Your Pre-Home Sale Financial Health Checklist (11 Key Steps)

Selling a home is among the most significant financial transactions many of us will ever undertake. It’s a process fraught with emotions, logistics, and crucial decisions. Yet, amidst the whirlwind of staging, listing, and negotiating, one critical step often gets overlooked: a thorough financial health checkup. This is especially true amid the financial burdens Americans face. 

A recent report noted that Americans’ financial health dived to pre-pandemic levels, with 17 percent tagged as vulnerable.

Selling your home without a clear understanding of your financial situation can lead to unexpected hurdles and missed opportunities. 

So, what’s the best step to achieve this? Read on. 

Key Insights for Your Pre-Home Sale Financial Checklist

11-Step Checklist For Pre-Home Sale Financial Health

1. Find a Local Real Estate Agent
   • Research local real estate agents with good reviews
   • Interview potential agents to find the best fit
   • Discuss your financial goals and timeline with your chosen agent
2. Assess Your Current Mortgage
   • Check your outstanding balance
   • Review your interest rate
   • Determine if you have any prepayment penalties
3. Estimate Your Home's Value
   • Research comparable sales in your area
   • Consider getting a professional appraisal
   • Factor in any major improvements you've made
4. Calculate Potential Selling Costs
   • Real estate agent commissions
   • Closing costs
   • Moving expenses
   • Any necessary repairs or upgrades
5. Evaluate Your Equity Position
   • Subtract your mortgage balance from estimated home value
   • Consider how much equity you need for your next home purchase
6. Review Your Credit Report
   • Check for errors or discrepancies
   • Address any issues that might affect your ability to buy a new home
7. Assess Your Debt-to-Income Ratio
   • Calculate your current debt-to-income ratio
   • Determine if you need to pay down any debts before applying for a new mortgage
8. Examine Your Savings
   • Ensure you have an emergency fund
   • Set aside funds for moving and potential gap in housing
9. Consider Tax Implications
   • Understand capital gains tax rules
   • Consult with a tax professional if necessary
10. Plan for Your Next Home
    • Determine your budget for a new home
    • Get pre-approved for a mortgage if you plan to buy
11. Review Your Overall Financial Goals
    • Ensure selling aligns with your long-term financial plan
    • Consider how the sale proceeds fit into your broader financial strategy

Assess Your Current Mortgage Balance

Understanding your mortgage balance is the first step in evaluating your financial readiness to sell your home as it directly impacts your potential proceeds from the sale. Knowing your current mortgage balance allows you to calculate your home equity (the difference between your home's market value and what you owe on the mortgage).

This helps in determining whether selling your home will provide enough funds for your next real estate desires. It also helps you assess if you have sufficient equity to cover selling costs, such as real estate commissions and potential closing costs, without having to bring additional funds to the table. 

Obtain your mortgage statement

The first step in assessing your mortgage balance is to obtain your most recent mortgage statement. This document provides detailed information about your remaining principal, interest rate, and other terms specific to your loan. 

Most mortgage lenders offer online account access to easily download your mortgage statement. Reviewing this statement will give you a clear picture of your outstanding balance and any potential penalties for early repayment.

Consider penalties and fees

When selling your home, consider any penalties or fees associated with your mortgage. Some loans, especially fixed-rate mortgages, may have prepayment penalties for paying off the loan early. These penalties can significantly impact your net proceeds from the sale. Contact your lender to understand and include potential fees in your financial planning.

Understand Your Home Equity

Home equity is the value of your ownership in your home, and it’s a crucial factor in the selling process.

Calculate home equity

Calculating your home equity is straightforward: subtract your existing mortgage outstanding balance from the current market value of your property. Say your home has a value of $400,000, and your mortgage balance is $250,000. In this case, your home equity is $150,000. This figure is critical as it impacts how much money you will receive after the sale.

Get an accurate home appraisal

Consider getting a home appraisal for an accurate picture of your home equity. An appraiser will evaluate your home’s condition, location, and comparable properties in your area to determine its current market value. This appraisal will provide a reliable estimate of your home equity and help you set a competitive selling price.

Evaluate Financial Obligations

Understanding and managing your financial obligations is vital before selling your home.

Review existing debts

Take a comprehensive look at your debts, including credit cards and personal loans. Reducing or eliminating these debts before selling can improve your financial stability and increase the money you can allocate to your next home or investment.

Understand tax issues

Keep in mind that selling a home can have tax implications. Depending on your situation, you may need to pay capital gains tax on the returns from the sale. Consult with a tax professional to understand your potential tax liabilities and how they might affect your net proceeds.

Prepare for moving costs

Don’t overlook the costs associated with moving. These include hiring a moving company, purchasing packing supplies, and potential storage fees. Planning these additional expenses will help you avoid financial stress during the transition.

Monitor Your Credit Score

Credit card fraud has surged recently, especially with the rise in online shopping and virtual business transactions. Estimates show that losses may hit $10.16 billion this year alone. The numbers are predicted to balloon as consumers continue to carry out online transactions. As such, leveraging free credit card monitoring services should be part of your financial health check. 

Know the benefits of credit monitoring

Credit monitoring can help you stay informed about changes to your credit report, detect potential fraud, and manage your credit health. Regularly checking your credit score ensures there are no surprises when you apply for a new mortgage or other financial products.

Choose a credit monitoring service

Many credit monitoring services are available, ranging from free to paid services with advanced features. Look for a service that offers real-time alerts, detailed credit reports, and identity theft protection. 

Tips for Maintaining a Healthy Credit Score

Maintaining a healthy credit score is crucial when buying a new home. First of all, it significantly impacts your ability to secure a mortgage and the interest rate you'll be offered. A higher credit score typically results in more favorable loan terms, potentially saving you thousands of dollars over the life of your mortgage.

Lenders use your credit score to assess your creditworthiness and determine the level of risk in lending to you. A good credit score can also increase your chances of loan approval for your next mortgage and may allow you to qualify for a larger loan amount, giving you more options in your home search. Additionally, some landlords check credit scores for rental applications, which could be important if you need temporary housing between selling your current home and purchasing a new one. Here’s a few tips on how you can keep a good credit score: 

Pay bills on time

Your payment history is a critical basis of your credit score. Late payments can have a negative impact. Set up reminders or automate payments to ensure you never miss a payment due date, safeguarding your credit score.

Reduce debt

Understand that high credit card balances can impact your credit score. Aim to keep your balances low. Your goal is to lessen your overall debt. Doing this will help boost your credit utilization ratio, which is critical in determining your credit score. This factor demonstrates responsible financial management to potential lenders.

Avoid opening new accounts

Every single time you open a new credit account, there will be a hard inquiry on your credit report. Such inquiries can lower credit scores, albeit temporarily.

Additionally, opening several new accounts can signal to lenders that you might be overextending yourself financially. This practice could negatively impact your creditworthiness.

Be Financially Ready To Sell Your Home

Conducting a financial health checkup before selling your home ensures a smooth and profitable transaction. By assessing your current mortgage balance, understanding your home equity, evaluating financial obligations, and monitoring your credit score, you can be well-prepared for the selling process. 

Remember, financial preparedness ensures a successful sale and sets the stage for your next financial adventure.