$20k Loan on $79k Home?

August 17, 2009 5:19 PM

House loan advice needed. Should I take out a loan against my house while I'm trying to sell it?

I need some help from some people familiar with numbers and money.

I'm between a rock and a hard place. The only good thing I have is my house, which is completely paid for, and recently appraised at $79k.

It's for sale, and I think it will sell within the next three to six months—twelve months tops—but I'll need some resources to keep me alive during that time.

I'm thinking of taking out a short-term, two-year loan for $20k and living on the money and using that money to pay back the loan until the house sells, but I'm not a money person and I don't know if that's a wise move to make.

I could really use some good advice. Thanks.

posted by rougy to work & money (8 comments total)

Yes, it's of course very common for people to sell a house while still owing money on it.

A home-equity loan isn't a bad way to go, cost-wise, much better than looking at a reverse mortgage (assuming you meet the age requirement for a rev. mo.).

If your plan is to live off the proceeds of the sale then it won't make that much of a difference that you are starting to now, other than having to pay the $1000 or so in interest costs on the new loan.

Look into a home equity line of credit instead of a loan; this will let you write checks against it and that will cut your interest costs in half or more.
posted by @troy at 5:34 PM on August 17 [1 favorite]

To answer your question more fully, owing money on the property just adds some work for the escrow company to handle; part of the escrow process will be getting the purchase money from the buyer into the escrow account, and then cutting a check from the escrow account to the lien holder (the bank that gave you the loan) to pay off what you owe them, and then having the lien holder release their lien on your property, giving a clear title to the new owner.

I haven't ever bought or sold a house so I may be wrong on the details on this but hopefully somebody will correct me if so.
posted by @troy at 5:39 PM on August 17

The finance company may require you to take it off the market for 30-60 days before you close on the loan. There are so many new regulations on home loans these days, it's hard to keep track of them -- but I was just told this one by a mortgage broker a few months ago.
posted by thanotopsis at 5:49 PM on August 17

I'm coming at this question from another angle.. why does the house need to be sold? Where are you going to live once the house is sold?

If you need to sell it to pay off some other debt, can you not take out a secured loan against your house to pay off (whatever the other thing is) instead?

Presumably you'll still be needing accommodation once the house is sold.. any rent you would be paying would be more than the zero you pay to live in your fully paid-for house. This rent money could, instead, be put towards paying for (whatever the other thing is)?
posted by coriolisdave at 11:57 PM on August 17

I appreciate all of your input.

I'm selling the house primarily because I hate this town and I can't get a job here. Getting jobs used to be easy for me, but nobody will hire me here.

If I could have found a job, or if I thought there was a chance I still could in the next few months, I wouldn't need the loan.
posted by rougy at 11:03 AM on August 18

Instead of selling-up, could you instead rent out your house? That way you've got at least one income-stream, albeit a small one, that you could use to pay rent/mortgage/whatever in another town.

Then, when you're ready to retire in 20 years (making HUGE age assumptions ;), hopefully you can make a decent capital gain from selling this house then...?
posted by coriolisdave at 2:09 PM on August 18

Corio,

That's a pretty good idea. It may come to that.

I really just wanted my capital so I could get out of here and start fresh somewhere else.

I don't know if you've ever been stuck in a town that was totally wrong for you, but this town is not "my town" and it's really taking a toll on me.

I really don't want to have any ties to it whatsoever.
posted by rougy at 10:55 PM on August 18

Just found out that the bank won't give me a loan on the house, even though it's completely paid off, because I don't have a job.
posted by rougy at 4:41 PM on August 27