If you’re looking for a way to eliminate debt that’s as safe as houses, well… you might be considering selling yours. Like many homeowners who struggle to make ends meet each month, selling your home to get debt under control often seems like a relatively simple escape from burdensome debt. However, selling your house to pay off debt is a surprisingly complex and risky process.

Here, we’ll explore what you need to consider before selling your house to pay off debts, and what the benefits and risks are. Plus, we’ll introduce you to a solution that gives you the best of both worlds (staying in your house while using home equity to pay off your debts). Ready to learn more? Let’s dive in!

    Key Points

    • Only consider selling your home after you’ve looked into alternative debt-management solutions.
    • Selling your house makes the most sense if your mortgage payment is greater than 30% of your monthly income.
    • The sale of your home needs to cover your remaining mortgage balance, closing costs, and make a significant dent in your debts.
    • Sale-Leaseback programs like SKYDAN can give you access to home equity without losing your home.

    Before You Put Your House on the Market

    Selling your house is a big commitment, possibly even larger than buying a house. The following steps will help you understand whether selling is right for your circumstances.

    1. Assess Your Current Debts and Mortgage Payment

    First, look at your mortgage payment as a proportion of your monthly earnings. If you spend 30% or more of your monthly income on your mortgage, you’re considered cost-burdened. This is a good sign that selling could be a major help—even if it’s just to reduce your monthly housing costs.

    2. Understand What You Need to Pay Off

    Second, clarify how much debt and what kinds of debt you have, including student loans, credit cards, personal loans, and anything else. This will give you insights regarding how much you need to make off the sale of your home for it to be worthwhile. Be sure to account for all the details like your interest rates, monthly payments, and the overall impact on your finances. 

    3. Evaluate The Equity in Your Home

    Finally, selling your home to pay off debt only makes sense if the profits will help you accomplish your goals. If you don’t have equity in your home, or you live in an area where home prices have declined since you moved in, selling your home might be more trouble than anything else.

    The sale of your home needs to:

    • Cover your remaining mortgage balance
    • Cover your closing costs
    • Make a big enough impact on your debts to get you back on your feet

    You need to be sure of this ahead of time. Start by assessing how much equity you currently have, and consider having your home appraised to determine how much its value has increased since you purchased it.

    4. Consider Your Long-Term Financial Goals

    Finally, it’s important to consider how selling your home will impact your long-term financial goals. It’s true that few people’s long-term goals include selling their home, but sometimes you have to move backward to go forward.

    Consider how the sale of your home will impact things like:

    • Your credit score
    • Your ability to buy a home again in the future
    • Your existing retirement savings and your ability to save for retirement

    Benefits and Risks of Selling Your House to Pay Off Debt

    If you think selling your home is the right choice, it’s important to understand the additional benefits and risks involved with this decision. 

    What are the Risks of Selling Your House to Pay Off Debt? 

    Aside from the obvious risk of losing the stability of homeownership, selling your home carries numerous other risks. Chief among them include:

    • Tax implications: If you have lived in your home for less than two years, the profits from your home could be considered capital gains. This means you can’t exclude the profits from your taxable income, further reducing how much debt you’ll actually be able to pay off using the funds from the sale.
    • Closing costs: Closing costs for sellers can be expensive, eating into the profits you’re counting on to pay your debts. While most sellers will see fees around 3% of the home’s selling price, closing costs can reach as high as 10% of the sale price.
    • Selling doesn’t address poor financial habits: Selling your home can help you reduce your debts immediately, but it doesn’t address the habits that lead to those debts. If you haven’t made changes to how you manage money, selling your home may only be a temporary solution. 

    What are the Benefits of Selling Your House to Pay Off Debt

    The main reason homeowners consider selling is to swiftly eliminate debts. But this isn’t the only benefit you’ll get from selling your home. Other notable benefits include:

    • Lower stress: Over half of all Americans say that money negatively impacts their mental health, and debt plays a big part in this stress. By eliminating that burden, you could see a significant improvement in your mental health and relationships.
    • Improved credit: If you’re struggling to make mortgage payments and are drowning in debt, your credit has probably taken a big hit. Paying those debts off and removing financial burdens could do wonders for your credit score. Done effectively, selling your home to pay off debts could potentially help you land a better interest rate on a future mortgage. 

    Exhaust Your Debt Repayment Options Before Selling Your Home

    Selling your home is a huge decision—we can’t stress that enough. If you’re struggling to make monthly payments, make sure you’ve exhausted options like:

    • Speaking with your lender: If you can’t afford your mortgage payment, speak with your lender ASAP. You may be able to negotiate different payment terms. Your bank or mortgage provider makes money on interest, and are therefore incentivized to keep you in your home—even if that means you’re making a smaller monthly payment.
    • Creating debt repayment plans: If you haven’t tried repaying your debts using the debt avalanche or snowball method, consider whether an aggressive debt repayment strategy would be feasible in your situation.
    • Consolidating your debt: Debt consolidation loans pay off various existing debts and replace them with a single payment. They often have better payment terms and sometimes a more favorable interest rate. Consolidation won’t eliminate your debt problems, but it may make them more manageable and keep you in your home.
    • Cutting expenses: If your lifestyle is putting you into debt, do everything you can to reel in your expenses and cut unnecessary spending.

    Get the Best of Both Worlds With SKYDAN’s Solution

    Homeowners who are burdened by debt often turn to selling not only because it gives them the opportunity to pay debts off, but because they don’t qualify for other solutions. Massive sums of debt destroy your credit, often making you ineligible for HELOCs, home equity loans, or mortgage refinancing.

    Fortunately, your credit score, employment status, or debt burden don’t impact your eligibility for SKYDAN’s home equity solution. Why? Because SKYDAN isn’t a bank or a lender. As long as you have enough equity in your home, you can qualify for SKYDAN’s program. Here’s how it works:

    1. SKYDAN buys your home, but you don’t move out.
    2. You agree to lease the home back from us after we set a mutually agreed-upon amount, for no longer than two years.
    3. Rent is deferred until the end of the agreement—so you don’t even pay rent
    4. Finally, you have two options:
      • You buy your home back for the original purchase price, plus the deferred rent
      • You sell the home at its current market value and receive all additional value.