Selling Home At A Loss (Read This Before You Sell!)

Selling your home for less than you paid for it can be a really tough pill to swallow.

It just feels wrong to take a loss on such a major investment, right?

But the truth is, sometimes life throws curveballs that might make selling at a loss the best or only option available to you.

In this post, I'll break down the situations where selling at a loss could actually make sense, and when it's better to just hang on to the house.

Plus, I'll give you plenty of alternatives that could help you avoid selling at a loss altogether.

When You Should Consider Selling At A Loss

Here’s when you should consider selling your home at a loss:

Financial Difficulties

Are you going through a really tough financial situation, like losing your job, dealing with big medical bills, or struggling with a lot of debt?

And you can't keep up with your mortgage and other essential bills?

If that is the case, selling your home at a loss is a good option.

It is a way to get some much-needed cash to help you get back on your feet.

Avoiding foreclosure and sorting out your overall financial situation might be more important than the loss you'd take on the sale.

You Need To Relocate

Life can throw curveballs that require you to pick up and move, whether it's for a new job opportunity across the country, to be closer to family, or for personal reasons.

If the real estate market in your current area is struggling, selling at a loss might be your only option to make that move happen.

Maintaining two properties can be really expensive.

So biting the bullet and selling at a loss could be the more practical choice.

The House Needs Costly Repairs

If your home needs a lot of expensive repairs and you can't afford them, selling at a loss might be a smart move.

Sometimes, the cost of fixing things up is just too high, and it doesn’t make sense to keep putting money into a property that’s turning into a financial drain.

Huge repairs can drain your savings, and you might not get that money back when you sell.

Also Read: selling a house with water in the crawl space

If you sell it, you can avoid the ongoing expenses and hassle of managing the repairs.

You Owe More Than Your Home Worth

If you owe more on your mortgage than your home is worth—this is called being "underwater" - selling at a loss might be something to consider.

It's an unfortunate situation no homeowner wants to find themselves in.

But it does happen, especially after housing market crashes or economic downturns.

If the home's value isn’t likely to go up soon and your financial situation is getting worse, it might be better to sell and take the loss rather than keep paying for a home that's worth less than what you owe.

Read more about this here: Should I Short Sale My House

And it's always better than a foreclosure, which can utterly destroy your credit for years.

Unwanted Property Or Going Through A Divorce

Sometimes, life changes like a divorce or inheriting a property you don’t want can make selling at a loss the easiest option.

If neither person in a divorce wants to keep the home, or if you inherited a property that's hard to manage, selling—even at a loss—can simplify things a lot.

And it will help everyone move forward.

It's better than hanging onto a financial burden or constant reminder of a painful situation.

When You Shouldn't Sell At A Loss

Here’s when selling at a loss might be a bad idea:

If You Can Manage Mortgage

If you can keep up with your mortgage payments and other costs without too much trouble, it’s usually better to hold on to your home.

Real estate is often a good long-term investment, and the market can improve over time.

This will allow you to recoup your losses or even make a profit when you eventually sell.

Temporary Market Fluctuations

Housing markets are cyclical – what goes down must come up, and vice versa.

If your home has lost value due to a short-term dip caused by local economic downturns or too many houses being listed at once, it might be wise to ride it out rather than sell at a loss.

Real estate is a long-term investment, and short-term dips in the market are common.

Plus, market recoveries often happen faster than expected.

Also Read: How Economic Downturns Cause Distressed Properties

You Want A Different House

Wanting to move to a different house doesn’t always mean you should sell at a loss.

If your current home still works for you and you’re not in financial trouble, think about waiting until the market gets better or looking into other financing options to buy a new home.

Renting the home out could provide income to cover those mortgage payments too.

Or maybe a bridge loan could front you the cash for a new place while you wait.

Options If You Don’t Want To Sell At A Loss

Let me go over the options you got if you don’t want to sell: 

Loan Modifications

If you're struggling to make your mortgage payments, talking to your lender about modifying your loan is the first thing you should do, if you don't want to sell at a loss.

A loan modification changes the terms of your mortgage to make it easier to pay.

This might mean lowering the interest rate, extending the loan term, or deferring payments.

So go and talk to your lender.

Refinancing The Mortgage

Depending on current interest rates and your credit score, refinancing your mortgage might be worth considering.

Getting a lower interest rate or extending the loan term could reduce your monthly payments and make your home more affordable.

Refinancing can also help you consolidate debt.

You can use the equity in your home to pay off other high-interest loans.

Home Equity Loan

If you've built up enough equity in your home, taking out a home equity loan is an option.

This can give you money for necessary expenses or home improvements, helping you avoid selling at a loss while you wait for the market to get better.

Plus, these loans often have lower interest rates compared to other types of credit.

Loan Forbearance

If you're going through a temporary financial hardship, your lender might offer loan forbearance.

A loan forbearance temporarily stops or reduces your mortgage payments. These can last for a few months to a year, depending on your lender.

This could give you some breathing room until you sort out financial problems

And you don’t have to sell at a loss.

Renting Out The Property

Instead of selling your home at a loss, you could also consider renting it out.

You get to keep the home and all its future appreciation potential, while also generating rental income to cover your mortgage, taxes, maintenance, and more each month.

It turns your home into a revenue stream rather than a fire-sale loss.

Once the market inevitably bounces back, you can either keep collecting rental profits or re-evaluate selling when conditions are more favorable.

Selling Property At A Loss Tax Implications

If you sell your home at a loss, you usually can't deduct the loss on your tax return if it was your primary residence.

The IRS doesn’t allow capital loss deductions on personal property.

And no, turning your home into a rental property before selling, won’t help either.

The loss is calculated based on the home’s value at the time you converted it to an investment property, not the original purchase price.