Everyone who sells their home assumes that they will set a price that will at least allow them to break even, if not make a nice profit. There are, however, certain circumstances that might having you bring money with you on the day of the closing. Read on so that you can be prepared if your situation required you to come up with some cash to close to the deal.
Reasons why you end up owing money to sell your home
1. Lack of equity: Sometimes, buyers are able to get home financing without paying any money down, which results in the home being nearly 100% financed. If you have only been making payments for a short period of time, your home has no equity. When you factor in real estate agent commissions, closing costs and any repair costs, you may end up having to pay some cash at the end of the day.
2. Market has declined: Real estate markets can be volatile, so your home may have ended up being on the downward trend in value at just the same time that you are trying to sell it. Several factors can affect a home's value, such as:
3. Your neighborhood has too many homes on the market at the same time
4. There are nearby homes that are being foreclosed on.
5. There is a new subdivision near you where the prices are a lot lower than your neighborhood.
6. Your neighborhood suffers from the noise, traffic congestion, bad views, etc of nearby commercial developments. For example, that empty lot behind your home is now a gas station.
7. Repair costs: When the buyer's inspections turns up major issues, you may not be able to sell the home without including some cash incentives to cover the repairs or by taking care of yourself. Either way, you are out some cash.
Understanding short sales
Lenders dislike having to use a foreclosure almost as much as the homeowner does, thus the short sale was invented. A short sale consists of a homeowner getting the lender to accept a much lower price than is currently owed on the mortgage. If you do get the lender to agree on a short sale, be aware of the tax implications. Since you are, to the IRS, attaining value by not having to pay the full amount of the mortgage, you may may owe income tax on the difference between the home price and the mortgage balance.