Expert: Jay Denit - 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
Hi Lisa,

The sellers in real estate transactions are the only ones that pay Realtor fees.  I.E.- you would hire a Broker to sell your current house and they would charge you (4-6%) of the sales price and that would include the commission to the buyers agent.  On the flip side, when you buy a new house, your agent would be paid by the sellers of that home, so nothing out of pocket to you.

In theory loan closing costs are paid out of pocket at closing, but there are ways around it, like asking the seller to pay your closing costs as part of the real estate negotiation or another way is to ask your lender and they can give you a slightly higher interest rate, but absorb your closing costs for you.  Every state is different on loan closing costs.  Some state are low and some are really high.  Taxes are the big difference.

If you are trying to do this all on a shoe string budget, ask your loan officer about an FHA loan.  They are a great product and you would only need 3.5% down payment on your new house. Find a Real Estate Agent and a good loan officer and you will be all set.