This Couple Sold Their Home for the Same Price They Bought It -- and Lost $100K

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  • There are costs that come into play when you sell a home.
  • There are also costs associated with signing a mortgage.
  • Don't forget to consider closing costs, taxes, and paying your real estate agent.

Believe it or not, the math actually works.

There's a reason home buyers are often warned not to take on too much house, but rather, to make sure they only sign a mortgage they can afford. If you buy a house that's beyond your budget, you'll risk either falling behind on bills or having to sell that home shortly after you buy it. And in that latter scenario, you risk losing a lot of money -- even if you manage to sell your home for the same price you purchased it for.

Not convinced? Recently, financial guru Ramit Sethi told a story of a couple he knew who purchased a house, realized they couldn't afford it, and had the opportunity to sell it for the exact same price they bought it for. The problem? The couple was actually looking at a $100,000 loss in the process. Here's why.

When hidden costs come back to bite you

Many people forget that there are costs involved in both signing a mortgage and selling a home. When you sign a mortgage, you're charged closing costs to finalize that loan. Those fees run the gamut from application fees to recording fees to title searches and insurance.

All told, you can expect your closing costs to equal 2% to 5% of the mortgage you're taking out. And if you're borrowing a large sum of money to finance a home, then those fees could be huge. But if you sell your home shortly after buying it at your original purchase price, you won't be able to recoup those fees.

Meanwhile, when you sell a home with the help of a real estate agent, you pay a fee for that service. Often, that fee amounts to 5% to 6% of your home's sale price. If you're selling a very expensive home, that fee alone could amount to $100,000.

Finally, some states charge a real estate transfer tax when you sell a home. Now the amount of that tax will vary by state and will also hinge on the sale price of your home. But that's yet another expense that might creep up on you when you seek to unload a home you realize you can't afford.

Be very careful when buying a home

Not everyone who sells a home for the same price they bought it for will lose $100,000 in the process. But is it possible to lose $100,000 or more in that scenario? Absolutely.

That's why it's so important to crunch your numbers carefully before committing to a home purchase.

As a general rule, your monthly housing costs, including your mortgage, property taxes, and homeowners insurance premiums, should not exceed 30% of your take-home pay. If you decide to stretch your budget for what seems like your dream home, to the point where you end up spending 40% or 45% of your income on housing, you might end up in a situation where you can't cover your bills and need to sell shortly after having moved in. And that's really not ideal.

If you can't afford the type of home you'd like right now because prices are so high, you're better off waiting to buy and continuing to rent, all the while doing your best to boost your savings. It's a far better bet than putting yourself at risk of losing a whole lot of money by having to sell your home shortly after buying it.

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