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Health, Life Events

You Could Be Paying for More Insurance Than You Need

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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Tiffany Hamilton knew as a college student that she would one day be an entrepreneur. With that in mind, she made sure to enlist the help of a financial planning company when she bought her first life insurance plan at 21, as she was just getting her start in real estate.

That first policy was a $20,000 term-life plan that cost her about $80 a month. When her salary increased, she decided she needed more coverage than that. As a single woman with a burgeoning business, she wanted to make sure she had enough coverage to take care of any debts and leave something for her mother..

Her insurance representative at the time encouraged her to up her coverage. So at 25, she converted her policy to a $1 million whole life policy.

“I thought by going to a financial planner, sitting down and answering the questions, and then going off of their recommendations, I thought I was doing the right thing,” Hamilton told MagnifyMoney. “Yes, the $1 million would give my mom X, Y and Z, but was that in my best interests?”

Now 35 and running her own real estate business based in Tallahassee, Fla., Hamilton has lately been wondering: Is it possible to be overinsured?

How much insurance is too much insurance?

As we grow in our careers, home life and families, paying for life insurance becomes another one of those obligatory items on our financial to-do lists, like establishing a 401(k) or an emergency fund. But the sheer volume of life insurance options available may have created a unique problem: Some of us might be overly insured. That is, our insurance coverage may be wildly disproportionate to our salaries and overall net worth.

Joel Ohman, a Tampa, Fla.-based certified financial planner and founder of Insuranceproviders.com, said it’s also easy to end up with a policy that has more bells and whistles than you genuinely need.

Generally speaking, life insurance is a type of coverage that provides a payout to a selected beneficiary in the event of the policyholder’s death. This is often called the “death benefit.” Many people aim for a death benefit that includes a payout substantial enough to cover a few years of the deceased’s salary, funeral expenses and any outstanding debts.

Those with families may also want to include money to pay off a house, children’s college funds and more.

Of course, there are other options for anyone who has a large estate, want to make charitable contributions, needs special tax breaks or has other complicated financial circumstances to consider.

“Unless there are complex estate planning requirements or the insured has exhausted all other investment options, then typically the idea to use life insurance outside of a straightforward death benefit payout is a fool’s errand that will only result in a fancier car for your insurance agent,” Ohman said.

The cost of being overinsured

The difference in premiums between insurance plans can be striking, and if you’re not sure precisely what to get, it’s easy to throw up your hands in frustration. But if you simply choose a plan that may “sound right” without carefully exploring all your options, you could easily wind up paying for more coverage than you need.

Most insurance websites include insurance calculators to make it easy to figure out what your costs could be for a variety of different plans. Using State Farm’s calculator for example, a $500,000, 20-year term policy for a 30-year-old woman in Arizona is about $33 a month. Comparatively, a whole-life policy is $460 a month. That’s a difference of nearly $5,000 a year.

In Hamilton’s case, she realized she was paying thousands of dollars more for insurance than she needed to. In 2016, she converted her $1 million whole-life policy into a $500,000 universal-life policy.

“That cut my budget down by almost $10,000 a year,” she said.

John Barnes, a certified financial planner and owner of My Family Life Insurance, said those cost savings can be important for families.

“My take is, you can be doing something else with that money,” he said. “Families today are squeezed. I’m not about to overextend them, I’m going to get them the right amount.” The additional savings, he said, could go toward retirement, college tuition or other financial need.

Ohman said that a simple term-life policy is a great way to get inexpensive insurance that will still take care of most families’ needs.

“When people are looking for pure life insurance, they want to protect their loved ones if something should happen to them, and they want them to be financially taken care of in a worst-case scenario,” he said. “Ninety-nine percent of the time, then, that cheaper term life insurance product is going to be the best fit.”

Chris Acker, a chartered life underwriter, chartered financial consultant and independent life insurance broker in Palo Alto, Calif., said he almost always recommends term-life insurance to his clients, particularly young families.

“If you’re talking about people in their 30s,” Acker said, term insurance “is hands down the best way to go.”

That’s because it’s an inexpensive way to get insurance that provides coverage for your entire family. Plus, you can always get additional insurance later. But he cautions against applying one piece of advice across all situations.

“The bottom line is, there’s no right answer,” he said. “No two cases are the same.”

Types of life insurance

There are two main types of life insurance: Term insurance and permanent insurance. When consumers typically think about life insurance, they are looking for an option that will provide their families with financial stability if the unthinkable happens. If you work full time for a company, it’s possible that your workplace has a some type of life insurance policy, often equal to one year of the employee’s salary.

