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Selling your home can be a significant financial milestone, but understanding how much money you will actually receive after the sale is a complex process.

Various factors, including the sale price, closing costs, and existing mortgage balance, can influence the final amount.

This guide will help you navigate through these factors to give you a clearer picture of what to expect when selling your home.

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Understanding the Sale Price

The first step in determining how much money you’ll receive is understanding the sale price of your home.

This is the amount a buyer is willing to pay for your property, and it is influenced by several factors such as the local real estate market, the condition of your home, and recent sales of comparable properties in your area.

To get an accurate estimate of your home’s value, it’s wise to hire a real estate agent who can provide a comparative market analysis (CMA).

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This analysis will compare your home to similar properties that have recently sold in your area. Additionally, some sellers opt to hire a professional appraiser for an even more precise valuation.

→ SEE ALSO: 5 Things to Know Before You Tackle an Expensive Outdoor Renovation

Deducting the Existing Mortgage Balance

Once you have an agreed-upon sale price, the next major deduction comes from your existing mortgage balance.

If you still owe money on your home loan, that amount must be paid off when the sale is finalized.

For example, if your home sells for $300,000 and your remaining mortgage balance is $150,000, you’ll need to pay off that $150,000 from the sale proceeds.

This leaves you with $150,000 before considering any other costs associated with the sale.

Closing Costs and Fees

Selling a home involves various closing costs and fees, which can significantly impact the amount of money you walk away with. Common closing costs include:

  • Real Estate Agent Commissions: Typically, real estate agents charge a commission of around 5% to 6% of the sale price. This fee is usually split between the buyer’s and seller’s agents. On a $300,000 home sale, this could amount to $15,000 to $18,000.
  • Title Insurance and Escrow Fees: Title insurance protects the buyer and lender against any legal issues with the property title. Escrow fees cover the cost of transferring funds and documents. These fees vary but can add up to several thousand dollars.
  • Transfer Taxes: Some states and municipalities impose a transfer tax on the sale of property. The rate varies depending on the location but can be a significant expense.
  • Home Repairs and Concessions: If the buyer requests repairs or a price concession after a home inspection, these costs will also come out of your proceeds.

After accounting for all these costs, you might find that a substantial portion of the sale price goes toward covering these expenses.

Taxes on the Sale of Your Home

Another factor to consider is whether you’ll owe taxes on the sale of your home.

In the United States, the IRS allows you to exclude up to $250,000 of capital gains from the sale of your primary residence if you’re single, or up to $500,000 if you’re married and filing jointly.

Guide to Taxes on Selling a House

To qualify for this exclusion, you must have owned and lived in the home as your primary residence for at least two of the five years preceding the sale.

If you don’t meet these criteria, or if your gains exceed the exclusion amount, you’ll owe capital gains taxes on the sale. The rate depends on your income level and how long you’ve owned the property.

Paying Off Liens and Other Debts

If there are any liens on your property, such as unpaid property taxes, contractor liens, or judgments, these will need to be paid off before the sale can be finalized.

The money to pay off these liens will come directly out of your sale proceeds. It’s important to address any liens early in the selling process to avoid surprises at closing.

Estimating Your Net Proceeds

To estimate how much money you’ll get when you sell your home, you can calculate your net proceeds by using the following formula:

Sale Price – (Mortgage Balance + Closing Costs + Real Estate Commission + Liens and Debts) = Net Proceeds

For example, let’s say you sell your home for $300,000, with the following costs:

  • Mortgage Balance: $150,000
  • Real Estate Commission (6%): $18,000
  • Closing Costs: $5,000
  • Liens and Debts: $2,000

Your net proceeds would be:

$300,000 – ($150,000 + $18,000 + $5,000 + $2,000) = $125,000

In this example, you would walk away with $125,000 after the sale.

Considerations for Future Planning

When you know how much money you’ll receive from selling your home, it’s essential to plan for what comes next.

Whether you’re buying a new home, downsizing, or renting, having a clear understanding of your financial situation will help you make informed decisions.

If you’re planning to buy another home, consider how much of your proceeds you’ll use for a down payment. You’ll also need to account for moving costs, temporary housing (if necessary), and the costs of furnishing and upgrading your new home.

Here's how to reduce your capital gains tax bill after selling a home

If you’re downsizing or moving to a less expensive area, you may have more proceeds left over, which can be used for investments, retirement savings, or paying off other debts.

Conclusion

Selling your home is a significant financial transaction with many variables that can impact how much money you’ll ultimately receive.

By understanding the sale price, existing mortgage balance, closing costs, taxes, and other debts, you can better estimate your net proceeds and plan accordingly.

Working with a knowledgeable real estate agent and financial advisor can help you navigate this process and ensure that you maximize your profits while minimizing surprises.

→ SEE ALSO: Can You Sell a Home with a Lien on It?