Owning a home has been purported to be the American dream. However, under certain financial conditions, it may not be the best decision to keep paying a mortgage. The decision to sell and move into a rental involves weighing the benefits and disadvantages of giving up your home for a cheaper living solution.
When You're Upside Down
Being upside down in your mortgage means you owe more on your mortgage than what your home is worth in the housing market. If you're in this scenario, especially if you are having trouble keeping up with your monthly payments, it may be smart to sell your home and move into a less expensive rental. A good option might be a short sale, in which the proceeds from selling the property fall short of the balance owed on the mortgage but the lender agrees to accept the lesser amount rather than see the house go into foreclosure. Short sale agreements don't necessarily release borrowers from their obligation to repay the deficiency unless specifically agreed to. A short sale also impacts your credit record, which might make it tougher to qualify for a rental.
When You Become Unemployed
The sudden loss of one income can be devastating in a two-income household; in a one-income household it can be a life changer. Financial planners strongly recommend having an emergency fund of at least three months for situations like this, but for many families that goal is out of reach. If you find yourself unemployed and don't have any options for finding work fast, selling your home and renting instead could be a wise decision financially, especially if you have built up equity in your home. Even if you haven't, reducing your monthly housing payment by moving to a less expensive rental will ease the pressure on your budget.
When You Want to Get Out of Debt
If you're drowning in debt, unloading the financial burden of your mortgage may be a good solution. However, take some time to consider all your options before taking this drastic measure. Homes are usually one of the most emotional possessions, and if your debt dilemma can be solved by getting an additional job, downsizing your car, or selling valuables, think strongly about those options first. Analyze your financial situation and see if your mortgage payment is more than 25 percent of your take-home pay. If it's more in the range of 40 to 50 percent, and you don't see your financial situation improving soon, it's probably time to call a real estate agent.
When You're Close to Retirement
If you're close to or at retirement age, and you have good equity in your home, selling your property allows you to free up capital to invest in more liquid assets. You can eliminate property taxes and costly homeowner's insurance -- just make sure you get renter's insurance. Another benefit of renting, especially for retirees, is the natural downsizing of space to maintain. Renters need only call their landlord for repairs.
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