My husband and I purchased our home about 4 years ago for $185,000. Now, similar homes in our neighborhood are going for around $245,000-$255,000. We really love our home and the neighborhood is wonderful, but we are facing tough times financially. Over the last year or so we’ve fallen behind on almost all of our bills. Lately we’ve even had to use our credit cards to keep up, but even that is not an option anymore. We’d like to keep the house, but it seems like the only way we could get back on track is by selling. Do you have any suggestions?
Reply:
Well first of all, you’re not alone. Have you turned on your TV lately? This problem is confronting an overwhelming number of Americans right now. Your situation may be slightly different though due to the fact that you may still have equity in your home…and key word is “may” (depends on if those were actual sales, or just listings). Most people who are facing this issue purchased a home in the last couple of years when the market was at its peak. Now they’re upside down because the market has shifted.
I would rarely encourage a homeowner to sell their primary residence in order to pay off debt. It’s just not a wise move. A home is one of those things that you will need for the rest of your life. At some point it would be nice to not owe anything on it (especially when you’re like…retired and not working anymore…know what I mean).
Unfortunately, too many Americans treat their homes like a bank. They make deposits every month and casually make withdrawals from time to time. And more often than not the withdrawals are substantially more than their cumulative deposits. Until one day, they owe more on the property than it is worth, even though it’s appreciated in value. This type of financial pattern will ultimately lead to disappointment.
Now, if the problem is that you purchased a home that is too expensive for your budget then my advice is to sell immediately. Swallow the bullet (pride, ego, attachment, whatever it might be) and don’t waste time. Procrastination will cost you big here. However, I would advise against using all of your equity to pay off debt, perhaps just use enough to bring past due bills current. The bulk of the equity should be transferred to your new house. Calculate how much you can comfortably afford keeping in mind all your obligations.
If your credit has been affected and you can’t get a loan, then you might have to rent for a little while but put the equity in the bank until you’re ready to buy again. If you start looking at lease options and rent-to-own scenarios, I suggest you contact a realtor for representation. It’s free for you, and it might save you a lot of headache down the road. Nonetheless, keep the monthly payment within your budget at all costs.
Tags: Advice, budget, debt, downsize, equity, hardship, lease option, real estate question, rent, reply, seller finance, suggestions
