Made a Huge Profit Selling Your Home? 3 Moves to Consider

Here's how to make the most of that money -- and improve your financial picture.

Home values across the country have soared over the past six months as low mortgage rates and limited housing inventory have fueled buyer demand. That may have made things difficult for buyers who keep getting priced out of different housing markets, but it has been a terrific time for sellers, many of whom have gotten to pocket big profits.

If you made a lot of money on the sale of your home, it pays to make the most of it. Here are some ideas to consider:

1. Pad your savings

If the coronavirus pandemic taught us anything, it's the importance of having a healthy savings cushion for the unexpected. If your emergency savings could use a boost, the proceeds from the sale of your home could help you get to a more comfortable level. As a general rule, it's a good idea to have three to six months' worth of living expenses banked. So if your savings fall on the low end of that range, you'd be wise to pad them. Even if you're closer to that six-month mark, you may want to have a larger emergency fund -- say, nine months' worth of bills on hand.

2. Pay off other debt

Mortgage debt is generally considered the healthy kind to have, but if you have credit card debt, that's a lot less healthy. If you have any debt that's been hard to shake, then it pays to use some of your home sale profit to pay it off. Doing so could save you a bunch of money on interest. It can also help make you a more appealing loan candidate by lowering your debt-to-income ratio -- which is important if you have plans to buy a new home to replace the one you just sold.

3. Buy a lower-priced home that needs work

While average home prices are generally inflated right now, you may be able to find a cheaper property to buy that could serve as your new home. But homes today that are less expensive tend to be priced that way for a reason -- namely, that they need work. If that's the case, you have a real opportunity to buy a fixer-upper, scooping up a lower-cost home and making it your own. You can take the proceeds from the sale of your last home and invest that money in renovations -- improvements that not only raise your new home's value, but allow you to customize it to suit your taste. The benefit of going this route is twofold: You get a chance to effectively redesign a home to meet your specific needs, and you get the potential to make another large profit once you're eventually ready to sell that property.

Making money on the sale of your home opens the door to different opportunities. So be sure to take advantage of them. Whether it's boosting your savings, eliminating costly non-housing debt, or buying a home and turning it into your dream space, having a pile of cash to play with puts you in a very strong position to make one smart financial move or another.