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Selling Your House? Here’s What to Do With the Windfall of Cash

By U.S. News & World Report

It’s a seller’s market in much of the country. Real estate is a hot commodity, with properties in some areas being snatched up virtually as soon as they are listed.

That’s good news for sellers who can command a higher price for their homes. At closing, they may find themselves with extra money in their pocket. But finance experts say not to be too hasty in spending that cash.

Like any windfall, there is no one right way to spend the proceeds of a house sale. “It boils down to your priorities for the intended money,” says Keith Bernhardt, vice president of retirement and college products for Fidelity. To maximize it, you need to consider a couple of factors, including the taxes you might have to pay.

[See: 10 Ways to Reduce Your Housing Costs in Retirement.]

Popular options for home sale profits. Some people may be selling their current house in order to buy another. In that case, money from the sale may be needed as a down payment for the new home. However, not everyone is ready to make a purchase.

While home ownership is a worthy goal, some people would rather give up the keys and rent instead. “They want to lock the door and go on vacation,” says Steven Azoury, a chartered financial consultant and owner of Azoury Financial in Troy, Michigan, noting that the maintenance of a house can be a hassle.

For those not buying a new house, paying down high-interest debt is a logical way to use cash from a house sale. “That’s always the number one answer,” Azoury says. Buffing up retirement savings is also a good idea.

Other sellers are looking to do something a little more fun with their home sale proceeds. “We see a lot of people buying a vacation home or a second home,” says Theresa Williams-Barrett, vice president of consumer lending and loan administration at Affinity Federal Credit Union. “That seems to be a popular option.”

Buying a second home, going on vacation or splurging on a luxury is perfectly fine so long as it fits with a family’s priorities and finances, Bernhardt says. “Nothing wrong with that, but just do it in context of the big picture,” he says.

[Read: Is Retirement a Good Time to Sell Your House?]

Consider your time horizon. Once you have an idea of how you’d like to spend the money, it’s time to consider how long it will be before you make that purchase. If you’ll be buying a new home immediately, a savings account may be the best place to keep money safe and liquid.

However, a bank account can be a poor place to keep money that isn’t going to be needed for a while. “It will lose value over time,” Bernhardt says. The minimal interest offered by savings accounts lags far behind the rate of inflation.

Azoury recommends that renters put their home sale money in a growth mutual fund. “Bonds aren’t paying anything,” he says. “Money markets are comical.”

Even if you have enough from a home sale to purchase a new house with cash, Azoury suggests only paying what’s needed for the down payment. The interest rates for mortgages are still low enough that it might make more sense to finance a house sale and invest the rest.

[See: 10 Tips to Sell Your Home Fast.]

Don’t forget your taxes. Before you spend all the money, remember Uncle Sam may want his share. Gains from a house sale — that is, money above the purchase price and improvements made — can be subject to a federal capital gains tax. A married couple can exempt up to $500,000 of their gains from tax so long as they meet certain criteria such as using the home as their primary residence for two out of the previous five years.

States have their own criteria for exempting money from a house sale from tax. “There may be tax implications if you don’t purchase a home after a certain period or if you leave the state,” Williams-Barrett says.

However, laws vary significantly by state, and Williams-Barrett says her best advice for home sellers is to consult with a finance and tax professional. Foregoing this step could mean you end up spending your profits and then have nothing left over to pay a surprise tax bill in April.

Selling a home can be both an exciting and nerve-wracking process. When it’s done, don’t let the cash in your pocket slip through your fingers. Follow these guidelines and put that money to work furthering your family’s goals.

More from U.S. News

9 Red Flags to Watch for When Picking a Real Estate Agent

What You Need to Know About Home Appraisals

9 Common Real Estate Myths That Plague Buyers and Sellers

Selling Your House? Here’s What to Do With the Windfall of Cash originally appeared on usnews.com

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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