To gain a better idea of what your holding costs may be, we will use the national average of 86 days, or about three months. Once an offer is put in on your house, the buyer’s lender usually takes about 45 to 60 days to close; however, that process can be even longer, depending on the circumstances. Keep in mind that until you officially sign the closing documents, you are still responsible for paying your monthly mortgage payments, no matter how sure the sale seems. So, if your house is on the market for three months, and then you have to spend at least two months in the contract, you will end up with a minimum of five monthly payments. Regardless of whether you are living in your house or not, you will still be responsible for its monthly mortgage payment and holding costs. You may run into a situation where you accept an offer from the buyer, start the closing paperwork, and then—at the last minute!—the contract falls through. According to Realtor Magazine, about one-third of all real estate transactions fall through at one point or another in the process. If this is the position you find yourself in, you may need to fix whatever problems caused the failure and start the whole process over again—adding more months of holding costs to the picture.
Transaction Expenses = $ ______________
Commonly referred to as “closing costs,” these expenses may account for 2-3% of the total amount of the loan. If you live in a high-cost region like California or New York, closing costs may be much higher, and can account for roughly 5-6%. If you are unsure of the average closing costs for your area, you can talk to a lender who specializes in your county or state.
Fortunately, transaction expenses are typically negotiable between
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