Beyond the Mortgage: Budgeting for Property Purchase Success

Creating a budget for your next property purchase is essential before searching for your next home. There's no problem with visiting a few properties in the neighborhood to see what's available, but when you are ready to enter the market and purchase, you need to know your spending power.

In most cases, the size of your pre-approved mortgage will give you the best and most obvious indicator of how much you have to spend. However, it won't all go towards the cost of your target property. Several thousand dollars must be put aside for taxes, legal fees, and commissions. Even if you have bought an apartment or house before, understanding how much it costs to make a purchase is challenging.

We’ve compiled this checklist to help you break down the costs associated with selling your home.

Current Home Prep time

While every owner and situation differs, many will spend around six months planning and preparing to put their home on the market. While this is not a direct cost, it's still a lot of time and effort. In addition to this planning and prep time, it will take an additional six to 12 weeks to sell the home, depending on market conditions.  This timeframe encompasses various stages, such as staging, marketing, negotiating offers, and finalizing the sale, all of which contribute to the overall duration of the selling process.

Seller costs

The expenses associated with selling a home can vary widely, typically from 8% to 10% of the final sale price, encompassing both agent commissions and seller fees. For instance, based on data from Redfin, which reported a median house price of $412,000 in America last September, these costs could amount to $32,960 to $41,200 or even higher. Therefore, it's essential for sellers to factor in these potential expenses when planning their budget to sell their property.

Title fee

Often referred to as a transfer tax, it is determined by the assessed value of your property and the prevailing state tax rate. It's a fee the government or local authority imposes upon transferring property ownership from one party to another. The exact calculation can vary depending on the jurisdiction and the specific regulations in place. Generally, the higher the value of your home and the tax rate in your state, the more substantial this fee will be. So, it's crucial for homeowners to be aware of these potential costs when planning for a property sale.

Title insurance

In many real estate transactions, sellers may find themselves responsible for covering the costs of title insurance, a safeguard designed to protect the buyer in case any issues arise with proving ownership of the property. Typically, these expenses amount to approximately 0.5% of the final sale price. It's important to note that these fees are typically deducted from the seller's proceeds at the deal's close. While this may reduce the overall profit from the sale, it provides essential protection and peace of mind for both parties involved in the transaction.

Escrow 

Escrow is a vital system that facilitates the secure and organized transfer of funds between buyers and sellers during a real estate transaction. This process serves as a neutral intermediary, ensuring that both parties fulfill their obligations outlined in the sales agreement. Typically, the costs associated with escrow services are shared between the buyer and seller, with each party contributing towards fees that can often exceed $1,500. While this expense may seem significant, it's an essential component of the transaction, providing assurance and protection to both buyers and sellers by managing the transfer of funds securely and efficiently.

Prorated property taxes

Prorated property taxes are unavoidable in real estate transactions, and it's imperative to address them promptly on the day of settlement. These taxes are calculated based on the portion of the tax year that each party owns the property, and both buyers and sellers are typically responsible for their respective shares. While it might feel like an additional financial burden, settling these dues ensures a fair distribution of tax obligations and maintains compliance with local regulations.

HOA fees

When selling your home, addressing any outstanding fees owed to the Homeowners Association (HOA) before finalizing the transaction is essential. The HOA plays a crucial role in maintaining the community's amenities and infrastructure, and ensuring that all dues are settled is a standard practice in real estate transactions. By resolving any outstanding payments, you uphold your contractual obligations and ensure a seamless transfer of ownership for the buyer.

Mortgage balance

To complete the real estate transaction successfully and enable the initiation of your new mortgage, it's imperative to settle your existing mortgage. This entails paying off the remaining balance on your current loan, thus releasing the property's title and ensuring a smooth transition of ownership to the buyer. Additionally, clearing your existing mortgage allows you to obtain a new mortgage for your next property, if applicable. This process involves coordinating with your lender to settle outstanding debts and formally close the existing mortgage account. 

Capital gains tax

In certain instances, you may be subject to Capital Gains Tax (CGT) if you sell your property at a substantial profit. CGT is a tax levied on the profit earned from the sale of assets, including real estate, and its applicability depends on various factors, such as the duration of ownership, your tax filing status, and any applicable exemptions or deductions.

Selling a home is such an exciting time, but there are many complexities involved. Having a knowledgeable Brightwork agent on your side is crucial to ensuring the process goes as seamlessly as possible. Give us a call today at 925-200-6000, or click here to start working on buying or selling your next home.