Selling A Home Is Not Without Costs
What do you do when you outgrow your house?
Sell and move, or add square footage? Both options involve costs. Which one is the better value?
And, which one will disrupt your life the least?
Some quick calculations are in order when making this important decision.
Fortunately, today’s mortgage rates make either option less expensive. Rates have recently hit 3-year lows, making refinancing a home or buying a new one very feasible options.
Whichever option you choose, take into consideration the tangible and intangible costs.
Cost to Sell A Home And Buy Another
If you choose to sell your old home and purchase a more suitable property, don’t underestimate the transactions costs.
It could cost ten-to-fifteen percent of your home’s price when you sell and move. This includes costs of selling and buying again: real estate commissions, seller’s closing costs, buyer’s closing costs, repairs, storage and moving expenses.
For example, you are selling a two-bedroom, two-bathroom house for $300,000. You upgrade to a three-bedroom, three-bathroom home for $350,000. Conservatively, that’s $30,000 to sell, buy and move, not to mention the $50,000 price difference between the old and new homes.
You’ll also need to include the extra financing costs over the life of the loan. If you bought your house five years ago with a $220,000 mortgage at 4.0 percent, your interest over the life of the loan would be around $160,000.
However, you’re selling after five years, you’ve paid $42,000 in interest and owe just under $200,000. Skipping the math, it will cost around $85,000 in additional financing costs if you add up extra interest paid on the old and new loans.
Here’s how the hypothetical move shakes out:
- Selling and buying: $30,000
- Additional principal loan balance: $50,000
- Additional financing costs: $85,141
In all, the total cost of a bigger house comes out to $165,000.
What kind of renovation could you do with that money?
Cost to Renovate
Home improvement expenses depend on the work to be done and its quality.
According to Remodeling Magazine, it costs $115,000 to add a master suite addition, which adds an additional bedroom and bathroom to your home.
If you finance the improvements, don’t leave out the cost of a home improvement loan. Interest on $115,810 over 15 years at 5.0 percent is $49,000. Total remodeling cost is $164,848.
Cost-wise, it’s a toss up. But there are intangible elements to this decision too.
Other considerations may tip the balance in favor of leaving or staying. You may not want to switch your kids to a different school or district.
On the other hand, you might find a home closer to work. There are many decisions to weigh. Be sure to think of all of them.
- Will an extensive renovation ruin your marriage?
- Do you love projects or do you prefer a turn-key experience?
- Would you rather have a tonsillectomy than move?
- Are you attached to your current house? Or are you “over it?”
Before you choose to finance a new home purchase or home improvement, it’s smart to get some financing estimates from a trusted mortgage lender.
Compare the monthly mortgage and home equity loan payments for both alternatives and make sure you can afford the upgrades you want. If not, scale back. The nicest new bedroom in the world won’t do much good if your finances keep you up all night.
What Are Today’s Rates?
Whether you choose to stay or move, you can benefit from today’s rates. Cash-out refinances are available to raise a large amount of cash for your project, if you want to stay.
If you’re moving, get a quote for today’s rates, which are hitting 3-year lows.