3 Key Factors To Consider Before Selling Your Home in Retirement
You might sell your home after you retire for many reasons. Maybe you need the cash or have outgrown the large family house. You might also want a less expensive mortgage, or the upkeep is too much to handle now that you're older.
Whatever the reason, you want to make sure it is the right decision before selling because some people regret it in the end. Keep reading to discover some reasons retirees regret selling their homes.
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1. Unexpected Costs of Buying Again
There's no way around it -- buying a home is expensive. That might surprise you if you're not up to date with current market trends, as home prices and borrowing costs can be significantly different from when you first bought your home. All the costs of buying now could leave retirees regretting selling their home in the first place if they are looking to buy again.
Other unexpected costs are easily forgotten. Closing costs, insurance, homeowners association or condo fees, and property taxes can all be significant. Plus, don't forget moving costs, purchasing new furniture and repairs or renovations for your new home.
Unless you're paying for your home with cash, you'll need to consider mortgage rates. If you were lucky and locked in a low rate on your existing home, high mortgage rates will cost you more if you choose to move.
The price shock isn't just relevant when buying a new home. It can also happen if you decide to rent. Rental prices can fluctuate significantly and tend to be less predictable.
"Homeowners often underestimate future housing costs like rent," said David L. Blain, chartered financial analyst (CFA), founder and CEO of BlueSky Wealth Advisors. "What seems affordable now may not be in 5 to 10 years due to inflation. Selling prematurely can mean struggling to pay rent later in retirement. Instead, paying off the mortgage and staying in the home is often the better long-term move."
2. Unexpected Costs of Selling a Home
Like buying a home, selling a home involves closing costs. These include real estate agent commissions, which often range from a few percentage points of the sale price, depending on the market and agent.
You also need to consider the tax implications of selling your home. If you make a large profit on the sale of your home, you may have to pay income tax on that profit. Current IRS rules allow most couples to exclude up to $500,000 and individuals to exclude up to $250,000 in profits from their taxable income. This rule will also consider how long you have owned and lived in the home.
"Taxes and moving costs are often overlooked," Blain said. "Capital gains taxes and real estate commissions can take a big bite out of home sale proceeds. The total cost to move and set up a new home also tends to be higher than anticipated. It may make more financial sense to remain in the current home."
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3. Emotional and Social Tradeoffs
Many people have a strong emotional attachment to their home, especially if they've been there for many years. Your home probably saw you through many life events like getting married, bringing home babies, raising children and having pets. Your home was likely there during the good and bad of many years of your life. It's normal to have some emotional attachment to it.
Plus, retiring itself can be an emotional event for many people. Having two big changes at once can be difficult for many people to handle. If you may struggle with these transitions, consider separating them by selling your home before you retire or a few years after you retire.
"Homes often carry immense emotional and social value, especially for retirees who have spent decades in the same place," said Dennis Shirshikov, adjunct professor of economics at City University of New York and head of growth at Summer. "Selling a home can lead to a sense of loss and disconnection from familiar surroundings and communities. For instance, many retirees find themselves missing the neighbors and the community activities they once enjoyed."
"A better alternative might be downsizing to a smaller, more manageable property within the same community, preserving social ties while reducing the burden of home maintenance," he said.
If you sell your home and move far away during retirement, you might feel that initial loss of community. You can always build a new community in your new home, but know that it might take some time.
Overall, selling your home is a big change and can be expensive. Many people feel ready to sell their homes when they retire. But before you do so, make sure it's the right decision. Thinking through this decision fully can help prevent you from regretting it later.
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This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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