Before you set
out to trade in your current house for a "better" one,
you need to take a good look at your overall budget and determine
how much more, if any, of your monthly spending can go toward increased
How do you figure
out where all your money goes each month? Get out your checkbook
register, credit card statements, paycheck stub, most recent year's
tax return, and anything else that documents where you've been spending
your money over the past six to twelve months. You may also need
to do some tracking or estimating of cash purchases that don't leave
a paper trail.
Figuring your expected expenses
after trading up
how you spend your money now on housing and other items is only
half the picture. You also need to know how much you will spend
after buying your next home. The following expenses are probably
going to change the most if you sell your current house and buy
a new home:
payment: Unless you've been squirreling away extra
savings while living in your current house, the total amount you're
borrowing through your mortgage (and, therefore, your monthly
mortgage payment) will probably increase if you trade up.
taxes: In most communities, the annual property taxes
you pay on your next home purchase are initially set at a percentage
of the property value. To find out the property tax rate in the
area where you plan to purchase your new home, simply call the
local tax collector, assessor, or other taxing authority. Don't
base your property tax estimate on the amount that the seller
of the home you're interested in buying is currently paying or
on the amount you're paying on your present house. When you trade
up, the taxes on the home you buy are usually reassessed upwards.
If you're trading up, some of your utility bills may stay the
same, whereas others will change. Until you have a specific home
in mind to buy, you can't request hard numbers on utility usage.
In the interim, make some educated estimates. For example, if
you're planning on moving into a larger home in your area with,
say, 30 percent more square footage, you can estimate that your
heating and electric bills will increase by about 30 percent.
However, if you're moving from an old, energy-inefficient home
into a newer and more efficient one, the new home may not cost
you more in utilities even if it's a bit larger.
If you buy a larger home, you'll have more space to fill, so you're
probably going to spend more money on furnishings. Make a reasonable
estimate of how much you expect to spend on new furnishings.
If you're buying a more expensive home, you're probably also going
to spend more on maintenance, even if the home isn't a fixer-upper.
A good way to estimate your annual maintenance costs is to multiply
the purchase price of the home by 1 percent (use 1.25 percent
of the purchase price for older and more run-down properties).
and state income taxes:
If you buy a more expensive home and have larger mortgage payments
and property taxes, your income tax bill will probably go down.
Mortgage interest and property taxes are deductible expenses on
Schedule A of your federal income tax Form 1040 and on most state
If you buy a more expensive home, your homeowners insurance premiums
will probably increase. In the absence of a specific quote for
a property you're interested in buying, you can estimate that
your homeowners insurance costs will increase in proportion to
the increased size (square footage) of your home. Because land
isn't insured, ignore the extra land that may come with your next
Next Step: Trading Down
To Seller Services