Selling your home is a big decision under any circumstances. For most of us, it is the single largest asset we own. Do not make a decision of this magnitude when you are dealing with the shock of a job loss. Read over these next several paragraphs and you will be in a much better position to answer the question, “Should I sell my house?”
Financial Factors You Should Consider When Deciding Whether to Sell Your Home and If You Lost Your Job
Will you receive severance pay?
If you will be receiving severance pay this will extend the length of time you can remain in your home. Do not panic!
Are you eligible for unemployment?
Chances are, if you are receiving severance pay, you are also eligible for unemployment. In any case, apply for unemployment as soon as your state permits.
Is your spouse working?
A working spouse can give you some breathing room even if his or her income is insufficient to meet all your financial needs.
What assets, apart from your home, can you sell?
Recreational vehicles, coin collection, stamp collection, or second cars, are a few examples of assets you can sell before you must ask, “Should I sell my house?”
Do you have a whole life insurance policy?
Whole life policies have loan provisions. Check with your agent and see how much you may be able to borrow against your policy.
Do you have an IRA or 401k?
This is your money and although you will pay a penalty for withdrawing the money before retirement, it might be a better alternative than selling your house. I said MIGHT!
What is your home’s value compared to your mortgage balance?
In today’s housing market, it is possible that you owe more on your mortgage than your home will gain if it’s sold.
Are You Happy with Your Home?
Subjective question, I know, but how much you are willing to sacrifice to stay in your home is contingent on the strength of your attachment. Eliminating or reducing discretionary expenditures is a tactic that most households can take. Examples of these can include dining out, premium cable channels, disposable plates and cups, name brand purchases, and a host of others. Eliminating these things can help you stay in your home, but if you are just not that enamored with it, it might be best to downsize.
Worst Case Scenario
I am not advocating any specific course of action for the homeowner facing extreme financial hardship. I merely point out facts. The course you choose to take is entirely your own. If you have no severance, paltry unemployment benefits, no 401k, no IRA, no significant assets available for liquidation and no reasonable prospect of selling your home, what do you do?
If your home is underwater, that is to say, if your mortgage balance is higher than your home’s market value, your options are limited. Here are some facts that you may find useful. In the states of New York, California and Michigan, banks have an REO (real estate owned) inventory of 132,251 foreclosed homes. The federally insured banks in these three states hold 29.8% of all foreclosed homes in the nation. This means that nationwide, federally insured banks own some 443,795 homes. These figures do not reflect tens of thousands of foreclosed homes owned by non-federally insured mortgage lenders. Sometimes, the question may not be “Should I sell my house?” Instead it should be “Should I let my lender sell my house?”
The national average suggests the interval between default and eviction is 565 days. In New York State, the average is 800 days and 807 days in Florida. These numbers suggest that it is possible to live in your home for well over a year without making a payment. If your financial circumstances are truly dire, you may decide this is a preferable alternative to homelessness. If you land a job, you can resume payments in most cases. As the numbers show, banks and other lenders are under a crushing burden of foreclosed properties. Lenders know that a vacant home is a neglected home that will lose value every day it is unoccupied. This may explain why banks are not rushing these defaulted mortgages into the courts for foreclosure. These are the facts. Of course, every lender is unique as to its policies and procedures and what I share here is not a guarantee that your experience will mirror the national average. It is just food for thought and may give you a new perspective on the “Should I sell my house?” question.
Have you ever had to make this decision? What did you do?
BIO: Dominique Brown is a financial planner, landlord, personal finance blogger and video blogger. He is the owner of YourFinancesSimplified.com where he talks about everything from being a new father to his worst financial mistakes. He is also the owner of InsiderRealEstateTips.com where he talks about real estate exclusively. The Huffington Post and H&R Block. You can find him either on Twitter, Facebook,Youtube or Instagram.