Between September 2020 and September 2021, American mortgage debts climbed 7.6% to about $10.3 trillion. Mortgage debt represents more than two-thirds of total consumer debt in the United States.
Many Americans are struggling with debt, especially when it comes to mortgage payments. If you feel cornered by debt and are unsure where to turn, you are probably hoping for some hail Mary to save you from financial ruin.
When debt balloons out of control, it can sometimes feel like you will never be able to pay it off, but maybe you can find relief by selling your home to pay off the debt.
Hitting rock bottom is scary, but your home is most likely your most expensive asset and may have enough equity to solve your less-than-stellar financial situation. You may ask yourself: Should I sell my house to get out of debt?
Read on to find out more information on selling homes to pay off debt and what steps you should take on the road to becoming debt-free.
Is Selling a Home to Pay Off Debt the Right Thing to do?
The answer to this question will vary from person to person. Sometimes selling your house to pay off debt is a great idea, but for others, it might not be the best financial decision.
The most important thing to consider is why you ended up in debt in the first place.
If you have experienced some emergency, like an illness, losing a job, or excess student loans, or are taking care of a loved one in need, selling your house and starting over fresh can benefit your peace of mind.
If your debt comes from poor money management, overspending, gambling, addiction, or other issues you need to address, selling off your home to pay debt might be compared to putting a bandaid on a stab wound.
First, you need to understand the difference between selling your house to rectify your credit and restructure your personal finances versus selling it to pay off excessive credit card debts. You may even need to consider credit counseling or other financial literacy services.
Next, you should figure out if selling your home will even cover the extent of your debts when all is said and done. Think of this disclaimer before you sell; this will only work if you have enough equity in your home.
Why You Should Sell a Home to Pay Off Debt
Selling your home to refinance and pay off debt can be a very emotional decision to make. Still, there are some very tangible benefits to selling your house and finding a fresh financial start.
Equity refers to an instance where a home is worth more than the owner has left to pay on the mortgage loan.
Equity is vital to the home-buying process. You can even apply for a home equity line of credit (HELOC) based on what your house is worth. The larger the downpayment you make on your home, the more equity it tends to have.
All the excess home sale proceeds after associated selling costs belong to you, and you can use that equity to pay off your debts.
If you bought your home during an economic downturn for a low price, you can turn around and sell it for a good profit, especially if you have kept up on maintenance and repairs.
Selling a home does not have to be a long, drawn-out process either. If you are actively looking to sell your house fast, cash home buyers in Meridian can take all the hassle out of selling a home to pay off your debt.
Disadvantages of Selling a Home to Pay Off Debt
Of course, selling your home to pay off debts might seem like a great idea on paper, but it is vital to think about the downsides too. There are certainly risks involved and pitfalls that might make you change your mind.
You should begin by analyzing your credit score. If you have poor credit finding a place to rent or a new home to buy can be difficult while rebuilding your credit score.
Downsizing is a great way to cut costs, but not always. Depending on shifting housing markets in your area, you may end up shelling out more monthly payments for utilities, renovations, and higher homeowner’s association fees.
Always work from a position where market conditions might not be in your favor. There might be a better time to sell to get the most out of your (likely) most expensive asset.
There’s also a chance that you could sell your house and not make a profit at all, or a very small one, if you still owe a considerable amount on your mortgage. If you owe too much on your mortgage, you won’t make enough money to cover your debts, and you’ll have sold your home for nothing.
One of the biggest downsides to this process is all the associated costs of selling a house. If you go the traditional route, you’ll have to pay escrow, sales taxes, high-interest rates, real estate agent commissions, capital gains taxes, insurance, closing costs, and more.
You may even have to foot the bill for expensive repairs to entice buyers.
Of course, don’t go overboard because there are several things not to fix when selling a house that can save you some money, but the process is still very costly.
How to Get the Best Price for Your Home
There are plenty of strategies you can use to ensure you get the most money for your beloved home, but below you’ll find three surefire steps to take if you want to try selling a home to pay off debt.
1. Understand the Local Real Estate Market
Housing markets vary greatly from city to city and state to state. To sell a house fast in Boise is much different than selling a house in Texas.
If there are more houses for sale than there are interested buyers, your prices will go down. This is referred to as a buyer’s market versus a seller’s market, where there are more buyers than homes for sale.
Before you sell your homes to pay off debt, you should look at the average amount of time similar houses in your area remain on the market. This real estate statistic is a good gauge of how fast homes like yours are selling and what kind of demand there is for housing in your area.
Home appreciation rates are another great way to see how quickly housing prices are rising. If there is a steep increase in pricing buyers are usually paying more money for properties.
The trends of your local market will play a huge role in how much money you can charge to sell your home and how much profit you end up with after closing.
2. Understand Proper Price Points
If you are desperate and over-price your home to try and pay your debt off quicker, it might take longer to sell the house overall.
On the other hand, if you continually lower the price out of desperation, potential buyers might become suspicious that the home value isn’t up to standard or has underlying issues.
Finding the right price to advertise your home is very important if you want to sell it quickly. However, it can be hard without help, especially if you aren’t well-versed in realty or housing markets.
3. Find a Local Expert
Most homeowners will only buy or sell a house a few times at most. Real estate investors and financial advisors have a lot more experience selling houses quickly and efficiently, cutting through all the red tape involved.
You could also go with a local home-buying company like Gem State Cash Offer, which proudly proclaims, “We buy houses Idaho!”
Cash homebuyers cut out fees, deductibles, repair costs, property taxes, and commissions. You’ll get a fair offering price, and even better, you can choose the closing date. They will buy your home in as-is condition, and you can avoid all the hassle and stress of selling your home for debt repayment.
It’s a great idea to work with local professionals, and working with a local company like Gem State is a great, less expensive alternative to paying realtor fees and a slew of listing costs.
All you need to do is call or go online to request a fast, easy offer. Gem City will review your details and set up an appointment or ask you to send in pictures of the property. Once they’ve seen the property, they will give you a cash offer for your home.
If you accept, your final step is choosing a closing day and then getting on with your life debt-free.
The Bottom Line
If you have equity in your home and selling it would help fix your financial issues, you could be well on your way to living debt-free again with just a little help.
You can avoid bankruptcy and foreclosure, save your credit, and maybe even make a bigger profit than you imagined.
For people without enough equity or those who have not begun to deal with the root cause of their debt, selling their home is not a long-term solution, but for others, it can be a light at the end of the tunnel.
If you want to sell your house quickly and easily, you could try the cash home-buying process and lift the weight of all that debt right off your shoulders once and for all.