There’s plenty to do after escrow closes
Once escrow has closed without a hitch and you’ve handed the keys over to the new owners, you’ve probably written the selling process off as over. But don’t change your state of mind too fast.
Once you sell your house, we suggest you:
- Keep copies of all the paperwork related to closing and settlement. Although it might be tempting to run the mountain of paperwork through the shredder or tuck it away in storage, you’ll want to have it handy for April 15. When you file your taxes you’ll need documentation for the expenses and proceeds of the sale. And once you file your return, you’ll want to keep the paperwork in case you’re audited.
- Keep proof of improvements and prior purchases. This is for tax purposes, too. The IRS allows you to add the cost of improvements to your home’s cost basis during the time you own the home, which is nice if you have a sizeable capital gain. But to use this tax provision, you need to keep receipts of everything spent on home improvement.
- Put your cash in a money market fund. If you sell and then don’t immediately buy, you’ll need a safe place to put your money. A money market mutual fund offers safety and a reasonable rate of return. Money market funds offer daily access to your money and check-writing privileges.
- Stay on top of tax laws. A recently passed law allows you to exclude from tax a significant portion of the profits from the sale of your primary residence. Because tax laws are constantly changing, you’ll want to stay on top of tax laws to avoid losing a lot of money.
- Choose your next home carefully. Scope out a variety of areas and housing options that meet your family’s needs.
- Don’t feel pressured. Take your time purchasing your next home; rent for awhile if you’d like extra time or want to try an area out first before buying. “Keep in mind that you have two years to defer tax on your house-sale profits,” Tyson and Brown point out.
- Reevaluate your personal finances if things change. If your situation changes before you buy another house—you get a promotion, have a baby, go through a divorce—you’ll need to rethink your finances and how much you can afford to pay for your new house.
- Think about what you need from an agent to help you buy. While the agent who helped you sell your house might fit the bill to help you buy, you should carefully consider whether he or she can meet your needs when buying. Buying and selling require different skills. And, if you’re moving to a new area, you may want someone familiar with the area.
- Think through your next down payment. Brown and Tyson recommend putting at least 20 percent down on your next house in order to qualify for the best mortgage programs. If you can make more than a 20 percent down payment, you’ll want to consider whether you can earn a high enough return if that money was invested elsewhere. “Younger home buyers willing to take on more investment risk should lean toward a 20-percent down payment, whereas older home buyers who tend to invest less aggressively should opt for larger down payments,” the pair recommends.
- Remember to send change of address notices. The U.S. Postal Service recommends you complete and mail your Change of Address Order Card or Internet form 30 days before you move.