Extreme Solution Series: Sell your house

Welcome to our new Extreme Solution Series. I am your host Peter N. Dunn. N as in Nancy. Except it’s not Nancy. It’s Nicholas. Should have just gone with N is for Nicholas. This series is dedicated to giant solutions to giant problems. To be honest, this series is a bit scary. If you happen to be in a situation in which one of our Extreme Solutions is your solution, you are most likely dealing with a ridiculous amount of financial stress. We’re confident that one or all of our Extreme Solutions will be your solution.

Episode 1: Sell your house

Think through all the things in your life which could cause financial stress. What you will notice is these things are limited to just a few major categories: house, debt, job, and family. The reason for this is simple: a perceived permanency. In all four of those categories, there isn’t an easy and convenient end game. Want a new job? You’ll have to quit your current one, and find a new one. That’s long and hard. Want to stop the stress that comes with money and family? You’ll need months of work or a very ugly separation. You get the point. Financial stress hits us the hardest when we feel like the solution is too extreme for our liking. But is it?

In the case of housing, the solution seems painful, but it’s the most peace-producing solution around. But first, let’s briefly examine how housing has the ability to kick your money a$$. Without question, housing is an American’s number one expense. Whereas financial experts, such as my self, prefer that you limit your exposure to housing costs to 25% of your net income, many Americans push the limits way beyond this. I consider anyone who dedicates more than 40% of net pay to housing, clinically overhoused.

Overhousing is an awful awful thing. Two awfuls? Yes, two awfuls. Why? Because only two things can solve the overhousing problem: a significant increase in income or moving. I’ve found that people are more likely to hold -out hope for an extreme raise than they are to move. This is a big problem. Overhousing is sneaky stressful. When you commit over 40% of your household income to housing, you only leave 60% of your income for all of your other expenses. And this usually means the first cuts to happen affect saving and charity. Anecdotally, it’s been my experience that anyone dealing with overhousing is also dealing with significant consumer debt.

Several phenomenons cause overhousing, including overreaching, a decrease income, and very low (just above poverty level) income. And as mentioned before, only two things solve overhousing: a significant increase in income or changing up housing. When you’re renting, changing up your housing is in play, and is a more common technique than for those who are overhoused in a mortgage. Why don’t people who are killing themselves with an objectively unaffordable mortgage fix their situation? Lots of reasons.

Your home is not only your largest expense, but it’s often your largest emotional anchor. The thought of something as seemingly trivial as money getting in the way of something as seemingly meaningful as your family home is vomit-inducing. We’ll fight and scrap to keep the threads that hold us together holding us together, but we don’t realize that the threads which are currently pulling apart are the bigger issue.

This is an Extreme Solution. It’s not easy, but it can be a lifesaver. If you have equity in your house, then the equity may be able to repair some of the other damage that exists in your world. If you have no equity in your house, then the extreme reduction in housing expenses is still reason for a change. Consider this overly simplified example. If your net household income is $4,000 per month, and your mortgage is $1,600 or more, than taking your housing expenses back to the proper level will reduce your housing expense to $1,000. But it’s just $600, you say. Yes. It’s $600 you DON’T have the luxury of throwing around on something you can’t afford. That’s the point. You would need a 60% pay increase to truly be able to afford your mortgage ($6,400 X 25% = $1,600).

If you’re overhoused and you aren’t experiencing financial awfulness, then move along. There’s nothing for you to see here. I guess we should take a brief moment to explore signs of financial awfulness. If you have copious amounts of consumer debt, if you are late on your mortgage payment, if you’ve had to dip into your savings to pay your regular bills, if you haven’t regularly saved money on a monthly basis over the last 12 months, then you might be in trouble.

If I hit your nail on the head, you’re currently pissed. That’s ok. Pissed is good. We’ve no doubt identified a major problem. You don’t have to sell your house, but I’m suggesting it might be the best solution. At the very least, admit to the problem and then find a better solution. A 60% pay increase is pretty solid solution. Just remind me, where do you get one of those?

Here are a couple more posts on being overhoused:

5 signs that you bought too much house

Underhouse yourself to live more life

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