Expert: CJ Brasiel - 2/8/2012

Question
Hello-
I just had a question about the costs of upgrading to a new house when you outgrow your current one.  We have been in our house just about a year, but feel it may be too small soon (more kids coming) and we may need to get a bigger one is a few years.  We bought it for $200,000 and put $40,000 down.  I am just wondering about estimated cost if we were to get a new house after such a short time.  Say we found another house for about the same price or slightly higher.  Would the estimated realtor fees of, say $10,000 (5% of the purchase price) and the estimated $4000 closing costs on the new house have to be paid out of pocket, or would they be part of the new loan that we get?  Does having more equity in the house make  the costs of getting a new home lower?  We don’t have a lot of money so just trying to figure out how expensive it will be.  Thanks for your help!

Answer
Lisa -

Very smart to get a big picture cost of "moving up".  Some thoughts:
If you have only owned for a year, depending on your area, you may actually have a loss in value.  The only way to  know is to have a real estate professional that knows your neighborhood provide a "CMA" - Current Market Analysis.  This agent can also provide you with an "Estimated Cost to Close" sheet that will itemize closing cost and predict commissions for your area.  Remember, commissions are negotiable but closing costs are typically set for the city/county/state.  I offer discounts for repeat/return clients and when clients are utilizing me at the same time for purchase/sale.  Not every agent sees it that way. : )

Once you have the selling cost, speak with a loan officer to help you calculate the current market buyer's cost.  Particularly, interest rates, processing, appraisals, and fees as some of these cost may be different than when you bought a year ago.  

Then talk with your agent and loan officer about the best strategy to sell and buy at the same time.  If you are writing offers "contingent" upon the sale of your current home, it may be a challenge to work with a bank (Pre-foreclosure or foreclosure) property.  If you are working with a seller with equity, make sure you understand the terms and don't be surprised if you have to "sweeten the pot" a little if there are multiple offers (or not).  

Look at all your options.  It may be possible to rent out the current home, and buy a new larger home.  Involve professionals and get a couple of opinions.  Don't sign anything until you are sure about what you want to do and know the numbers jive.   Best of luck!

CJ