But some experts recommend that families purchase their own insurance plan outside of their employer because employer-sponsored life insurance typically falls short of their family’s actual needs.

Permanent insurance does exactly what the name implies: It provides lifelong coverage. In addition to the death benefit also provided by term-life insurance, permanent insurance also accumulates cash value. But with that added benefit comes pricier premiums.


Whole Life


Variable life


Universal life


Variable universal life

Whole life is the most common type of permanent insurance. With a whole life policy, the premium never changes. Part of the premiums goes into a savings component of the policy, which builds cash value and can be withdrawn or borrowed. That cash value also has a guaranteed rate of return.

Variable life offers the same death benefit, but allows consumers the option to seek a better return by allocating premiums to investments like stocks and bonds.

Universal life lets you vary your premium payments and gives a minimum death benefit as long as the premiums are sufficient to sustain it.

Variable universal life insurance is a sort of mix between variable and universal life, meaning consumers can vary premium payments and can also allocate them among investment subaccounts.

Best for: Those who want a policy that offers cash value and stable premiums. There are also tax advantages to this type of policy.

Best for: Those who want the same advantages as a whole-life policy, plus the option of allocating premiums toward different stocks and bonds.

Best for: Those who want the same advantages of any permanent policy with the option of varying premium payments. For example, those who may want to start with a lower premium that increases as their finances do

Best for: Those who want the option to vary premium payments, but also the option to allocate those payments toward different stocks and bonds.


Term-Life Insurance

Term-life insurance provides coverage for a specified amount of time — let’s say 15 or 20 years. Customers pay a premium each month and are covered through the specified term. This is typically the cheapest insurance option.

Best for: Those whose need for coverage will disappear or change at some point, like when a debt is paid or children reach adulthood and go to college. Also good for those looking for a low-cost option.

Even within term- and whole-life insurance, there are additional products you could be offered, like mortgage life, return of premium (in which your premium is returned if you outlive your initial term) and final expense (which covers just funeral expenses). There’s even an option that would provide lifetime protection for your estate upon your death. With all the available options, it’s easy for the costs to add up.

Tips to choose the right life insurance

Use a life insurance calculator. Wealthy families, those with special-needs family members and others in unique situations will also have different insurance needs. Most insurance websites offer calculators to help consumers decide how much coverage to take. The consumer website lifehappens.org also offers step-by-step guidance on choosing insurance, along with a needs worksheet.

Get multiple free quotes. Consumers can also get free quotes from multiple insurers from sites such as My Family Insurance, InsuranceProviders.com and http://myfasttermquotes.com/, which are independent-agent sites for Barnes, Ohman and Acker. Keep this in mind: Getting a quote doesn’t obligate you to work with a particular company or insurer.

Choose the right advisor. It’s also important to understand that hiring an insurance agent or financial planner is just like any other relationship: You want someone who works best for you and inspires comfort. Hamilton said she not only interviewed potential reps this last go-around, she also requested references and asked them about their company philosophy before making a decision. LifeHappens suggests that consumers use referrals to find an insurance provider.

Seek out independent agents. When it comes to actually choosing an agent or financial planner, Ohman suggests looking into independent agents that aren’t tied to a particular insurance company. That’s because a “captive” agent can only recommend those products that his/her company provides, whereas an independent agent can recommend any number of companies. That doesn’t mean they don’t have your best interests in mind, just that they aren’t able to provide customers with options outside their company offerings.

“The only products that they know about, the only products that they’re even allowed to bring to your attention,” Ohman said, are “their own products.”

Understand what it means to be a fiduciary. Another thing to consider is whether the company or adviser you’re working with is a fiduciary. “One of the big advantages you get with working with an insurance agent who has that CFP designation is that they are supposed to be working as a fiduciary, which means they put your financial interests first,” Ohman said.

Those who hold a CFP designation like Ohman are expected to provide fiduciary care to their clients. It’s also perfectly OK to ask your agent if he or she is, in fact, a fiduciary.

By the way, this doesn’t mean that other agents can’t or won’t provide clients with the type of insurance that works best for them. But don’t hesitate to ask if they’re paid on commission and whether a bonus or trip is tied to a particular transaction.

Check the insurance company’s ratings. Once you get a recommendation, he says, make sure the company has at least a A rating or better from independent agencies that rate companies’ financial strength. There are four independent agencies that provide this information: A.M. Best, Fitch, Moody’s and Standard & Poor’s. Do your research and find the ratings from each of the four agencies, because some companies may highlight a positive rating from one agency and play down a lower rating from another agency.

