we're discussing offer strategy.

We want to look at the whole picture — not just the sale price.

Don't Forget About Down Payment Assistance

Depending on your qualifications and location, you may also want to explore down payment and closing-cost assistance programs.

Minnesota has programs designed to help eligible homebuyers with financing and homeownership costs, and individual cities, counties or other organizations may offer additional options.

These programs have specific eligibility requirements, so don't assume you'll qualify — but don't assume you won't, either.

Ask.

Sometimes buyers have more options than they realize.

Before You Start Shopping, Know These Three Numbers

Instead of focusing only on the maximum purchase price your lender says you qualify for, I encourage buyers to understand three numbers:

1. Your comfortable monthly payment

Not simply what you're approved for — what you're comfortable paying every month.

2. Your estimated cash to close

This includes your down payment plus the other funds you'll likely need for the transaction.

3. What you want left in savings after closing

This one matters.

If buying the home leaves your bank account at zero, we should probably have another conversation.

You deserve to enjoy getting the keys — not immediately worry about what happens if the refrigerator breaks next week.

The Bottom Line

Buying a home costs more than the down payment — but that doesn't mean homeownership is out of reach.

It simply means you need a plan.

Earnest money, inspections, appraisal expenses, closing costs, prepaid taxes and insurance, moving expenses and emergency savings should all be part of the conversation before you fall in love with a home.

And that's exactly why I don't believe the buying process should begin with scrolling through listings.

It should begin with understanding your finances, talking with a trusted lender and creating a realistic plan.

If you're considering buying a home in Minnesota — whether you're ready today or you're hoping to buy six months or a year from now — let's start there.

We'll talk through the process, connect you with trusted professionals when needed, and help you understand what you should realistically prepare for.

No surprises.

No pressure to move faster than you're ready for.

Just a plan that helps you move forward with confidence — on your timeline. #mnrealtor #minnesotarealtor #mnrealty #mnrealestate #ChrissyJHomes