Selling your home is typically about making a profit, but that doesn’t mean that it does not come without costs. Here is an overview of some of the major costs you’ll be responsible for paying.
1. MORTGAGE BALANCE
This is the remaining balance on your original home loan. You will need to pay off your mortgage in its entirety when your home is sold. This of course can come from the proceeds of the sale.
2. HOME EQUITY LOANS (2ND, 3RD MORTGAGES)
Any loan against the value of your home will also need to be paid in full after the sale of your home.
3. PRE-SALE PREPARATIONS
In most cases, it’s not advisable to make major investments in your home right before a sale. There are however, a few things that can be done to increase your home’s curb appeal, fix minor problems, and otherwise make your property more attractive. Together, you and your Real Estate By Design agent can identify what items should be addressed and create a budget for these pre-sale preparations that are sure to show a significant return on investment.
4. CLOSING COSTS
All closing costs associated with the sale of your home will be listed for you and for the home buyer in the Closing Disclosure form. The seller is generally responsible for all of these closing costs which include:
- Recording/Filing Fees,
- The Real Estate Commissions
- Legal Documents & Service Fees
In some cases, buyers make a request for you as the seller to cover their closing costs as a part of their purchase offer. Your agent will negotiate these requests if they are made and will help you understand why it would be advantageous to cover the buyers closing costs (if it is) and what limitations to set to make sure you know the net of your home sale before closing.
The money you make from the sale of your home is considered capital gains. The good news is that these profits can be excluded from your taxable income, profit up to $250,000 for an individual or $500,000 for a married couple, as long as the home was your principal residence.
To exclude the full portion of those gains, you will need to have lived in your house for at least 24-months in the past 5 years to the sale date of the property. This is considered the 2 in 5 rule.
If you do not meet the minimum occupancy requirement you still may be able to exclude a portion of your gains if you are selling your house because of circumstance relates to your health or to your job. You should speak with your accountant or a certified tax specialist if you believe you fall under one of the exclusions or need help in reporting your capital gains after the sale of your home.
If this property is a real estate investment your profits will be considered taxable income and will be subject to state, federal and self-employment taxes. You can defer all capital gains taxes in a 1031 exchange if you are planning to reinvest the proceeds of your real estate sale into a new property. Again, in this circumstance you should speak to a financial specialist who can help you fully understand and minimize your tax liability.
6. MOVING COSTS
Moving isn’t only a hassle, it can also be very expensive, Whether you’re moving to a new house in your neighborhood or across the country, it’s important to estimate and plan for the full cost of moving from your home once it is sold.
If you’re working with a moving company, you’ll want to get a full idea of what you’ll be charged for what services. If you’re moving yourself, you’ll most likely need to rent a vehicle. And don’t forget packing materials including boxes and tape. The more preparation you do in your move planning, the more likely you are to avoid overpaying for your moving expenses.