If you’re selling your house, repairs and closing costs can ding your budget – but a credit card can help. Here’s how to leverage card rewards and 0-percent offers to save money.
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The spring homebuying season kicks off in late March as eager buyers begin scouring property listings. A rewards card can help cover the various costs of buying a home and it can be equally useful if you’re planning to sell.
Accumulated cash back or points can be redeemed toward home improvement expenses. You can add new rewards to the total as you spend on home upgrades.
Here’s how your rewards card can help seal the deal on a spring home sale.
How card rewards can help sell your home
Calculate your return on investment
In preparing to sell, first decide which repairs or renovations may prove most profitable, says Timothy Bartkowiak, client care specialist and sales representative with RE/MAX Chay in Bradford, Ontario.
According to the National Association of Realtors, the remodeling projects that allow buyers to recover the most value from their
- Kitchen upgrades
- Bathroom renovations
- Hardwood floor refinishing
- HVAC replacement
- New roofing
- New siding
What you choose to focus on largely depends on the condition of your home, says Bartkowiak. “Some homes need extensive interior work, followed by a minor amount of exterior work to help boost curb appeal,” he says.
Chase Michels, a broker associate at Baird and Warner in Hinsdale, Illinois cautions sellers against boxing themselves in with reno projects.
“Typically, highly customized items such as built-in electronics, pools, luxury outdoor patios, home offices and sacrificing bedroom space in a home decrease the buyer pool for resale,” says Michels.
Michels says better investments include kitchen or bathroom renovations, energy efficient windows, updating kitchen and bathroom cabinet hardware and increasing storage space, features which add more value.
See related: Best credit cards for home improvement
Prioritize rewards redemption
If you’re not sure where to concentrate credit cards rewards for home improvements, ask a pro.
“Talking to a real estate agent or home stager to decide where your best value is spent should be your first step in deciding where to use those reward points,” says Bartkowiak.
J.R. Duren, senior editor at HighYa.com, says a simpler way to decide is making two lists: one of repairs or projects that need to be completed to make the sale happen and another for things you’d like to do before listing on the market.
Duren says to work your way down the needs-to-be-done list first, then use any leftover rewards for the like-to-do list.
In terms of redemption, getting the most value hinges on the type of rewards involved and the card you’re using.
With a cash back rewards card, the easiest options are statement credit or a deposit into a linked bank account.
Here are how some of the top cash back cards redemption options compare:
- Citi Double Cash Card: You can redeem rewards when your cash back balance hits $25. Rewards can be redeemed for a check, statement credit or a deposit to a linked bank account.
- Discover it® Cash Back: Discover lets you redeem cash back in any amount starting at 1 cent for a statement credit or as a bank deposit. You can also redeem for gift cards from Discover partners once you reach $20 in rewards and you can use rewards to pay at Amazon.com, which could be helpful if you’re buying things like tools, lighting, fixtures or decorative items for staging.
- Blue Cash Preferred® Card from American Express: Like the Citi Double Cash card, you’ll need to reach a $25 minimum for redemptions. You can redeem cash for statement credit or for gift cards to partner merchants, including Home Depot.
You may be able to redeem points or miles for cash, statement credit, gift cards or online shopping for home improvement but
you’ll need to consider how much redemption value you’ll get.
- With the Chase Sapphire Reserve card, for example, Ultimate Rewards points are worth 1 cent each for statement credit or gift cards but they’re worth 1.5 cents for travel.
- They’re worth even more when you transfer to them to certain travel partners, but the redemption value drops to 0.8 cents
for Amazon purchases.
- If you travel often, you may be better off holding those rewards in reserve for your next trip and redeeming rewards earned with another card for home projects.
See related: Best cash back credit cards of 2019
Look for 0-percent APR purchase deals
Duren says cards offering a 0-percent APR, along with cash bonuses, are a great fit for covering home improvements before you sell since “you can put all those charges on the card and not pay interest for anywhere from 12 to 21 months, depending on which card you get.”
