Feb 6, 2022
How To Sell Your House When You Owe Too Much
Selling a house is expensive!
It’s even more expensive if you have a mortgage that is nearly what the house is worth. I’m going to explain to you what that scenario looks like and how to avoid it altogether. There is always a better way, and this one may just be the best way.
The fancy shows on HGTV don’t shed nearly enough light on what the real costs associated with selling a house are. You’ll shell out 8–10% of the sale price in fees alone. If you owe money to a bank for a mortgage, they get their money first then you get whatever is leftover.
If you haven’t lived there for a minimum of 2 years, you will be on the hook for either capital gains tax or long-term gains tax on whatever amount is leftover.
In many cases, if you owe close to what the house will sell for, you will actually pay money out of your pocket to sell the house.
This is a major problem for a lot of people, especially if you need to sell quickly and don’t have enough money in savings to pay to sell your house. How will you buy your next house or even afford to put down a security deposit or pay for a moving truck? I talk to homeowners nearly every day who are in this position and my biggest task is to inform them that there is most certainly a better way.
Honestly, it’s the only win-win out there for someone in this situation.
If you own a house and have a phone, I will bet my paycheck that you’ve gotten about a zillion phone calls from people looking to “buy your house cash, fast”. They all sound the same, right? Almost like they’ve all gotten the same sales script or work for the same person (or type of person). Cash would be great but usually, the offer is much lower than what you owe on the house and even if you wanted to sell it for cash you would end up spending tens of thousands of dollars to the bank anyways. The lowball offers come one after another and almost feel like a slap in the face. Yes, you need to sell but nobody comes close to solving your real problem.
The truth is, these phone calls aren’t scams. Unfortunately, most of the people calling you only have one tool in their tool belt — a Cash Offer. If they pay you cash for the house and plan to sell it later, they will be the ones paying those exorbitant selling fees I mentioned above. They have to account for repairs and updates they’ll spend money on and they have to make a profit somewhere. Oftentimes, they’re offering you as much as they can possibly pay and not lose money themselves.
I get those calls daily. I also make a lot of those calls myself. It is, unfortunately, the nature of the beast. The difference between me and those hundreds of other people you’ve either talked to or ignored? My experience and motivations.
You see, I have personally gone through a foreclosure on my childhood home and witnessed the fallout caused by it. A blemish that size on my parents’ credit reports technically disappears after so many years BUT the lack of the ability to obtain credit for such a long period of time will affect them for decades.
When I speak with homeowners, my first and most important job is to learn as much about their situation as I can. No detail goes unnoticed and it all counts for something. Next, I listen to what your end goal is. I am a problem solver by nature, being a trained engineer and a veteran aircraft electrical systems troubleshooter extraordinaire, I find solutions for a living.
More recently, I’ve put that skill to use to help homeowners just like you.
Here is an example situation to paint a clear picture of how this works in action.
You own a house that your agent tells you is worth $250,000 if you spend about $10,000 on repairs and updates. If you sell it on the market as-is, you can expect to get low balled and sell for about $220,000. Both are fairly big numbers, but, you owe the bank $215,000. After selling fees of $19,800 (or 9%), you’re left with a negative $14,800. That is nearly $15,000 you need to pay out of pocket to sell your house.
What happens if you put in the $10,000 to get a higher sales price? You pay $10,000 upfront and get an offer for your asking price of $250,000. Subtract 9%, or $22,500 to get a gross amount of $227,500. Subtract the amount owed to the bank for the mortgage of $215,000 and you’re left with $12,500. That doesn't sound too bad, right? Don’t forget about the $10,000 you paid upfront to get the repairs done. You’re left with $2,500 and it took 4 extra weeks to list the house to allow for the repairs to be done and new photos to be taken.
In both scenarios, even if you sell the house on day 1 of listing, it will still take between 6 & 8 weeks to close. During that time, anything can happen. Approximately 3.9% of all real estate transactions fall apart before they close. If that happens, you get to start all over with another potential buyer.
How To Sell Your House When You Owe Too Much
You call me or visit my website (or someone like me). I am located in Pittsburgh, PA but operate nationwide. I belong to a network of individuals who are all well-equipped to do the exact same thing for you and will stop at nothing to make sure they find you a win-win scenario.
We chat for a while so that I can learn about your full situation and future plans. Next, we figure out how much you owe to the bank and what the house is worth today, as-is.
Depending on what those numbers are, you can actually get a decent size check to you to cover your moving costs and relocation or a trip to Disney — whatever is on your agenda. The deed is transferred out of your name and into mine (or one of my peers) but the mortgage you owe to the bank remains in place.
I take over ownership of the house via the deed transfer subject to the existing mortgage. We set up an escrow account with a mortgage servicing company and all payments are made to the mortgage on your behalf. We provide that documentation to whoever you apply for a new mortgage with so that you don’t get denied because you already have an open mortgage.
You sell your house with no money out of pocket and actually make money in most cases. You are able to move on with your life, stress-free with money in the bank. I am able to take ownership of a house without jumping through all of the hoops with a bank, coming out-of-pocket with 25% of the house’s cost for a down payment, paying for all the repairs and updates up front and spending 6–8 weeks of time just to close and get started.
It is truly a win-win scenario.
Maybe selling your house to me isn’t the best option, what then? Well, we will be able to figure that out during one of our many phone or Zoom conversations. The last thing I want is for you to do something that will make your situation worse or my situation worse. We go through all of the details and then work with my attorney to make sure that the option we choose is the best option for you.
If you or someone you know has gone through a similar situation or has any questions, comment below, visit my website at TrekSide Buys Houses or send me an email to treksidepg@gmail.com. I would love to talk shop or answer any questions you have!
