Expert: Diann Tonnesen - 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,

Congratulations on the coming additions to your family! Are they on they way or are you just in the "planning stages?" LOL

Do you intend to sell your current home and then buy another one? I don't know what the standard is for your area, but here in Las Vegas the Realtor fees are usually paid by the seller and can be 6% or 7% of the sales price at closing. That means you would need to allow for that to be paid out of any proceeds on the existing home along with 2% to 3% for other seller closing costs.

If you intend to rent out your current home, of course the fees above would not apply.

Again, in most areas of the country the seller pays for the Realtor commissions, so you shouldn't have to pay any commissions on a purchase. If you go with an FHA loan, the down payment is currently at 3.5%. (They have been talking about possibly raising it to 5% however, so if you aren't going to be buying the new home for a couple of years, perhaps it would be wise to plan on a 5% down payment.)

The closing costs on a new mortgage typically run about another 3% to 4%. You could ask the seller to pay for those costs on your behalf. (Of course it will be reflected in the sales price as the seller will more than likely want to raise the price to cover your costs.) Or you could also go with a higher interest rate on your loan and the lender could pay for your closing costs. I would certainly recommend talking to a local mortgage lender about both of these options.

I hope that helps, and feel free to write back with additional questions!