How Much Do I Need to Buy a $400k House?

Buying a home involves more financial considerations than just the stated purchase price. Understanding the full scope of costs is important for aspiring homeowners to prepare for the financial commitment. Homeownership encompasses a range of upfront expenses and ongoing monthly obligations, each requiring careful planning and budgeting.

Upfront Financial Requirements

Purchasing a $400,000 home demands a significant amount of cash upfront, primarily for the down payment and closing costs. The down payment is the initial amount of money paid directly to the seller, reducing the amount borrowed through a mortgage. Common down payment percentages vary, with 3.5% often seen with certain government-backed loans, while conventional loans might require 5%, 10%, or 20%.

For a $400,000 house, a 3.5% down payment would be $14,000, a 5% down payment would be $20,000, and a 10% down payment would amount to $40,000. Providing a 20% down payment, totaling $80,000, is often advantageous as it eliminates the need for private mortgage insurance. The size of your down payment directly influences the principal amount of your mortgage, impacting future monthly payments.

Beyond the down payment, closing costs represent another substantial upfront expense, encompassing various fees paid at the real estate transaction’s conclusion. These costs range from 2% to 5% of the home’s purchase price. For a $400,000 house, this translates to an estimated range of $8,000 to $20,000.

Within these closing costs are several components. Loan origination fees, charged by the lender for processing the mortgage, range from 0.5% to 1% of the loan amount. Appraisal fees, which cover the cost of professionally assessing the home’s value, fall between $300 and $550. Home inspection fees, paid to evaluate the property’s condition, cost between $200 and $500.

Title insurance, protecting both the lender and buyer, costs between $500 and $3,500 (0.5% to 1% of the purchase price). Escrow or settlement fees, for managing the transaction, range from 1% to 2% of the purchase price or are a flat fee. Recording fees, paid to register the property transfer, are between $20 and $250. In some regions, attorney fees range from $500 to $1,500 for residential transactions, or $150 to $500 hourly. Prepaid expenses, such as initial property taxes, homeowners insurance premiums, and mortgage interest, are collected at closing to establish an escrow account.

Recurring Monthly Expenses

After the initial upfront costs, homeownership entails a series of ongoing monthly expenses that form the total housing payment. The largest component for most homeowners is the mortgage principal and interest (P&I). This payment is determined by the loan amount, the interest rate, and the loan term, commonly 30 years.

As of August 20, 2025, the average 30-year fixed mortgage interest rate is 6.62%. For a $400,000 home with a 20% down payment ($80,000), the loan amount would be $320,000. At a 6.62% interest rate over 30 years, the principal and interest payment would be $2,050 per month. If a smaller down payment, such as 3.5% ($14,000), is made, the loan amount would be $386,000, resulting in a P&I payment of $2,475 per month.

Property taxes are another significant monthly cost, assessed by local governments based on the home’s value. The national average effective property tax rate is 0.9% of the home’s value annually. For a $400,000 home, annual property taxes could be $3,600, translating to $300 per month.

Homeowners insurance protects the property against damages from various perils. The average annual cost for homeowners insurance on a $400,000 house ranges from $3,186 to $4,427 per year, or $265 to $370 per month. The premium depends on factors such as the home’s location, age, construction materials, and coverage limits.

Private Mortgage Insurance (PMI) is required if the down payment on a conventional loan is less than 20% of the home’s purchase price. PMI protects the lender in case the borrower defaults. It ranges from 0.2% to 2% of the original loan amount annually. For a $386,000 loan (after a 3.5% down payment on a $400,000 home), a PMI rate of 0.5% would add $160 per month, while a 1.5% rate would add $480 per month. PMI payments can be removed once sufficient equity is built in the home.

Homeowners Association (HOA) fees are applicable for properties within planned communities, covering the maintenance of common areas and shared amenities. These fees vary significantly, from $100 to $1,000 per month, with a national average between $170 and $293 per month. If applicable, HOA fees are an additional recurring expense to consider in the total monthly housing payment.

Factors Influencing Affordability

Beyond the direct costs, several financial factors influence how much a lender is willing to provide and how much a buyer can afford for a $400,000 home. A strong credit score plays a significant role in mortgage qualification and the interest rate offered. A higher credit score leads to more favorable interest rates, reducing monthly principal and interest payments and the loan’s total cost. Conversely, a lower score can result in higher rates, increasing the overall expense.

Lenders consider a borrower’s debt-to-income (DTI) ratio, which compares total monthly debt payments to gross monthly income. This ratio indicates a borrower’s capacity to manage additional debt, such as a mortgage. While specific limits vary by loan program and lender, many conventional lenders prefer a DTI ratio of 36% or less, though some approve loans with a DTI up to 43% or even 50% under certain conditions. A high DTI can limit the mortgage amount a buyer qualifies for.

Maintaining emergency savings or financial reserves is important when considering homeownership. These funds provide a buffer for unexpected home repairs, unforeseen expenses, or periods of income disruption, ensuring long-term financial stability. Lenders may review these reserves as part of the loan approval process, as they demonstrate a borrower’s ability to handle the financial responsibilities of homeownership.

Various loan programs exist, each with different down payment requirements and qualification criteria, impacting the initial capital needed. Some government-backed loans permit lower down payments than conventional loans. While these programs make homeownership more accessible by reducing upfront cash, they might involve additional costs, such as mortgage insurance premiums, affecting the overall financial commitment.