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Do you Keep All the Money When You Sell a House?

A Millennial Couple discussing on what to do with the money from selling their house

When you sell a house, you have to first pay any remaining amount on your loan, the real estate agent you used to sell the house, and any fees or taxes you might have incurred. After that, the remaining amount is all yours to keep. 

Keeping money after selling a house is not always the case. Many times owners still owe on their loans and have to use the money made from their sale to cover any remaining loan balance. 

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Your profits from selling a home all depend on how your money is divided among these costs:

  • Remaining loan balance
  • Closing costs
  • Real estate agent commission
  • Necessary repairs
  • Taxes

Any money remaining after that is all yours, but remember you’ll also have to pay taxes on it if you aren’t rolling it into buying another home within a certain time period.

You have to pay the remaining loan balance

One of the first places your money will be applied from selling a house is the remaining balance on your loan if you have one. Of course, there’s a chance that you paid off your entire mortgage so you won’t have to worry about this cost after selling your home, but that’s not always the case. 

Many times, people still owe money on the home they’re selling and have to apply the money from their sale to their remaining balance so they don’t go into debt with their lender. It’s one of the flaws of selling your house before paying off your mortgage

The good thing about this is if you’ve paid off a significant portion of your mortgage then you might still have money left over after selling your house depending on how much money you were able to sell for. 

You have to pay closing costs

Just like when you factored in closing costs when you bought the home, you’re also going to have to factor them in when you sell it. Just like paying your remaining loan balance, there is a chance you might not have to worry about the sale profit of your home going toward your closing costs. 

Oftentimes an agreement can be made between the home seller and the home buyer in which one of them covers the closing costs. Usually, both sides cover their own closing costs when a house is sold but that’s not always the case. You could negotiate that the buyer covers some of the closing costs. By successfully doing this, you could avoid having to pay closing costs and avoid allocating some of your profit toward this cost. 

However, if you’re unable to avoid paying closing costs then it’s best to know that the fee of your closing costs will typically run you around 5% to 6% and that’s mainly because you’re paying for the real estate commission.

You have to pay real estate agent commissions

As previously mentioned, most home sellers pay a real estate commission as the main fee in their closing costs. Unless you’re a real estate agent yourself, or you list your home for sale by owner and don’t need a seller agent, then you’re going to need one to complete the paperwork process on your home and actually find buyers that will pay your asking price. The fee for paying a real estate agent is no fun but at the same time it’s necessary. 

That’s also why the commission of your real estate agent is one of the many factors to consider after you make a sale. It’s most likely not something you’ll be able to avoid paying when you sell your home so be prepared for it. 

Don’t feel bad when you’re paying your real estate agent their commission. If you had a good home seller agent then they more than likely earned that commission for all of the hard work they did for you. 

You have to pay for necessary repairs

Repairs are another cost that might or might not apply to your specific scenario. If you’ve taken good care of your home while you owned it then you might not have to make any necessary repairs when you sell it. However, if you haven’t made repairs when they were necessary during the time that you owned your home then you might have to use some of your profit from your sale to make necessary repairs.

Depending on the condition of your house, these necessary repairs could eat up a lot of the profit you made from your sale. For example, if you need to repair the roof of your home, which tends to be a common necessary repair, then you should be prepared to spend thousands of dollars to get this done. That’s thousands of dollars subtracted from either your pocket or the amount you’ve made from the sale. There are some frugal fixes you can do before selling your house as well. 

One good thing about necessary repairs is that they usually don’t come as a surprise. Typically, you’ll get a pre-list inspection before selling a home or a potential buyer of your home will have an appraisal done that is complete with a walkthrough of the home to examine any necessary repairs. After the walkthrough is complete you’ll know whether or not the home will need any necessary repairs because the buyer might demand that you make the repairs before purchasing the home. Or the buyer could ask that you sell the house as is and reduce the sale price of your home by the amount that is needed to make the necessary repairs. This would eat at your profits on the sale. 

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You have to pay taxes

Allocating some of your profits toward your taxes is typically the last cost you have to worry about eating away at your profits from your sale. There are a couple different kinds of taxes you need to be aware of when selling your house: 

  • Capital gains tax
  • Property tax
  • Real estate transfer tax

Capital gains tax

In general, when you sell an asset like bonds, precious metals, stocks, or real estate, you’re going to have to pay capital gains tax on the profit you made. This should be factored into selling your house and can take away from the money you’ve made. 

If you’re selling your primary home, then there’s a chance you can avoid paying capital gains tax. There are stipulations of living at the home you’re selling that must be met if you want to avoid paying capital gains tax. 

Property tax

Homeowners don’t pay property taxes for the year that they’re in, they pay property taxes on the previous year. Depending on if you pay property tax directly or include it in your mortgage payments, if you paid in 2021 then you’re actually covering property taxes from 2020. 

For this reason, property taxes are one the last things to be deducted from the sale price of your home. Buyers are not responsible for paying property taxes on the home they’re purchasing so as the seller it will fall on you.

Real estate transfer tax

Real estate transfer tax is otherwise known as paying a title fee. It’s the money that needs to be paid for transferring the title of the home from your name to the name of your buyer. It’s calculated as a percentage of the sale price of your home. 

Depending on what state you live in, there might not be a real estate transfer tax that you have to pay. It varies from state to state. Researching if your state has a real estate transfer tax that needs to be paid is the first step in figuring out how much of your profits this tax will take. 

How much money do you actually keep from selling a house?

Like most things with home financing, it depends on your specific situation when determining how much money you’ll be able to pocket after you sell a house. There’s a chance that you might only have to pay closing costs and real estate agent commissions if you kept your house in good shape and paid off your mortgage. In that scenario you’d be able to keep the majority of the money made from selling your house.

However, there’s a chance necessary repairs, real estate agents, property taxes, and closing costs could eat at most if not all of the money you made from selling your home. 

Also, remember that any leftover money that you are able to make will be taxed as income if you don’t use it to buy a new home within a specific number of days. 

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Disclaimer: The above is provided for informational purposes only and should not be considered tax, savings, financial, or legal advice. All information shown here is for illustrative purpose only and the author is not making a recommendation of any particular product over another. All views and opinions expressed in this post belong to the author.

Scott Teesdale

Written By Scott Teesdale

I use data and technology to help Millennials navigate the ins-and-outs of buying or selling a home in today's market. From appraisals to mortgages to zoning, I cover it all with the goal to teach others. Connect with me on social via the icons above.