My wife and I have been mulling over a move for some time now. No, we’re not jumping on this low rate bandwagon thinking we’re going to turn a huge profit on a move, but we’re just thinking about what the best location is for the top district, what works for my commute, proximity to family, etc. Frankly, if we stayed where we are, we’d probably be fine, but we’re thinking about whether we should move for the reasons cited given the long-term benefits. With that in mind, I tallied up some relatively detailed assumptions on both transactional costs and future payment differences so we can make an informed decision on what a move would cost us both up-front and long-term.
Moving Transaction Costs
The first thing you should do if considering a move is to understand ALL the costs associated with the transaction itself. That would include getting a good faith estimate (GFE) from a reputable lender, and of course, comparing options across a few lenders to make sure the prices are reasonable.
- Taxes – In our state, there’s a transfer tax on both the sale of your existing home and the purchase of the new home. We won’t have to pay capital gains since we’re not making any money on this home, but that would be a consideration for huge gains of $250,000 or more if the home’s been in your name for many years.
- Title Insurance – While I’ve always found the notion of paying a thousand dollars or more to check that there are no liens or other risks to your house title, this is the industry norm (even for a refi!), so you’re pretty much stuck with this fee. In some cases, you can negotiate a lower fee if the lender will agree to your title search company or if you’ve used the same one before.
- Administrative Costs to Close – Lenders always tack on all kinds of little $50-$100 fees for things like document prep and other administrative costs that normally add up to a few hundred dollars.
- Realtor Fees – These days, it’s getting to be very difficult to sell your own home, especially if you want to do it fast. The realtors pretty much have a cartel that sets pricing and access to each other’s clients. So, expect to pay at least 5% on the sale of your current home. If you’re renting, great, no fee. The norm used to be 6% but in this economy, most realtors are willing to accept the 2.5% to each side on the transaction.
- Escrow of Taxes and Homeowner’s Insurance – Often times, you’ll need to set aside several months of taxes and insurance which gets held in escrow. This ensures that the money is disbursed as needed rather than you paying yourself. Some companies will allow you to forgo escrow and not have your money tied up, but that often has a fee associated with it.
- Movers – Depending on how much stuff you’re moving, you could expect to pay anywhere from $800 to a few thousand dollars to have your belongings moved. When I was younger and didn’t have much stuff, we rallied the family to move from apartment to home. But now, that would be insane. We use professional movers to handle all the large furniture, appliances, etc. You can save some money by boxing up smaller items and moving them yourself before they come for the quote.
- Incidentals – Inevitably, there are going to be costs associated with your move that you didn’t think about. It might be repairs to your existing home to ready it for the sale or it may be immediate repairs or upgrades you want to undertake in your new home.
- Points – Depending on the type of loan you get, you may have calculated that it was worthwhile paying points to get the lower rate. I’m generally not a fan of the practice since it doesn’t pay off, especially if you refinance again and again, but if it makes sense, factor this cost in as well.
So, this is just the beginning. Obviously, if you’re moving into a bigger, more expensive place, the long-term costs are going to increase as well, but as you can see above, even for a typical middle-class sale/purchase, the initial transaction costs can easily exceed $40,000.
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