Top Guidelines When Selling a House to Pay Off Debt Comments28 Comments

The following is a guest post. If interested in submitting a guest post, please read my
guest posting policy and then contact me.

These past five years have represented some of the most difficult economic times since the Great Depression. Millions of individuals now find themselves without work or unable to secure much-needed loans. For some, even daily survival has become a financial challenge and the economy does not seem to have rounded the corner as of yet. These days are defined more by pragmatism than by realism. One method that some choose to employ to pay off debt is to either re-mortgage or to sell their property. Let us have a brief examination at some of the benefits of each option.

One of the main advantages of re-mortgaging a property is the ability to secure additional capital to help combat any financial woes. This extra liquidity can be used for a range of options, from paying off an outstanding credit card bill to purchasing a new vehicle. Additionally, a re-mortgage gives an opportunity to consolidate existing debts into one low monthly payment which is often more manageable than many disparate loans remaining unpaid. Finally, by examining different providers the homeowner is frequently able to secure a much lower interest rate. This has substantial benefits when payments are due and will aid in putting more capital back into the owner’s pocket rather than towards a payment.

If one chooses to sell property, the advantages here as equally as important to recognise. One fundamental difference with a home or property sale is the sense of freedom once the transaction is completed. Unlike a re-mortgage, the homeowner is free to do what he or she wishes with the generated profits. Should he or she fall upon hard times, the optimal choice may be to pay off existing debts in one lump sum. Most debt agencies and corporations prefer this form of payment and there may be room for a lesser full payment than if one were to stretch an incremental plan over months or years. Secondly, we are currently in the midst of one of the largest buyer’s markets in recent history. Should the property have had a great deal of equity, the choices for a subsequent purchase may be plentiful. What is more important is that in such a low-priced market, a new home purchased may be viewed as a medium-term investment for children or grandchildren in the years to come. Finally, there may be additional tax incentives in the case of a property sale as opposed to a re-mortgage.

However, it is essential to realise that either option may present a considerable challenge for those not well-versed in the intricacies of re-mortgaging or selling a property. Should the homeowner decide to “go it alone”, the stress involved can be profound and with selling in particular, the legal nuances behind a correct execution are best left to the professionals. The good news is that in these difficult economic times there are no lack of companies which can greatly aid in determining the correct option. Enterprises such as http://www.nationalhomebuyers.co.uk/ represent one of the best choices for a well-thought out property selling solution. One’s home is both an emotional and a financial investment. Choosing the right solution can help put the homeowner on a path towards financial health and freedom. With a simple consultation, a trained professional can help determine which path may be the best one to choose.

If you enjoyed this post, please consider subscribing to the RSS feed or you are welcome to leave a comment below.
By : Adam | 11 Feb 2013
Tweet this article :
Div line

28 thoughts on “Top Guidelines When Selling a House to Pay Off Debt

  1. Jose

    I’m assuming that selling a house would mean selling a second or investment property? If not, is it wise to sell a primary residence and use the cash you get out of it (if your lucky enough to have equity in it) to pay off debt? You could find yourself in a situation where you are unable to buy a new home or have to severely downgrade what you live in. One other factor to consider, that fact that it is a “buyers market” makes it that much more difficult to sell your home and far more likely that you’ll get less than what you feel it is worth.

    Reply
    1. Jeremy

      I guess it would depend on the condition of the market you’re in and how severe your debt is. If you’re paying high interest on a large sum of debt, it might be the right move. As with most financial advice it really depends on the exact situation.

      Reply
  2. Pauline

    I would make sure I find a decent rental first, having to sell a property because you have debt probably means you will wreck your credit score even more and finding an apartment will be no picnic. Better to pay a bit more to have both properties overlap for a while than no housing at all.

    Reply
  3. Grayson @ Debt Roundup

    Unfortunately at this time, most people cannot sell their homes to pay off debt. They can’t even sell their homes to pay off their current mortgage. Home values are in the tank and buyers will low ball you all day long. It is not a seller’s market. If you were going to sell your home to pay off debt, you better have a good amount of equity and you better be renting afterwards.

    Reply
    1. Jeremy

      I’m sure this strategy would’ve been more effective before the housing crash. Here in Canada, housing prices haven’t changed. So it’s still a potential option for people drowning in debt. It isn’t a decision that should be taken lightly though.

      Reply
  4. Chris @ Stumble Forward

    I actually had a bad experience with this when I sold my house. The problem was I did all kinds of remodel work to the house to make it appraise higher. I did manage to get a higher appraisal for my house but people were offering a lot less. In the end I had to settle with a $4000 loss to just to sell my house.

    Reply
    1. Jeremy

      That sucks Chris, but I guess it’s just a reality of the housing market these days. It would be frustrating to make all kinds of improvements expecting a higher sale price and then have to settle for a loss.