Consider these cards for snagging an introductory rate deal on home improvement spending:
- Capital One Quicksilver Cash Rewards Credit Card – 0-percent intro APR on purchases for 15 months (then 15.74 percent – 25.74 percent variable), plus unlimited 1.5 percent cash back on every purchase.
- Bank of America® Cash Rewards credit card – 0-percent intro APR on purchases for the first 15 billing cycles (then 15.74 percent – 25.74 percent variable), plus 2 percent back at grocery stores and wholesale clubs and 3 percent cash back on a category of your choice, including home improvement and furnishings (on up to $2,500 combined purchases each quarter).
- Chase Freedom Unlimited – 0-percent intro APR on purchases for the first 15 months (then 16.74 percent – 25.49 percent variable), plus unlimited 1.5 percent cash back on every purchase.
“Assuming you sell your home for a profit, you can use the card to make all your repairs and there’s a good chance your home will sell before the 0-percent APR is up,” says Duren, giving you time to pay off the balance with the sale proceeds.
You may be wondering whether a home improvement store is a good option for making home repairs. The Lowe’s Consumer Card, for instance, gives you a choice between a 5-percent discount when you shop at Lowe’s or 24-month promotional financing.
That kind of discount can be tempting but only if you’re planning to pay off what you charge in full. Retail store cards, including those from home improvement stores, can easily carry much higher interest rates than regular rewards cards.
Paying off a big home improvement project over time could easily wipe out any discount or savings you got as a result of using the card.
Plan for more than just a repair budget
Aside from the expense of getting your home in shape, get familiar with the other costs of selling a home:
- Real estate agent fees:On average, you can expect to hand over 6 percent of the home’s sale price in real estate agent fees.
- Closing costs: According to Realtor.com, seller closing costs typically run from 1 to 7 percent of the sale price.
- Final utility, property tax or homeowner’s insurance bills: You may need to pay any remaining balance for these bills to complete the sale.
- Moving costs: Moving can cost a few hundred bucks or a few thousand but the good news is you can use your rewards card to score some extra cash, miles or points for a move.
- Capital gains tax: The IRS requires home sellers to pay tax on capital gains associated with the sale of a home.
You’ll need to plan for each of these costs in your selling budget. Some of them, such as closing costs or real estate fees, may be
deducted from the sale proceeds. But if you have a shortfall, be prepared to pay them out of pocket or charge them to your rewards card – just be aware of the processing fees some of these services might charge you for paying with plastic.
After the sale is complete
At this point, you might be breathing a big sigh of relief, but there are a few other loose ends to tie up. Remember to:
- Organize and file your records from the sale.
- Change your address with the Postal Service.
- Transfer utilities out of your name if necessary.
- Review the settlement statement.
- Decide what to do with the profits from the sale.
- Plan your budget for buying a new home if you haven’t purchased one yet.
- Check your credit report and score.
That last step is important for two reasons.
- First, you want to make sure the mortgage loan for your old home shows up as paid in full on your credit report.
- Second, you want to make sure selling your home didn’t ding your score.
Duren says carrying a balance on your rewards card for those fix-it projects you tackled could lower your credit score if it
substantially increases your credit utilization. The sale of the home itself could also nudge your score down.
“Loans are a way for you to show lenders that you’re a responsible borrower,” says Duren. “When you pay off a loan and no longer make payments on it, you lose a bit of your borrowing prowess, even though it’s a good thing to get that loan paid off.”
Looking out for even minor credit score drops matters if you’ll soon apply for a mortgage for a new home or you’re currently in the underwriting process for a home loan. Duren says a high credit card balance, for example, could cause your score to drop enough to make the mortgage terms you qualify for less advantageous.
Don’t let your score slip after you buy a new home either. You may decide to refinance at some point or take out a home equity loan or line of credit. Having a solid credit score can make qualifying for new loans or lines of credit easier and help you lock in
the best rates.
The Bank of America content in this post was last updated on Oct. 1, 2019