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Homebuying can be a stressful and expensive undertaking, but approaching the process in a prepared manner can help alleviate any surprises—especially when it comes to having enough cash on hand to buy the piece of property you have your eyes set on.
People are turning to artificial intelligence to help outline budgets, but how accurate is it? And does AI cover “every” monetary aspect of the homebuying process?
We asked ChapGPT, “How much do I need to buy a first home?” Then, we took those recommendations to a team of financial experts.
“That objectivity makes AI a great starting point, especially for first-time homebuyers trying to map out budgets and savings goals,” Andrew Latham, certified financial planner with SuperMoney.com, tells Realtor.com®. “But AI starts to lose its edge the more specific your needs get, especially when it comes to something as localized and financially nuanced as buying your first home.”
ChatGPT explained that “buying your first home depends on a bunch of factors like where you want to live, the type of home, your financial situation, and local market conditions.”
For this experiment, AI based its estimates on a $300,000 home.
Down payment
The down payment will be a big chunk of your savings. This is the money a buyer pays upfront toward the cost of a new home. The amount you put down will be a percentage of the purchase price.
AI suggests a down payment “typically 3% to 20% of the home price.”
Based on a $300,000 home, a 3% down payment is $9,000; a 20% down payment is $60,000.
While 20% is a common number when it comes to a down payment, the 3% number might stand out. Brennan Thiergartner, certified financial planner at Fidato Wealth, tells Realtor.com this is not unrealistic.
“A 3% down payment can absolutely be realistic—especially for first-time homebuyers using conventional loan programs like Fannie Mae’s HomeReady or Freddie Mac’s HomePossible,” explains Thiergartner. “These programs are designed to make homeownership more accessible and affordable, especially for buyers with solid credit but not a ton of cash saved up.”
“Even more critical is context,” says Latham. “If AI doesn’t have access to your real spending, credit obligations, or income fluctuations, its affordability analysis can be wildly off.”
Closing costs
Closing costs are fees paid in addition to a down payment. These costs might cover appraisal fees, attorney fees, or escrow funds.
AI says this is “usually 2% to 5% of the home price” and will cover fees such as loan processing, appraisal, title insurance, and taxes.
Based on a $300,000 home price, AI says closing costs are about $6,000 to $15,000.
“The actual amount (2% to %5) can vary by state and lender, but that range is solid for most buyers,” adds Thiergarter.
Prepaid costs
AI explained that money is needed for prepaid costs such as property taxes, homeowners insurance, and sometimes mortgage interest paid upfront. It did not get specific about how much should be set aside.
Amounts will vary according to location, coverage, and the type of mortgage and rate. Lenders might ask for this to go into an escrow.
“Escrow payments are funds withdrawn to cover home insurance and taxes,” says Austin Kilgore, consumer finance expert with Achieve Center for Consumer Insights. “Prospective buyers can check and compare prices on insurance, and should research expected property taxes by checking similar homes at the county assessor’s website.
Moving and initial repairs/furnishing
This amount can vary depending on a person’s preferences, budget, and location, but AI suggests budgeting for moving expenses, initial home repairs, or upgrades.
“What AI doesn’t always account for is how many ‘hidden’ costs come with homeownership,” says Thiergartner.
“Buying a home often leads to ‘lifestyle inflation,’” says Stephan Shipe, financial adviser and CEO of Scholar Advising. “You’re going to want new furniture, nicer decor, upgrades. AI doesn’t always pick up on those human tendencies.”
Emergency fund
AI suggests having savings set aside for unexpected expenses after you move in.
All of this can add up to $1,000 or more.
“For first-time buyers, the best advice is to look beyond the down payment,” suggests Shipe. “You want to have a healthy buffer after closing—ideally six months of living expenses plus extra cash for unexpected home costs.”
ChatGPT has a disclaimer that it “can make mistakes. Check important info.”
AI can be a helpful resource and provide inspiration to get started on a homebuying journey. However, at the end of the day, it’s important to plan for the unexpected—and that can mean spending more than the initials costs.
“You don’t want to drain your entire savings just to get into a house—because owning a home doesn’t pause life’s emergencies,” says Thiergartner.