Selling Your House to Pay Off Debts
THINKING OF SELLING YOUR HOUSE TO PAY OFF DEBTS?
If you are struggling financially, depending on your circumstances you may benefit from selling your house to pay off outstanding debts such as credit cards, payday loans or other lines of credit. Being in debt is incredibly stressful, often placing you and your loved ones under immense strain. Depending on the value of your home, you could sell your property to repay these debts and gain back some financial control. However, selling your house to pay off debt is not a decision to be taken lightly. Many of us will experience financial difficulty at some point in our lives. Here at Quick Move Now, we provide all our customers a free, no-obligation indicative cash offer for their property. Because there is no obligation, you have nothing to lose by asking for a cash offer. By selling your house fast to a cash buyer like Quick Move Now, you free yourself up from the usual hassles and delays associated with the open property market. Because we use our own cash reserves, a quick turnaround is guaranteed. In fact, Quick Move Now can complete on the sale of your property in as little as 7 days if needed.
Should I sell my house to get out of debt?
If you want to stop house repossession, consolidate debts or want to put right any other financial problems, receiving money quickly from the sale of your property can help. Unexpected circumstances such as redundancy or unemployment, along with life-changing events such as a family death or a divorce can place you under financial scrutiny. Even if you have money set aside for a rainy day, depending on your circumstances, you could find that this just isn’t enough. If you need a more permanent solution to debt consolidation, selling your home for cash could be the answer.
Should you sell your house to pay off your debt?
Your home is often your largest asset, meaning it is worth more than anything else. While it may seem an easy way to raise a large amount of money in a short period of time, you should consider the long-term effects of selling your family home to clear debt. For one, in addition to simply being a large asset, a home is often at the heart of a family. Moving can cause children and teenagers a great deal of stress, and can put a strain on relationships with family and friends.
Good debt versus bad debt
When it comes to accumulating debt, some loans are considered to be good while others have a negative impact on your financial standing. For example, a mortgage is generally considered to be good debt, as the property value will in theory exceed over time. Student loans are also thought to be good debt, as education is thought to better your prospects and enable you to generate more income over the long term. Any loans taken out with low interest rates are also considered good debt. Bad debt occurs when you use borrowings to purchase something that will not generate long-term income and will decrease in value. Payday loans and credit cards are examples of bad debt. When debating whether or not to sell your home, you should look at what you’ll be using the money towards, and how it will impact your long term financial future. After all, as your home is such a large and important asset, selling your home to square outstanding balances should be an absolute last resort.
Things to think about before selling your home
If you are thinking of selling your home to settle debt, there are other things you should think about when making your decision:
- Do you have difficulty managing money? Is drumming up money from a house sale a short-term solution to an underlying problem?
- Are your financial troubles short or long-term? Is your shortfall in cash caused by a sudden change in circumstance that can be righted within a few months, or are you in long-term debt?
- How much will it cost to sell your home? You’ll need to factor in things such as estate agent fees, a conveyancing fee, the cost of any repairs required to make the house saleable, the cost of getting an EPC, and the price of removals. All of this can either cost money upfront or eat into your profit margin upon completion of sale.
- How long will it take to sell? What are the market conditions like in your local area? How about the condition of your home? While you may want to sell quickly to alleviate money trouble, this doesn’t necessarily guarantee there are buyers
- How much do you owe, and to who? Is there any way of restructuring the debt repayment to avoid having to take such drastic steps? For example, you may be able to enter into an IVA(Individual Voluntary Agreement). This is an agreement between yourself and your creditors through which you can manage your debt repayment. If it is just your mortgage causing you trouble, you could speak to your lender about remortgaging or switching products to alleviate this stress.
- How important is it for you to be on the property ladder? If you sell your home, you may find yourself only able to rent going forward, at least in the short term. How will this impact your living situation?
- Where will you live once the house has been sold? How will you find this new home?
- Would you want to sell if money issues weren’t an option? Making the decision to sell could be a blessing in disguise and force you to examine whether your living situation is really ideal.
Once you have considered these and sought advice from family, friends or even an independent financial adviser, you will be in a better position to understand if you should proceed with your house sale to clear your debts.
Using the money from your house sale to clear debt
Once you have completed the sale, you will have a lump sum (less expenses) that can be used towards debt consolidation. You will need to look at how much you owe and how this is spread among creditors. You should then carefully scrutinize your monthly incomings and outgoings to see how much money you need to live each month; if you pay everything off in one go but don’t leave yourself with enough to live, you can find yourself borrowing again and getting back into a vicious circle of debt. You can decide to pay off your debt in its entirety, or you can choose to payoff debts that have higher interest rates first. If the amount raised through the sale of your home is not enough to pay everything in full, you can reduce the debt with a lump sum and continue to pay off what you owe in manageable monthly installments. You can also choose to pay off in full one or two debts such as a couple of credit cards and then consolidate your outstanding debt and pay with one monthly payment.
While the sale itself won’t necessarily impact your credit rating, any missed mortgage payments or defaults on the loan will remain on your rating for sixyears. Selling your home won’t erase this from your credit history, and so even if you do manage to sell and clear your debt with the funds, your ability to buy elsewhere or to move forward with more credit could be hampered.
It is important to tell creditors about your difficulty keeping up with repayments as soon as possible. If you are planning to sell your home to raise the capital to cover your debts, you should provide your creditor with a copy of the valuation/estimated sale price and detail how much of that will be available to go towards repayments. While you are waiting for your home to sell, you may be able to restructure your repayments at a lower sum in the meantime.
If you’re in a hurry to sell, you may choose to avoid putting your home on the open market and waiting for a traditional buyer, as this is normally a lengthy process. Instead, you could opt to place your home up for auction, or sell to a professional cash buyer to close the transaction quickly.
When you sell a property to pay off debts, you must first settle the remainder of the mortgage along with any fees associated with the sale of your home, which can in some cases amount to thousands of pounds. At the end of the conveyancing process, it will be your solicitor that pays the money to the mortgage lender on your behalf (normally taking their fee on top of this).
Yes - as mortgage terms normally run anywhere between 10 to 50 years, many homeowners sell whilst still within mortgage. You will need to use the sale of the house to pay off the remainder of the amount you owe to the mortgage lender, with the leftover capital yours to spend on debt repayment as needed. If you sell the house for less than is left on the mortgage, you will be considered to be in negative equity. The shortfall amount will still need to be paid back to the mortgage lender.Learn more about negative equity here.