So You Want to Buy a Home. What Will It Really Cost?

If you’re looking to buy a house, learn about the programs, mortgage options, and total cost of home ownership.

3 min read

Buying a house is usually the biggest purchase you’ll make. Not only is it an investment, but it’s also where you live, and buying the right place can bring both financial and emotional rewards. If you’re a first-time homebuyer, going in with some knowledge of the local housing market and understanding the total cost of ownership can be a big help.

American Dreaming

First things first. Are you ready to buy, or is renting a better alternative, at least for now? Although many still view owning a home as a core of the “American dream,” a growing number of people have opted to keep renting, even after becoming financially able to buy a home.

There are a number of factors that go into the rent-or-buy decision. For example, the choice may depend on whether you value flexibility—the ability to relocate or trade up (or down) on your housing choice—or stability, and are ready to plant long-term roots. 

Location, Location, Location … and Homework

So you’re ready to move forward with buying a home? Start by doing some basic Internet research. Read about existing and new-home sales data for broader home trends, and get a clear sense of the local housing market by looking at realtor websites.

Holden Lewis, senior mortgage analyst for, and J. Michael Black, senior mortgage consultant for Wintrust, say working with a real estate professional who specializes in your desired area is the best way to understand the economic factors affecting local housing.

Fannie Mae, Freddie Mac, and the Federal Housing Administration offer programs that can keep down payments as low as 3%, but Black says homebuyers who put down 10% can get more attractive financing options.

Lewis adds, “Many states and some municipalities have housing finance agencies that can assist with down payments, so ask your mortgage lender about these programs.”

According to Black, anything less than 20% down means homebuyers will need to get private mortgage insurance, also known as PMI, which protects the lender in case a home goes into foreclosure. He says it will add to the cost of the loan, but when the home’s value exceeds 78% of the original purchase price, it can be cancelled.

And How Will You Be Paying?

Mortgage financing options are generally either fixed rate, where the interest rate is set over the life of the loan, or adjustable, where the loan’s interest rate may change after a certain number of years. Which one is appropriate depends on how long you expect to live in the place.

Most first-time homebuyers usually stay put for five to seven years. Black said getting an adjustable-rate mortgage can be a good option in that case, as they usually have lower interest rates—at least at first. For those planning to live in their home longer, fixed rates are probably the way to go.

Don’t Put Away That Pocketbook Just Yet

The total cost of ownership (TCO) for a home doesn’t just include the principal and interest payments, Lewis said; there are also closing costs, property taxes, insurance, maintenance, homeowner assessment fees, and other costs to consider.

Closing costs can vary based on origination fees, lender charges, and other factors, but some experts suggest using 3% of the purchase price as an approximation.

Lewis added that buyers should save 1% of the home’s value annually to pay for maintenance and repairs as part of ongoing homeownership.

“I’m not saying you’ll spend that amount every year. A lot of times you’ll pay less than that. Some years you’ll pay several years of that,” he said.

Hands-On Goal Planning

Evaluate your financial situation and continue to pursue your goals.

Call Us
800-454-9272 and Wintrust are separate from and not affiliated with TD Ameritrade, which is not responsible for their services or policies.

TD Ameritrade and all third parties mentioned are separate and unaffiliated companies, and are not responsible for each other’s policies or services.


Market volatility, volume, and system availability may delay account access and trade executions.

Past performance of a security or strategy does not guarantee future results or success.

Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.

Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.

The information is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.

This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.

TD Ameritrade, Inc., member FINRA/SIPC. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2018 TD Ameritrade.

Scroll to Top