      Reply
  5. Edward Antrobus

    This is actually exactly what we are doing, although the decision to sell had nothing to do with debt. And since our rental costs twice as much, we would have been better off financially if we had been able to stay in our old place.
    But with the sale, we will be able to pay off my wife’s credit card and return our emergency fund to what it was before we paid our deposit on our new place.

    Reply
    1. Jeremy

      That’s a bit of a toss up if your rent is now double. Sure you relieved the credit card interest and refunded your emergency fund, but that higher rent is bound to add up. It really shows that everything needs to be considered in situations like that. It is probably a better situation psychologically now.

      Reply
  6. John @ Fearless Men

    Here in San Diego the prices are a buyers market but the availability is a sellers market. All the quality houses are barely on the market so you have to act fast. I would only imagine selling a primary residence if I absolutely had to. I don’t have an investment property but if I ever do selling makes sense.

    Reply
    1. Jeremy

      I wish that were the case here. Prices definitely make it a sellers market, yet the good ones also seem to sell fast. I couldn’t imagine having to sell a primary residence under these circumstances, but I guess some people have little choice. Maybe they’d eventually lose their home otherwise.

      Reply
  7. Kim@Eyesonthedollar

    I would never suggest refinancing or taking equity out to pay off unsecured debts. My inlaws did this and eventually went through foreclosure because they lost jobs and couldn’t make the payment. If you do have a large amount of equity, it might make sense to sell, pay off debt, and downsize, but I would think that would be hard unless you were nearing retirement and wanted to anyway.

    Reply
    1. Jeremy

      You’re right that it would be incredibly tough to do. When you have your own home it’s the last thing you want to give up. So you’d probably do everything possible to try to avoid it. Still sometimes your other options only go so far. Making this move and down sizing might make a lot of sense.

      Reply
  8. Tony@WeOnlyDoThisOnce

    Either way, that is not a fun position to be in if it is indeed a primary residence. A rental sale is probably better, but in this market a last resort! When I was in major debt I strongly considered selling a home of mine, but I am so glad I cut my other expenses. I’ll thank myself later! Thanks for this post!

    Reply
    1. Jeremy

      Nope, it wouldn’t be any fun at all. You’d really have to have your back against the wall to seriously consider it. When my finances weren’t so good I considered doing this with my car. Just like with the current housing market, I wouldn’t have got what I felt it was worth. So in the end I just kept it and found a way to dig myself out of that hole.

      Reply
  9. Money Bulldog

    The decision to sell your house and pay off debt is even more difficult with the low mortgage rates many people are currently enjoying here in the UK. Some people might not see much of a benefit from selling their house now because their mortgage payment is artificially low, if rates were to rise in coming years though they may wish they’d taken that chance to reduce their outgoings.

    Reply
    1. Jeremy

      On the flipside maybe they’d be paying mortgage rates that they secured several years ago and are unable to refinance. So by selling they might be able to both downsize and take on a more affordable mortgage. Plus the low mortgage rates might make selling easier.

      Reply
  10. Jon

    Im confused about who actually says its a sellers market or a buyers market. And what has to happen to change it. Sometimes it seems a little bit contrived to me.

    Reply
    1. Jeremy

      I guess it’s just terms for real estate agents to talk clients into following their advice. Then again, there are definitely times when there is limited properties available or an excess of supply. So like with anything else that could lead to difficulties in buying or selling.

      Reply
  11. Glen @ Monster Piggy Bank

    We tried to remortgage our house to take advantage of some more competitive interest rates, but because we had a big chunk of our loan in a fixed interest mortgage there was going to be an exist fee of almost $30,000. Needless to say we didn’t move.

    Reply
    1. Jeremy

      Damn, that’s a hefty fee. Crazy that they would even try to charge a fee that high. That’s too bad that you didn’t get to take advantage of the low rates.

      Reply
  12. Finance Inspired

    A lot of people are in a strange situation with their property at the moment, and will in fact lose a heck of a lot of money if they decide to sell at the moment, so much so a friend of mine will end up owing the bank over £20k ($31k) if they sell. I feel real sorry for them and can’t wait for the market to turn around.

    Reply
    1. Jeremy

      That is a tough situation. I’d really hate to sell knowing I’d still have to pay the bank that much money. Here in Canada we’re not facing that situation yet. Then again I have heard that the personal debt levels are getting close to what they were in the US right before their mortgage crisis. So hopefully the same thing doesn’t happen here, especially not after I buy a home soon.

      Reply
  13. Brick By Brick Investing | Marvin

    I am very familiar with this situation. I owned a home that I paid of a significant amount of principle on, however we needed the money for a down payment on our new home. I made the hard decision to sell my rental property in order to get the equity out of it. I took a loss and it burned me deep inside, but in the long run it all worked out.

    Reply
  14. Jerry

    We thought selling our house would help us get out of trouble but we found renters for it and they covered the mortgage, taxes and insurance and we were safe for a while.

    Reply
    1. Jeremy

      That would be a good alternative for some people, but then where do you live in the meantime? I’d think you’d have to downgrade and rent for that to work.

      Reply

Leave a Reply

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

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>