How to cost-effectively sell your home when paying your mortgage is no longer worth it Image Credit: Shutterstock

Dubai: Being forced to sell your home when you're ‘underwater’ on your mortgage is a difficult predicament. Being ‘underwater’ is when you owe more on your mortgage loan than your home is worth.

There are often times when homeowners have no choice. Your employer might transfer you to a new job across the country, or your home might be too small for a growing family.

If you're in this situation, the odds are high that you'll have to write a cheque to your lender once your home sale closes. But you might be able to reduce the amount you owe by setting the right asking price.

Why it is hard to sell a house that is still mortgaged or you’re still paying down payments on?

Why is selling a home with negative equity such a financial hit? Instead of making money on your home sale, you'll lose it.

Say you owe Dh200,000 on your mortgage, but your home is worth only Dh180,000. You'll struggle to sell your home for more than that Dh180,000 value.

Even if you do sell at that figure, you'll still owe your lender Dh20,000 after you close your sale. This means you'll have to write your lender a cheque for Dh20,000 at closing. That's not the outcome any home seller wants.

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So, here are some factors you should weigh before you sell your home when you're underwater on your mortgage.

1. Wait as much as you can to sell your mortgaged property

What if you are underwater on your mortgage? A popular advice property and loan consultants often give their clients is to look for possible ways to hold off on selling your home.

That way, you can hope that your home gains value — hopefully enough so you no longer have negative equity.

You can also wait until you make enough monthly mortgage payments so you no longer owe more on your home loan than it's worth.

If you can send extra money to your lender to be applied directly to reducing your loan's principal balance, you might be able to build equity at a faster pace.

However, the number of people worldwide who are ‘underwater’ on their mortgages is becoming less common.

Multiple surveys show that that the number of homeowners who are underwater on their mortgages is falling, compared to what it was a few years ago.

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2. Set the right asking price on a mortgaged home

If you have no choice but to sell, the key is to set the right asking price for your property. If you're underwater, you might want to set an asking price that's higher than what the market says your home is worth. However, matter experts warn against doing this.

Buyers know what a home is worth today. If you set your asking price too high, most will pass your home by, looking at other properties instead.

You can't force buyers to pay more for your home because you're underwater, because buyers do not take into consideration what you originally paid for your home – contrary to popular myth.

You need to set an asking price that's fair, but also the highest possible amount you can sell it for. The best way to find this price is to work with a real estate agent who is familiar with your neighbourhood.

Real estate agents that are familiar with your area can help you set an asking price that draws the biggest number of potential buyers, increasing your odds of selling your home for the highest price.

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What to do if you don’t use a real estate agent?
If you’ve decided not to hire an agent, you’ll need to do your research first, on recently sold properties in your area and properties currently on the market, to determine an attractive selling price.

Keep in mind that most home prices have an agent’s commission factored in, so you may have to discount your price as a result.

You’ll be responsible for your own marketing, so make sure to get your home on the multiple listing services in your geographic area to reach the widest number of buyers.

As you have no agent, you’ll be the one showing the house and negotiating the sale with the buyer’s agent, which can be time-consuming for some people.

Since you’re forgoing an agent, consider hiring a real estate lawyer to help you with the finer points of the transaction and the process of drawing up a contract.

Even with a lawyer’s fees, selling a home yourself can save you thousands. If the buyer has an agent, however, they’ll expect to be compensated.

This cost is typically covered by the seller, so you’ll still need to pay 1 per cent to 3 per cent of the home’s sale price to the buyer’s agent.

3. Staging your home and make all necessary repairs

If you're underwater and plan to sell, you'll want to spend the least amount of money possible to sell your home.

But investing in a home staging service providers or furnishing renters (those who provide furnishings and home décor on rent) can pay off.

With the cost of such staging services starting at Dh10,000, the home you’re about to put on the market can be filled with great-looking furniture, well-considered accessories and tasteful art.

A stager will rearrange your furniture and home décor so that your home looks more spacious, bright, and airy. This will help your home make a strong first impression on buyers, experts reiterate.

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In order to sell your home, you'll have to repair any broken appliances, torn carpets, dinged walls, or stuck windows.

The reasoning behind this, property consultants explain, is that you can't list your home with any defects if you expect buyers to pay more money for it.

They further add to spend a bit of money on your home's exterior too, because if they see a well-maintained and inviting exterior, they'll be more eager to tour the inside of your home. For example, if your house has a lawn, see to it that the lawn is neatly trimmed.

The key here is to squeeze the highest possible offer out of buyers. To do that, your home must be in top condition, both inside and out.

4. Look for ways to sweeten the deal or offer incentives

Another way to make the home and deal more attractive is to offer something to sweeten the pot. You could offer, for example, to pay some or all of the closing costs.

Buyers are looking for a deal, particularly in a down market, so do your best to make them feel that they get one.

Another tip is to offer a transferable home warranty, which provides discounted repair and replacement services for household appliances and systems.

A potential buyer may feel more at ease knowing that the home is protected, which could make your home more attractive than a competing home.

Selling a home can be stressful, even more so if you’re on a tight deadline.

Key takeaways?

Selling a home can be stressful, even more so if you’re on a tight deadline. Fortunately, whether you need to sell fast because of a new job, a life event, or financial reasons, there are ways to speed up the process. If you don’t have a big budget to get your home sell-ready, then focus on making a great buyer impression.

Whether you’re working with an agent or going it alone, setting the right asking price is key. Remember the comparative market analysis you or your agent did when you bought your home to determine a fair offering price? Buyers will do this for your home, too, so as a seller you should be one step ahead of them.

The house may sit on the market for far longer than you expect, especially in a declining market. If you can’t find a buyer in time, you may end up trying to pay two mortgages, having to rent your home out until you can find a buyer, or, in dire situations, in foreclosure.