How much money do you actually need to buy a house?

A down payment is just one of many costs you'll have to pay before you can become a homeowner. 

If you're thinking about buying a home soon, you're probably trying to figure out how much money you'll actually need in order to close on a home.

And while a down payment is often the biggest cost that homeowners plan for, there are other fees associated with buying a home that many people often forget about, says Craig Venezia, a real estate journalist and author of the best-selling book, "Buying a Second Home."

In fact, Venezia says these fess can easily add up to tens of thousands of incremental dollars beyond the purchase price.

"These include closing costs, homeowners' insurance, as well as budgeting for home maintenance and repairs, which is particularly important if you're buying an older home or a fixer upper," Venezia adds.

Keep reading to find out how much you really need to save to make your dream of home ownership a reality.

Down Payment

Having a 20 percent down payment will often result in the best mortgage rate from your lender, and it'll help you avoid paying private mortgage insurance (PMI). However, you don't always need to put 20 percent down when purchasing a home, says F. Lee Williams III, a real estate salesperson for Rutenberg Realty in Manhattan.

"I have worked with clients who were able to secure a home with a 10 percent down payment," he explains, adding that in high-cost areas like Manhattan a 10 to 20 percent down payment is the norm. "In other areas of the country, a home can be purchased with a much lower initial investment," he adds.

Here are some low down payment options:

State or City Programs: For buyers who are interested in buying a home with little money down, Williams recommends looking into state or city programs that encourage people to buy a home in the area, he adds.

"For instance, the State of New York Mortgage Agency (SONYMA) has a number of loan programs to assist first-time buyers realize their dream," Williams explains.

Veterans Administration (VA) Loans: VA loans require "no down payment at all, and there is no mortgage insurance, since the loan is guaranteed by the Veterans Administration," explains Joe Parsons, a senior loan officer at PFS Funding in California.

Federal Housing Administration (FHA) Loans: "FHA loans are insured by the Department of Housing and Urban Development (HUD) and require a down payment of just 3.5 percent," Parsons explains. Even better, the down payment can come from the borrower's own funds, a gift from a relative, or a down payment assistance program, Parsons says.

Closing Costs

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Closing costs are the one thing that a lot of people ignore when calculating the cost of buying a home, and this is a big mistake because closing costs can actually turn out to be quite expensive, according to Williams.

"Sadly, there isn't a flat fee when it comes to closing costs," Williams says. Instead, he explains that homeowners should plan on having 5 percent of the purchase price available, at a minimum, to cover those costs.

In addition, Williams says closing costs will also vary based on geographic region and the type of property you are purchasing. For example, urban houses might have higher taxes than rural properties, and apartments might require lower tax payments than houses, Williams explains.

The typical closing costs you might run into include title insurance, attorney fees, mortgage application fees, and appraisal fees, says Williams.

If you're short on cash and can't afford the closing costs, you can ask your lender to pay some or all of the fees, says Parsons. "This is commonly done with FHA and VA loans," according to Parsons. If that doesn't work, he says the borrower can also select a higher interest rate so that the lender will pay a rebate to offset some or all of the costs. "Increasing the interest rate just .25 percent will typically generate a rebate of 1 percent from the lender - $3,000 in the case of a $300,000 loan," Parsons explains.
Another option: Parsons says you can also roll the closing costs into the mortgage amount, so you don't have to come up with the money upfront.

Home Insurance

Homeowner's insurance is required by all lenders, but Parsons says it would be prudent to have it even if it were not a requirement. "Homeowner's insurance covers loss from fire or other calamity, theft and liability," Parsons explains.

So how much can you expect to pay for home insurance? Parsons explains that the annual premium will vary by area, price of the property, and extent of coverage.

"In California, for example, premiums will range from around $500 to $1,200 for properties ranging in price from $200,000 to $800,000," Parsons says.

If you're thinking about buying a condo, however, your fees may be taken care of by your homeowner's association.

"Condominiums typically provide insurance coverage as part of their homeowner's association dues, although it's important to be aware that these master policies will not always cover the contents of the individual units," according to Parsons. The solution, he adds, is to purchase a "walls-in" policy to be sure you have adequate coverage. "Most lenders today require this type of coverage for condos," he adds. "The monthly premiums range from $20-50 per month in California."

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Lender Fees

Beyond the purchase price of the home, buyers can also expect to pay additional fees to the lender, explains Venezia.

One of these fees includes an "origination fee," which covers the cost of putting in place your new loan application, Venezia explains. "This charge is usually a percentage of the total loan and typically runs about .5 percent and 1 percent," he adds.

Other fees you can expect to pay include various inspections (home, pest, radon, septic tank, etc.) required by your lender and appraisal fees (around $300) so your lender can confirm the value of your home, Venezia adds.

There are also "various title examination and insurance fees to make certain the title is clear for transferring the property from seller to buyer, and to protect you and your lender should something be missed in the title examination," Venezia says.

Renovations and Repairs

"How old the house is and how well the current owner has maintained it will affect the amount of renovations that may need to be done," Venezia says.

Then there's also personal preference. "For example, while the tile in the bathroom may be perfectly fine, the Pepto-Bismol pink color may be something you really don't care for," Venezia says. "Suddenly, you're plopping down a few grand to replace it."

To prepare for this additional cost, Venezia suggests homebuyers create a "renovation fund" by setting aside some money each month for potential future projects.

"A good rule of thumb is to set aside 1 percent of the purchase price of your home each year," he explains. "That means, for example, that if you paid $300,000 for your home, your annual contribution should be $3,000 a year or $250 a month."

He also recommends using the same logic if you're buying a home that might need repairs right away, before you can even move in. And if the budget doesn't allow for all the renovations on your list, Williams suggests prioritizing security before aesthetics.

"First deal with those items that will secure the property: Doors, foundation, plumbing," he says. From there, you should work on making the house a home. "If you cannot decorate every room, pick one and call it the refuge," he adds.

Yahoo Homes By Diana Bocco July 11, 2014 2:11 PM