People often defend their homes with every fiber of their being. No matter what’s happening, or how bad it gets, the homestead must be protected at all costs. I kind of understand that conviction. But at the same time I also wonder if homeownership can become an unsustainable burden when you’re facing a career crisis or some other sort of money crisis.
In fact, there are at least five reasons why it might be better to sell your house if you were facing a money crisis, rather than trying to hold on to it. We also recommend having mortgage life insurance for other life changing situations that may arise!
Freeing yourself to take an out-of-town job
Although the housing market has at least partially recovered in most areas of the country, having to sell your home on short notice is still extremely difficult in all but the strongest market areas. If you are in or facing the prospect of long-term unemployment – as is now fairly common – owning your home can prevent you from being able to take advantage of new employment opportunities in distant cities.
There is even mounting evidence that this has become a macro-economic problem around the world.
A 2013 study on employment trends by Warwick University (UK) economics professor Andrew Oswald noted a strong connection between high rates of homeownership and high employment in the US and throughout the Western world:
“Home ownership unwittingly impairs the labor market by deterring people from moving in search of work, a process that is time-consuming and expensive; long commuting times might also discourage a householder from taking a particular job…”
As technology has increasingly become the order of the day, flexibility is a major requirement of today’s employees. There is strong evidence to suggest that owning a home – particularly in a relatively small job market – is a negative when it comes to finding new employment. If you’re in a career field where job changes are frequent, and often involve moving to a distant city, you might be better off selling your home and becoming a renter.
A permanent home largely depends on very stable employment, and that’s getting harder to find all the time.
Moving to less expensive quarters
It’s no longer unusual for people to find themselves suddenly facing the need to cut expenses drastically. This isn’t just a matter of losing your job either. There are various reasons why you may need to cut your living expenses on a permanent basis:
- The loss of a job may require you to take a lower paying job in order to remain employed.
- You could be hit with a rash of uncovered medical expenses.
- You may need to free up income to pay for your kids college education.
- With people living so much longer, you may find yourself suddenly providing financial support to an elderly family member who can longer do it for themselves.
- If you are in your fifties, and have little in the way of retirement savings, you may need to reduce your living costs drastically to free up cash flow to fund your retirement plans.
Once the need to permanently cut your living expenses becomes apparent, you may also find that canceling services and clipping coupons just isn’t enough. Sometimes you have to reduce your biggest expenses, and the biggest of all is housing. If that’s the case, you may find yourself needing to rid yourself of an $1,800 per month house payment, in favor of a $1,000 per month rental.
Yes, homeownership does provide tax deductions, but when you crunch the numbers you’ll likely find that they don’t come close to justifying paying extra $800 per month for the privilege of owning. As well, by selling your home, you may free up much-needed capital to cover other financial needs.
Saving on repairs, maintenance and other homeowner burdens
In calculating the buy-versus-rent comparison, most people – and especially real estate agents – do their best to ignore the impact of repair and maintenance costs on the homeownership side. But these costs are considerable. In fact, they amount to several thousand dollars per year for each year of homeownership.
True, there may be certain years where it’s only a few hundred dollars. But there will be others when they will be well in the thousands, such as when you need to replace your roof, your carpets, rotted wood siding and windows (common in the South), or plan to remodel your kitchen and bathrooms.
These can create windfall expenses that often seem to happen at the worst possible times. If you sell your house and rent, you won’t have any of these expenses. When something breaks, you’ll simply call the landlord to handle it.
If you’re going through a time of money troubles, eliminating the repair and maintenance expense on a home could be a decisive advantage.
As part of a plan to live a much more frugal lifestyle
Many money troubles are temporary, but some end up being permanent. Earlier we mentioned the prospect of caring for an elderly family member, or of having to make up for lost time in preparing for retirement. These are just two examples among many. In order to meet the challenge you’ll be facing on an ongoing basis, you’ll have to make permanent reductions in your cost of living.
The best way to do that is usually to make across-the-board cuts involving all expenses. That includes cutting your house expense, and that will probably have a bigger positive impact on your finances than any other single move you can make.
Not only will it be possible for you to lower your basic monthly house payment by going to less expensive rental housing, but you will also remove the aforementioned repair and maintenance costs that are inherent to homeownership.
There are other possible benefits that aren’t as obvious.
By moving into an attached rental dwelling, such as a garden style apartment or townhouse, you’ll almost certainly lower your utility costs. Heat, water and sewer, and electricity are almost certain to be considerably lower in attached housing than they will be in a freestanding house. In some cases, certain utilities will even be paid for as part of your rent. This is very common in regard to trash removal and water and sewer charges.
And finally, renting a home generally involves more free time. Not only will you not have to spend time fixing and maintaining the property, but if you live in attached housing you won’t have to cut the lawn or trim the hedges either.
I saved this discussion for last because it’s something that I’ve seen play out time and again. A person loses his job (and can‘t find a comparable replacement job), experiences a business failure, or goes through some other type of cataclysmic financial situation and absolutely refuses to consider selling his home. I’ve seen dozens of people sit in their homes quite literally up until the point that the house is seized in foreclosure.
If you’re facing this situation, it might be best to sell your home before it reaches the point where it is seized by the bank for nonpayment on the mortgage. There are at least four advantages to doing this:
- By selling you give yourself the opportunity to find a less expensive place to live, which will likely speed your financial recovery.
- You can free up any equity you have in the home that you may need for survival purposes – equity that will almost certainly be lost if the property goes to foreclosure.
- By selling the home, you will be able to manage the transition, rather than putting yourself in a position where you will merely react to the circumstances that will be forced upon you by a foreclosure proceeding.
- By selling, you can avoid a foreclosure and that will protect your credit rating.
If it’s beginning to appear as though your financial situation will no longer support owning your own home, life will probably go better for you if you sell the house voluntarily, rather than having repossessed by the bank.
As a whole, owning your own home is a better financial state than renting. But there are times when the conventional wisdom doesn’t hold, because your financial situation is taking a detour. It’s best to react to the detour in a proactive way, and improve your financial circumstances as quickly and efficiently as possible.
Silver lining: There’s always tomorrow to buy another home.