I've gotten to the point where I'm turning to my Roth IRA to pay my bills and mortgage, but that's running out. And unemployment doesn't pay enough: Every week I get $295, while I was making $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 think about?
I live in Phoenix, I'm a single mom, my son is a senior and going to college next year. I have a dog and still have car payments.
frustrated
'Big move” is a MarketWatch column examining the ins and outs of real estate, from searching for a new home to applying for a mortgage.
Do you have a question about buying or selling a home? Do you want to know where your next step should be? Email Aarthi Swaminathan at TheBigMove@marketwatch.com.
Dear frustrated,
I'm sorry you're going through such a difficult time. It's a tough job market for certain sectors, especially for tech workers. Before you make any drastic moves, determine whether you have exhausted all of your options, before turning to the idea of selling your home.
Tanya Brown, a certified financial planner and director of financial coaching at OfColor, advised against making a decision now – to sell your home – that could hurt you in the future.
“This is a permanent solution to a problem that may be temporary,” she told MarketWatch.
First, you need to contact your mortgage servicer and ask for assistance options, such as forbearance. Find out what type of assistance programs your provider offers for the type of mortgage you have, whether it's a government-backed mortgage or a conventional loan. This sometimes comes without any additional fees or payments.
You could also look into a loan modification program, which can lower your monthly payment to make your mortgage more affordable.
If you end up unable to pay your mortgage, you can again ask your lender and the federal government (if applicable) for repayment plans or other options.
Turning to your employment situation, have you spoken with a career coach, or consulted with a professional to rewrite your resume? Brown suggested taking a “temp job” just to pay the bills, or even working as a freelancer, if your industry allows it. They may not pay $10,000 a month, but side hustles can give you more than the $1,200 a month you receive through unemployment benefits.
Why should selling be a last resort?
But if you've already gone through this list and still find yourself short, you may want to 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 this. If you sell, it may help improve your financial situation, especially if your home has appreciated significantly since you bought it. But the gains may be short-lived.
There's nothing wrong with renting, and since your kid will be moving soon, you may find that downsizing is not only more financially manageable, but also sufficient.
If you can hold out until your kid leaves, you can rent a room in your house to earn extra money. It is commonly referred to as home hacking. Roommates can help you cover your mortgage, as well as other expenses.
But some other issues you need to consider: It's not a guarantee that you'll be able to benefit from your home and potential taxes from the sale. Additionally, real estate agents earn an average commission of 6%, so please factor that into your calculations.
If you bought recently, you may not necessarily make a big profit – or a profit at all. Home prices in Phoenix are down 0.1% from a year ago, according to Zillow's Z,
Home value index. You may also encounter local rents that may be steeper than you imagined.
If you make a profit on the sale, you may also be exposed to a tax liability if you have not lived in the home for at least two of the past five years, according to Internal Revenue Service rules. Read more about that here.
If you decide to rent, you may run into trouble with landlords who may need work done before you sign a lease. But if you show you have enough money to cover a few months' rent, or pay a large deposit upfront, it could help.
Just think twice before giving up your home – and risking a long and uncertain period of housing insecurity. Talk to friends and family for support. Don't feel like you have to go through this alone.
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