It’s not a question anyone ever wants to have to ask; should I sell my home so I can pay off my debts? It’s a question that, more often than not, means you have found yourself in a financial situation so dire that you feel you have no choice. Your home is your home; it’s your sanctuary. It’s where you want to raise your kids, make your memories and live. It’s not the place you want to sell so that you can pay your debts and find yourself in a better financial situation. Yet sometimes that’s precisely where you find yourself in life. The question is whether or not this is a wise financial decision or a bad idea.
The first consideration is your equity. Do you have any? Let’s work with an example. Let’s say you have $50,000 in credit card debt that makes you feel as if you are drowning. Now let’s say your home is worth $500,000 and you owe $300,000. You can sell your home, profit around $200,000 and pay off your debt and still have enough left over for a down payment on a new home. This is when selling and paying off your debts makes sense. However, if you have a home worth $500,000 and you owe $485,000 on that home, selling is pretty pointless when you factor in closing costs and other expenses.
Furthermore, you also have to consider where you will live next. Do you have the income to rent a home or buy a new one? If you make a profit and have more left over for a down payment on a new home, you’re probably all right. If you don’t or if the price to buy or rent is more than what you pay for your current home, it might not be a wise idea to sell your home. At the end of the day, it all boils down to your personal financial situation, your home, the real estate market and what numbers you crunch.
Photo by Getty Images