In a Rush to Sell Your Current Home for Cheaper Place? Not so Fast!

Some homeowners seem to be quite anxious to sell their existing home in order to purchase a "cheaper" property. While this may appear to be a good idea on the surface, the truth might actually be surprising: unless a homeowner is making a major change and moving into a significantly different price range (for example, downsizing from a 3,500 square foot single-family home to a 1,000 square foot condominium), chances are, that new property may not be as cheap as it seems. In most cases, it does not make financial sense to sell at $250,000 house for a $225,000 house (there are a few exceptions to this, however).

Most times, when people think about the cost of a house, they only consider the purchase price. In actuality, there is not much difference in the mortgage of a $225,000 house and a $250,000 (about $125 for a 30-year mortgage at 4.75%, after a 3.5% down payment). Considering the fact that most people do not consider living in the same home for the life of the mortgage, the costs of purchasing and moving into a new (different) home could outweigh the cost of staying put. When considering trading in your existing place for a new, "cheaper" pad, consider the following:

Possible loss on the sale of the existing home. Depending on when a homeowner purchased the home they are currently selling, there could be a situation in which the homeowner does not actually sell for a price high enough to cover the existing mortgage, pay real estate commissions, and offer buyer concessions (such as the payment of closing costs). Unless the transaction is a bank-approved short sale, the difference between the selling price and the existing mortgage amount will have to be paid by the seller.

Upfront down payment and closing costs on the new home. There are a few different costs to consider when purchasing a new home. It is very difficult to secure a new mortgage these days without some type of down payment. At a minimum, most buyers should be prepared to put down a payment of 3.5% of the purchase price of the home. In addition to the down payment, unless the buyer obtains concessions from the seller to pay for closing costs, this is another outlay of cash that is needed to purchase another home. In some cases, the upfront outlay of cash could be more hurtful than beneficial than the amount saved on the cheaper mortgage.

Loss of tax advantages (if moving from a owning a home to renting a property). As many people know, one of the advantages of owning a home is that the interest expense paid on the mortgage loan is tax-deductible. If a homeowner decides to sell her home and rent for a while, the loss of that mortgage interest could result in a higher tax payment.

Moving and/or storage costs for the new home. People don't seem to realize how much "stuff" they have in their home until it's time to move. When homeowners solicit the help of a moving company to help with the transition, the costs be anywhere from a few hundred dollars to upwards of thousands of dollars.

Costs to customize the new place. In addition to purchasing and moving into a new home, there are also additional costs involved with things such as decorating, purchasing new furniture, remodeling or adding features to the home.

At the end of day, while in some cases it may make perfect sense for homeowners to sell their existing homes for new houses, it is important to consider all possible costs in the purchase of the new place.