Does It Make Financial Sense To Sell My House To Pay Off Debt?

Layoffs, botched business investments, impulsive spending, family emergencies, poor-paying positions – all of these everyday life circumstances can put you deep in debt until the only way to dig yourself out is by selling your house. 

Before deciding to sell your home to pay a massive debt, go through the following considerations, questions, and ways to sell your home. The ultimate goal is to come out of your financial situation debt-free.  

Consider Your Debt Options

Can You Refinance Your Home?

There are two ways to refinance: cash-out or rate-and-term refinance. 

In cash-out refinance, the lender will give you a new mortgage enough to cover your old mortgage and debt payment. For example, let’s say your old mortgage and debt amount to $250,000. You can take out a new mortgage with a lender for that amount. 

With a rate-and-term refinance, you can take out a new mortgage with a lower interest rate and a new loan term. You will save money by having a lower monthly mortgage payment. 

You will then gradually pay off your debt with the monthly savings. Let’s say your previous monthly mortgage is at $2,000. After refinancing, it goes down to $1,500. You can now pay $500 towards your debt every month. 

Does refinancing sound better than selling a house to pay off debt?

Can You Get A Home Equity Loan (HELOC) Instead? 

Should I sell my house to pay off debt when I need to settle it fast? A home equity loan could be an alternative. The bank can lend you a lump sum of money equivalent to a percentage of your home’s equity or value.

Here is an easy way to estimate your home’s equity: maybe your home’s current housing market value is $400,000, and you have a $200,000 mortgage. Your house’s equity is the difference of $200,000. A credit union or another lender may allow you to borrow a portion of your home’s equity. You can then perhaps pay a credit card debt with your home equity loan.  

What About Bankruptcy?

Most Americans dread the idea of a bankruptcy on their record, and it is often their last resort. People overwhelmed with debt can file for a Chapter 13 or Chapter 7 bankruptcy.

Chapter 13 enables you to keep your properties and have a more flexible debt repayment schedule.

In Chapter 7, the court dismisses most of your debts and orders that the bank take control of your remaining property like your house to pay off some of your obligations. 

Selling And Downsizing Or Renting

It makes sense to sell a house to pay off debt when there is a high demand for housing and news of even higher home sale prices. A home seller might be able to, in one stroke, pay off the mortgage, have some equity left to settle their debt, and move to a smaller residence. 

A real estate agent can also help a debtor rent out their property or part of it for an amount that will cover the debtor’s monthly payments. 

Ask These Questions Before You Sell Your House To Pay Off Debt

How Much Will You Make On The Sale Of Your Home?

Have a real estate appraiser evaluate how much your home is worth. Will it be enough to pay off your debts and jumpstart your new life? Remember, it is also your responsibility to cover your house’s repairs before transferring ownership. 

Bear in mind that if you need cash fast, a traditional sale takes time. You have to account for the listing and viewings, and wait for a buyer to make an offer. 

Should you sell your house to pay off debt with a deadline?

How Much Is The Rent In Your Area?

You’re thinking of selling your home to get out of debt and prefer not to buy a house after. According to Zumper, the average rent for a 1-bedroom apartment in Houston is currently at $1,204.

Of course, the rate increases when you need a bigger place for a family. There’s also the advance to the landlord and new appliances to think about. Is it wise to exchange a monthly mortgage for rent long-term? The median monthly home payment of $1,815 is not far off from the average rent, and at the end of the mortgage, the house is yours. 

Are You Prepared To Move Out Of The House?

Selling a home to pay off debt is an emotional matter as much as it is a financial one. Your home holds precious memories, and you might be loath to let both of them go. 

You have to pack everything, find a mover, and then unpack again when you sell. Are you ready to go through all of that? On a lighter note, you could have a moving-out sale and use the earnings to pay off some of your debt. 

Ways To Sell Your House Fast And Save Money For Debt

For Sale By Owner (FSBO)

Pros Of Selling As FSBO

Homesellers who already have a buyer in mind tend to go the FSBO route. Homeowners take home larger profits and sell their houses faster without the assistance of a realtor.

Cons Of Selling As FSBO

You may lack the knowledge and time needed for the selling process. How well do you know setting up an attractive sale price or negotiating a purchase contract? You also have to be responsible for the marketing, viewings, and initiating repairs. 

Sell With Flat Fee MLS

Pros Of Selling With Flat Fee MLS

You can cut out the realtor and pay a single brokerage flat fee to list your home on the Multiple Listing Service (MLS). The MLS is a massive part of the housing market and where agents find houses to show to buyers. 

Cons Of Selling With Flat Fee MLS

You may have to personally stage your home and take photographs to post on the MLS. The staging process takes time and comes with costs. 

Get A Cash Offer From Real Estate Investors

Pros Of Selling To Investors

Aside from buying your house as-is and fast, the real estate investor may agree to a sale-leaseback transaction where they will rent your sold home to you. 

Cons Of Selling To Investors

You might neglect a proper appraisal of your home in a rush to sell your house and pay off debt. Some cash buyers will offer you a below-market price without you realizing it. (Or you can get a fair offer for your home with Assemble)

What Can You Do With Your Home If You Have Debt?

People go to great lengths to avoid or pay off debts. An incoming college freshman may apply for scholarships rather than acquire student loans. A penny-pinching mom could religiously meal plan to avoid going over the budget.

When faced with a question as life-changing as – should I sell my house to get out of debt? –  take the time to consider which option is the right one for you. Do you want to consolidate your loan for a lower interest? Or do you need a fresh start?

Take time to reflect on each choice before ultimately selling your most valuable asset, your home.

Leave a Reply

Your email address will not be published. Required fields are marked *