Trust your gut. Barnes said regardless of whom you choose to represent your insurance needs, make sure you have a level of comfort.

“Don’t be discouraged, there are some great independent agencies,” he says. “If it doesn’t feel right during the process, trust your gut.”

That means continuing to be open-minded, but also not allowing yourself to purchase an insurance product you don’t want or can’t afford. During that first meeting or so, Barnes says the agent should spend time getting to know you and your situation without necessarily trying to sell you on a product.

Similarly, Acker says it’s OK to question your agent to make sure you’re getting the best policy for your needs and lifestyle: “Don’t be bullied into buying what someone else says you should buy.”

For her part, Hamilton says she also looked into whether companies were commission- or fee-based. That’s because a fee-based company will charge a set rate, which can ease the worry of having an overzealous rep who may offer expensive products to boost his or her commission.

Because many good policies also offer a conversion option, you’re not “stuck” forever with something that doesn’t actually work for you. That means you have the option to change policies, as Hamilton did. Some consumers also choose to buy additional policies down the road.

But, and this is key, you shouldn’t let uncertainty or the fear of overpaying keep you from getting at least a simple policy.

“Think about today — the immediate need; protect that right this second,” Acker says. “Then that gives you time to work on your financial planning. Then you can figure out if you want to keep the insurance.”

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Crystal Lewis Brown
Crystal Lewis Brown |

Crystal Lewis Brown is a writer at MagnifyMoney. You can email Crystal here

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Life Events, Mortgage

The Risks and Rewards of Out-of-State Investment Properties

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Mortgage

They say real estate is all about “location, location, location.” That’s especially true when it comes to investing in rental properties. Where you choose to buy can have a significant impact on your return on investment.

For example, in a state like New York, where the median mortgage exceeds the median rent by nearly $250, buying a property to rent out doesn’t make much financial sense. If you consider buying rental property in a different state, such as North Carolina where rents in the city of Charlotte top mortgages by $84 per month, you’ll net a profit instead of a loss every month your tenant pays rent.

Before you start the interstate home search process, you should know the risks and rewards of out-of-state investment properties.

Potential rewards of buying an out-of-state investment property

Very often, the primary reason to buy an out-of-state rental property is investment properties where you live are too expensive. There are some other more strategic reasons that we’ll cover next.

Diversify your real estate assets

Real estate markets rise and fall. During the housing boom of 2003 to 2007, many of the “sand” states, such as California, Arizona, Florida and Nevada, experienced home price appreciation at rates well above historic levels.

Investors learned a painful lesson in the danger of not diversifying when the housing markets in those states crashed during the housing crisis. Investors who had investment real estate concentrated only in these states lost big, while those who spread their portfolios out to other states fared better.

Purchase future vacation or retirement residences

If prices and rents are competitive in a state you’ve always wanted to vacation in, you may want to purchase the property first as a rental and allow tenants to build some equity for you while you generate income. After a few years, you may decide you want to spend a few months a year vacationing in the home and rent it out seasonally with a rental plan from a service such as Airbnb or VRBO.

Alternatively, you may live in a cold-weather state, such as Massachusetts, and want to retire to the warm winters of Arizona. You could put the wheels in motion on your retirement plans by buying a rental property there first that has the amenities you would want in a home for retirement.

Once you’ve pocketed some rental income and equity from renters, you can pack up for the cross-country move into the rental, throw out the snow shovel and enjoy wearing shorts instead of parkas during the holiday season.

Buy where the laws suit your rental strategy

Short-term rentals have become very popular for real estate investors, but they face legal challenges in some places. For example, New York City subways are covered with signs warning riders to avoid short-term rentals.

If you are interested in renting out your property through a service like Airbnb, buying in a state that has more flexible laws about short-term tenants is your best bet.

Net more income monthly with lower property taxes

According to a recent LendingTree study, homeowners in San Jose, California, paid on average $9,626 in property taxes each year. In Salt Lake City, homeowners pay only $2,765 per year — which means you’d have to get an additional $567 per month in rent in California just to cover the property tax expense before you could make any profit.

Risks of buying an out-of-state investment property

Like any investment, there are risks associated with buying out-of-state rental properties. We’ll discuss those next.

