In this post, I look at the cost of buying a home. I should mention that I am not a first-time home buyer so this post looks at the costs that pertain to my own personal situation.
My major focus this year has been on paying off my mortgage which should be accomplished by the end of the year. While it will certainly be nice to get rid of a major monthly expense, my enthusiasm about being mortgage-free is tempered by the fact that I’ll have to buy another, larger and more expensive home!
My current home is not adequate for meeting the needs of a growing family. In fact, it was never intended to be our final home. There is nothing that we can do and we are looking at making the upgrade in the next year or two. So lately I’ve been looking into the costs of selling our current home and buying another, more expensive home. Here’s what I found.
We’ve already had a realtor take a look at our place and if we sold our home and purchased another home through him, then he would cut us a break on the commission for selling our home. His normal rate is around 5% and we could negotiate him down to 2.5%. So for the purpose of my budgeting for moving I’ll assume that our place sells for $450,000. On that amount, the realtor fee is $11,250.
Next I looked at the closing costs. A good rule of thumb for trying to calculate closing costs is to go with 2% of the purchase price. The average price of detached, 2-storey homes in our area is about $700,000 to $800,000. For my planning purposes I’ll assume that our new home will cost $750,000. 2% of $750,000 is $15,000. Here is a breakdown on what I think my true closing costs will be:
Land Transfer Tax (Ontario) = $11,475
Legal Fees = $2,500 est.
Annual Home Insurance Policy = $700
Prepaid Property Taxes = $2,000 est.
Property Appraisal = $250
Home Inspection = $300
Moving Expenses = $2,000 est.
Total = $19,225
When I take the amount that it will cost me for moving expenses and closing costs ($19,225) and add to it my realtor fees for the sale of my current home ($11,250), the total expense for moving is $30,475…Ouch!!! That is over 30k of my net worth gone up in smoke just for moving!
It’s calculations like these that really make me question how great of an “investment” our primary homes actually are. In fairness, my current home has more than doubled in the past 10 years. Of course this doesn’t include what I paid in interest expenses, renovation and repair costs, insurances or taxes. But I don’t for 1 second believe that if I purchase my final home today that in 10 years it will be worth double what I paid for it. So I’m left thinking what are my options? And when will all of these asset bubbles bursts?!? There’ll be more to follow on this.