Two Hidden Costs Of Selling A Home
Posted on: 29 August 2018
Selling a home involves certain costs, most of which you'll learn about upfront if you work with a real estate agent. However, there are some costs that even your agent may not know about but you should be prepared for nonetheless. Here are two things to look out for when it comes time to pass your home onto a new owner.
Prepayment Penalties
You would think paying off your mortgage early would be a good thing, but your lender may not agree. Banks make their money from the interest charged on the loan, which means they get less the earlier their customers pay off their mortgages. Because of this, some lenders will charge a prepayment penalty when you sell your house and pay off the loan.
The amount you're charged depends on the lender, but you can expect to pay up to 80 percent of 6 months' worth of interest payments. For instance, if your interest payments total $1,000 for half a year, you would be charged an $800 prepayment penalty when you paid the balance on your loan after selling your house.
Many lenders will make exceptions for certain situations, however. For example, your bank may waive the fee if you get another mortgage through the company for your new home. Others will set a time limit on the penalty -- you'll be charged the fee if you pay off your mortgage within the first five years, but the fee is waived after the fifth year, for example.
It's best to read your loan documents to see if there are prepayment penalties and then contact your lender to determine if there's any way you can avoid them.
Transfer Tax
Selling a home comes with an assortment of tax implications, but one that surprises many homeowners is they must pay a tax to transfer the property to the new owners. This tax generally encompasses all the fees charged by the local, state, and federal governments to process the transaction.
The tax amount varies by state and the type of property sold, but it can be as much as 5 percent of the property's value. Unfortunately, this tax is not deductible; however, you can negotiate with the buyer about who will pay it. If the buyer is asking for a lower price, you could require the person to pay the transfer tax as a concession.
There are many other costs involved when you sell a house. Consult with a real estate agent, and do your own research about this issue to ensure you're fully prepared for the sale.
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