Long-distance property management problems

If you have a rental in the city you live in, you can deal with an unexpected tenant move-out or a late-night plumbing problem by driving over to the property and taking care of the issue yourself. But you’ll need to make some decisions about how to manage an out-of-state rental.

If you hire a property management company, they’ll take 8% to 12% of your monthly rent as a fee, eating into your monthly rent profit. If you self-manage, you’ll need to make sure you build relationships with local handymen, roofers, plumbers and pest control professionals so you have their numbers handy if a tenant emergency comes up.

State laws that restrict how you rent your property

Short-term rentals, such as Airbnb, may be a great way to generate a higher monthly income than you would get with a 12-month lease, but some cities and neighborhoods aren’t too keen on having a lot of different people coming and going through a nearby house. If the laws prohibit short-term rentals in an area you’re interested in, you’ll have to crunch the numbers to see if market rents for long-term leases provide you with a good return on your rental investment.

What to look for when considering an out-of-state rental property

When you’re buying in another state, take extra precautions to make sure you understand everything about the local housing market, building standards and how the local economy is doing before you start making offers. The last thing you want to do is end up with an out-of-state money pit.

Get a thorough home inspection

No matter how nice the home may look in pictures or at an open house, there can always be problems beyond the smell of new paint and carpet. Building standards and practices may vary from state to state and city to city, and you don’t want to be caught by surprise because you didn’t know polybutylene pipes behind the walls of homes built in Tucson, Arizona, have been known to burst without warning.

A good local home inspector will also help you understand whether a property has been built and maintained according to local building standards and identify any issues, such as an unpermitted room addition, that could cause you trouble with local housing inspectors down the road.

Interview several property management companies

Depending on the town, you may find very high-tech, organized property management shops with decades of experience or small mom-and-pop shops that offer real estate property management services. Either way, you want to know what they do for their fee. The graphic below provides a list of questions you should ask to make sure the property manager is a good fit for your out-of-state rental.

  • How many rental units do you manage? Ideally, you want a manager who has between 200 and 600 rental units. This indicates that the management company has a solid enough client base to understand the local market but not so extensive that they won’t be able to handle managing yours.
  • What experience does your company owner have managing rentals? When the long-distance plumbing hits the fan you don’t want to be dealing with a company that’s never managed rentals. There is no college of rental property management, and you don’t want to have your rental managed by someone who’s still learning the ropes.
  • Are you actively investing in real estate in your market? If you are buying in a housing market you’ve never purchased in, you may want to have a property manager who understands the nuances of the local rental market. This is especially important intel when you’re dealing with an out-of-state investment property in a neighborhood that may be going through changes that only an experienced local investor would know about.
  • How do you collect rent? In order to track cash-flow of a rental property, you should be able to easily track payments. The best method is through an online payment system that gives you real-time information about any late payments. If you took out a mortgage to purchase the rental property, you want to know as early as possible if a tenant is going to miss rent, so you can move money to cover the mortgage payment.
  • What is your average vacancy time on rentals? The correct answer should be two to four weeks. An experienced property management company should have the marketing and rental pricing know-how to make sure your property is not vacant for more than a month. It’s bad enough having a rental vacant, but when it’s out-of-state, you want to know the company managing the property has a track record of getting renters quickly to minimize the expenses you incur when a rental is without a renter.On the other hand, a property manager that rents out your place in less than two weeks may be pricing it too low.
  • How do you handle maintenance and repairs? It’s not uncommon for a property manager to have “preferred” vendors to help with the inevitable issues that come up with maintaining and repairing a rental. You’ll want to get a list of these preferred providers and keep track of their expenses.Also be sure to put a cap on the cost of repairs that can be done without your authorization. You should trust the company to handle a $100 fee, but you may want to cap them on anything more than $200 so you can have a chance to see if you need a second opinion with a different vendor.

Track property tax trends in the neighborhood

Property taxes are a fixed expense you can’t get around paying, so be sure to track the last five years of property taxes to see what the average increase has been. If you’re seeing an acceleration in the tax rate, figure that into your return-on-investment analysis, so you don’t end up in a situation where your monthly expenses are more than the rent you’re taking in.

Make sure you understand the rental market in the area

Rental markets ebb and flow as new homes are built, new employers set up shop nearby or new schools are built in the area. A good property manager or experienced real estate agent should be able to give you a good idea of where the market is headed with a comparable rental analysis.

When you bought your first home, you may have gotten a comparable market analysis (CMA), which analyzes what homes are selling for in the area you’re thinking of buying. A comparable rental analysis looks at rentals nearby to give you an idea of what your monthly income is going to be.

