How to Calculate Expected Costs after Trading Up in Housing

To help you determine your expenses after you buy a new home, check out these areas:

• Mortgage 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. By using our handy-dandy mortgage payment calculator, you can calculate the approximate monthly mortgage payment you’ll face in your new home.

To calculate your monthly loan payment, multiply the relevant number from the following table by the total amount you’re borrowing, expressed in (that is to say, divided by) thousands of dollars. So, for example, if you intend to borrow $200,000 at 4.5 percent interest on a 30-year mortgage, you multiply 200 by 5.07 to come up with a monthly payment of $1,014.

• Property taxes: In most communities, the annual property taxes you pay on your next home purchase initially are 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 (you can generally find these phone numbers online or in the government section of your local phone directory if you have access to one).

Don’t base your property tax estimate on the amount 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 may be reassessed upward.

• Utilities: If you’re trading up, some of your utility bills — such as cable TV — may stay the same, but others may change. Until you have in mind a specific home 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.

• Furniture: 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 and when you trade up, remember the amount you budgeted for new furnishings; some trade-up buyers get carried away with redecorating and decimate their budgets after they move into their new properties.

• Maintenance: 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).
• Federal 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. Why? Mortgage interest and property taxes are deductible expenses on Schedule A of your federal income tax Form 1040 and on most state returns.
• Homeowners insurance: If you buy a more expensive home, your homeowners insurance premiums may 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 home.