I’ve gotten to the point where I’m tapping into my Roth IRA to pay bills and the mortgage, but it’s running out. And unemployment doesn’t pay enough: I get $295 every week, while I was earning $10,000 a month at my job.
I want to sell my house. Is this a good course of action right now in this real estate market? What are the things I might not consider?
I live in Phoenix, I’m a single mom, my son is a senior and will be going to college next year. I have a dog and I still have car payments.
Discouraged
‘The big moveis a MarketWatch column that examines the ins and outs of the real estate industry, from finding a new home to applying for a mortgage.
Have a question about buying or selling a home? Want to know where your next move should be? Email Aarthi Swaminathan at TheBigMove@marketwatch.com.
Dear discouraged,
I’m sorry you’re going through such a difficult time. The job market is tough for some industries, particularly tech workers. Before making any drastic moves, identify whether you have exhausted all your options before committing to the idea of selling your home.
Tania Brown, certified financial planner and director of financial coaching at OfColor, advises against making a choice in the present moment – selling your home – that could harm you in the future.
“This is a permanent solution to what is probably a temporary problem,” he told MarketWatch.
First, you need to call your mortgage servicer and ask about assistance options, such as a forbearance. Find out what kind of assistance programs your servicer offers for the type of mortgage you have, whether it’s a government-backed mortgage or a conventional loan. This sometimes happens without additional costs or payments.
You may also want to consider a loan modification program, which would lower your monthly payment to make your mortgage more affordable.
If you ultimately default on your mortgage, you can once again ask your lender and the federal government (if applicable) for repayment plans or other options.
Regarding your work situation, have you spoken to a career coach or consulted a professional to redo your resume? Brown suggested taking a “bridge job” just to pay the bills, or even freelance work, if your job allows it. They may not pay $10,000 a month, but side hustles could give you more than just the $1,200 a month you receive through unemployment benefits.
Why selling should be a last resort
But if you’ve already looked at this list and still find yourself short-staffed, then perhaps you should consider selling or, at the very least, downsizing, but please only do so as a last resort.
You asked about the pros and cons of doing it. If you sell, this could help with your financial situation, particularly if your home has appreciated significantly since you purchased it. But the gains could be short-term.
There’s nothing wrong with renting, and given that your child will be moving out soon, you may find downsizing not only more financially manageable, but also sufficient.
If you can hold out until your child moves out, you could rent a room in your house to earn extra money. It is commonly referred to as home hacking. Roommates could help you cover your mortgage, as well as other expenses.
But some of the other issues you need to consider: It’s not a guarantee that you’ll be able to cash in on your home and the potential taxes that come with the sale. Additionally, real estate agents take an average commission of 6%, so factor that into your calculations.
If you bought recently, you may not necessarily make a big profit or even make any at all. According to Zillow’s Z, home prices in Phoenix fell 0.1% from a year ago.
Home value index. You may also be faced with local rents that may be higher than you imagined.
If you make a profit from the sale, you could also be hit with a tax liability if you haven’t lived in the home for at least two of the last five years, according to Internal Revenue Service rules. Read more here.
If you decide to rent, you may have problems with landlords who may require employment before signing a lease. But if you show you have enough funds to cover rent for a few months, or pay a large deposit up front, this could help you.
Just think carefully before giving up your home and risking an uncertain and prolonged period of housing insecurity. Talk to friends and family for support. Don’t think you have to go through this alone.
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