If you finance the property with a mortgage, you’ll likely need a rental analysis form 1007, which is an additional report in a residential home appraisal that provides an opinion of the market rent for the home you’re buying. In some cases, the appraiser’s projected market rent can be used to help you qualify for the new mortgage, even if you don’t have a lease on the property you’re buying.

Special mortgage considerations for out-of-state rental property

If you’ve been buying investment property in your hometown, you already know financing a rental property comes with higher down payments and interest rates. There are a few more factors to consider.

Are transfer taxes due and who pays them?

Depending on what state you are buying property, transfer taxes may be charged for you to take ownership of the property you are buying. Unlike property taxes, these are a set lump sum percentage of your sales price, added to your closing costs.

Transfer taxes are often paid by the seller, but in some cases they may be payable when buying a home, adding to your total closing costs. It’s also good to at least know how much they are so they don’t end up being one of those hidden costs of selling a home. In places like New York City, that could mean an extra 1% to 2.625% of your sales price subtracted from your profit, in addition to real estate fees that usually run between 5% and 6%.

Are you buying in an attorney or escrow state?

Depending on where you purchase your rental property, you may need an attorney to handle your contract negotiations. That means higher costs than you’ll find in an escrow state, where an escrow offer can handle the signing usually at a much lower cost.

Are you buying in a community property state?

If you’re currently married or have a domestic partner, the community property laws could affect what happens to the property in the event of a divorce. Community property states require a split of equity down the middle, whereas the equity can be split up in negotiable amounts in a non-community-property state.

Final considerations

A little due diligence and research will help you avoid unpleasant surprises if you’re considering buying an out-of-state investment property. While many real estate companies offer “virtual tours” of homes, there’s nothing like an in-person tour to soak up the light, views, smells and feel of a home before you buy it.

If you can, budget enough time to take a trip to the state you’re considering buying in to inspect the top contenders before you start making offers on an out-of-state investment property.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Denny Ceizyk
Denny Ceizyk |

Denny Ceizyk is a writer at MagnifyMoney. You can email Denny here

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Life Events, Mortgage

The Hidden Costs of Selling A Home

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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When you decide to sell your home, you may dream of receiving an offer well above your asking price. But putting your home on the market requires you to open your wallet, which could cut into your potential profit.

While some line items probably won’t come as a surprise, you may find that there are a handful of hidden costs.

Below, we highlight those unexpected expenses and everything else you need to know about the cost of selling a house.

The hidden costs of selling a home

It’s easy to fixate on the money you expect to make as a home seller, but don’t forget the money you’ll need to cover the cost to sell your home.

A joint analysis by Thumbtack, a marketplace that connects consumers with local professional services, and real estate marketplace Zillow, found that homeowners spend nearly $21,000 on average for extra or hidden costs associated with a home sale.

Many of these expenses come before homeowners see any returns on their home sale. Money is spent in three main categories: location, home preparation and location.

Location

Your ZIP code can influence how much you pay to sell your home. Many extra costs are influenced by regional differences — like whether sellers are required to pay state or transfer taxes.

For example, if you’re in a major California metropolitan area like Los Angeles, you may pay more than double the national average in hidden costs when selling your home.

Below, we highlight 10 of the metros analyzed in the Thumbtack/Zillow study, their median home price and their average total hidden costs.

Metro Area

Median Home Price*

Average Total Hidden Costs of Selling

New York, NY

$438,900

$33,510

Los Angeles-Long Beach-Anaheim, CA

$652,700

$46,060

Chicago, IL

$224,800

$18,625

Dallas-Fort Worth, TX

$243,000

$19,350

Philadelphia, PA

$232,800

$21,496

Houston, TX

$205,700

$17,477

Washington, D.C.

$405,900

$34,640

Miami-Fort Lauderdale, FL

$283,900

$24,241

Atlanta, GA

$217,800

$18,056

Boston, MA

$ 466,000

$35,580

Source: Thumbtack and Zillow analysis, April 2019.


*As of February 2019.

Generally, selling costs correlate with the home price, so expect to pay a little more if you live in an area with a higher-than-average cost of living or one that has a lot of land to groom for sale.

Home preparation

Thumbtack’s analysis shows home sellers may spend $6,570 on average to prepare for their home sale. These costs can include staging, repairs and cleaning.

Buyers are generally expected to pay their own inspection costs; however, if you’ve lived in the home for a number of years and want to avoid any surprises, you might also consider paying for a home inspection before listing the property for sale. Inspection fees typically range from $300 to $500.

