Creating a budget for your next property purchase is an essential task before searching for your next dream home.
There’s no problem with visiting a few properties in the neighborhood to see what’s available, but when you are ready to enter the market and purchase, you need to know your spending power.
In most cases, the size of your pre-approved mortgage will give you the best and most obvious indicator of how much you have to spend.
However, it won’t all go on your target property. Several thousand dollars must be put aside for taxes, legal fees and commissions.
Even if you have bought an apartment or house before, understanding how much it costs to make a purchase is challenging.
This checklist will help you break down the selling costs.
Prep time
While every owner is different, many will spend around six months planning and preparing to put their home on the market. While this is not a direct cost, it’s still a lot of time and effort. Depending on market conditions, a home will take six to 12 weeks to sell.
Seller costs
These can range from 8% to 10% of the sale price, including both agent commission and seller fees. According to Redfin, the median price of a house in America was $412,000 last September, so costs of $40,000+ are not impossible.
Title fee
Also known as a transfer tax, this amount is dictated by the value of your house and the applicable state tax rate.
Title insurance
Sellers can be asked to pay for title insurance, which protects the buyer if there is a problem in proving ownership. Costs are usually around 0.5% of the sale price. The money is taken from your profit when the deal closes.
Escrow
A system that conducts the disbursement of funds. Buyers and sellers will often share this cost and it is not unusual for each party to pay upwards of $1,500.
Prorated property taxes
There’s no escaping these, and you will be asked to pay your dues on the day of settlement.
HOA fees
If you’re selling an apartment, the Home Owners Association (HOA) will come looking for any outstanding fees before you can finalize the transaction.
Legal bill
You’ll need legal guidance and assistance throughout the transaction. Ask your attorney about the likely fees before you proceed with any transaction.
Mortgage balance
Your existing mortgage will have to be paid off to allow the transaction to finalize and for your next mortgage to take effect.
Capital gains tax
It’s possible you may have to pay CGT if you’re selling at a very high profit. Talk to your financial adviser beforehand.