Staging is often another unavoidable expense for sellers and can cost about $1,000 on average, according to HomeAdvisor. Staging, which involves giving your home’s interior design a face-lift and removing clutter and personal items from the home, is often encouraged because it can help make the property more appealing to interested buyers.

It also helps to have great photos and vivid descriptions of the property online to help maximize exposure of the property to potential buyers. If your agent is handling the staging and online listing, keep an eye on the “wow” factors they include. Yes, a virtual tour of your house looks really cool, but it might place extra pressure on your budget.

You could potentially save hundreds on home preparation costs if you take the do-it-yourself route (DYI), but expect a bill if you outsource.

Closing costs

Closing costs are the single largest added expense of the home selling process, coming in at a median cost of $14,,281, according to Thumbtack. Closing costs include real estate agent commissions and local transfer taxes. There may be other closing costs, such as title insurance and attorney fees.

Real estate agent commissions range from 5-6% of the home price, according to Redfin. That amount is further broken down by 2.5-3% being paid to the seller’s agent and the other 2.5-3% being paid to the buyer’s agent.

The taxes you’ll pay to transfer ownership of your home to the buyer vary by state.

Other closing costs include title search and title insurance to verify that you currently own the home free and clear and there are no claims against it that can derail the sale. The cost of title insurance varies by loan amount, location and title company, but can go as high as $2,000.

If you live in a state that requires an attorney to be present at the mortgage closing, the fee for their services can range from $100 to $1,500.

There are also escrow fees to factor in if you’re in a state that doesn’t require an attorney. The cost varies and is usually split the homebuyer and seller.

If you have time to invest, you could try listing the home for sale by owner to eliminate commission fees. One caveat: Selling your home on your own is a more complicated approach to home selling and can be more difficult for those with little or no experience.

Other home selling costs to consider

Now that you have an understanding of the costs that may get overlooked, remember to budget for the below expenses as you prepare to sell your home.

Utilities

It’s important that you make room in your budget to keep the utilities — electricity and water — on until the property is sold. (This is in addition to budgeting for utilities in your new home.) Keeping these services active can help you sell your home since potential buyers won’t bother fumbling through a cold, dark property to look around. It may also prevent your home from facing other issues like mold during the humid summertime or trespassers.

Be sure to have all of your utilities running on the buyer’s final walk-through of the home, then turn everything off on closing day and pay any remaining account balances.

Homeowners insurance

Budget to pay for homeowners insurance on the home you’re selling as well as your new home. You’ll still need to ensure coverage of your old property until the sale is finalized. Check the terms first, as your homeowners insurance policy might not apply to a vacant home. If that’s the case, you can ask to pay for a rider — an add-on to your insurance policy — for the vacancy period.

Capital gains tax

If you could make more than $250,000 on the home’s sale (or $500,000 if you’re married and filing jointly), take a look at the rules on capital gains tax. If your proceeds are less than the applicable amount after subtracting selling costs, you’ll avoid the tax. However, if you don’t qualify for any of the exceptions, the gains above those thresholds could be subject to a 15% capital gains tax, or higher. Consult your tax professional for more information.

How to save money when selling your home

Keep the following tips in mind when you decide to put your home on the market:

  • Shop around and negotiate. Don’t settle on the first companies and professionals you come across. Comparison shop for your real estate agent, home inspector, closing attorney, photographer, etc. It could also work in your favor to try negotiating on the fees they charge to save even more.
  • Choose your selling time carefully. The best time to sell your home is during the spring and summer months. If you wait until the colder months to sell, there may not be as much competition for your home.
  • DIY as much as possible. Anything you can do on your own to spruce up your home — landscaping, painting, minor repairs, staging — can help you cut back on the money you’ll need to spend to get your home sold.

The bottom line

There are several upfront costs to consider when selling your home, but planning ahead can help you possibly reduce some of those costs and not feel as financially strained.

List each cost you’re expecting to pay and calculate how they might affect the profit you’d make on the home sale and your household’s overall financial picture. If you’re unsure of your costs, try using a sale proceeds calculator to get a ballpark estimate of your potential selling costs. Be sure to also consult a real estate agent.

If you’re starting from scratch on your next home, here’s what you need to know about the cost to build a house.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Crissinda Ponder
Crissinda Ponder |

Crissinda Ponder is a writer at MagnifyMoney. You can email Crissinda here

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