‘I’m dipping into my Roth IRA’: I’ve been unemployed for 5 months. I used to earn $10,000 a month. Do I sell my house?

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I’ve come to the point where I’m dipping into my Roth IRA to pay for my bills and my mortgage, but that’s running out. And unemployment is not paying enough: Every week I get $295, where I was earning $10,000 per month at my job.

I want to sell my house. Is that a good course of action right now in this real-estate market? What are things I may not be considering?

I live in Phoenix, I’m a single mom, my son is a senior and he will be going to college next year. I have a dog and I still have car payments.

Discouraged

The Big Move’ is a MarketWatch column looking at the ins and outs of real estate, from navigating the search for a new home to applying for a mortgage.

Do you have a question about buying or selling a home? Do you want to know where your next move should be? Email Aarthi Swaminathan at TheBigMove@marketwatch.com.

Dear Discouraged,

I’m sorry you’re going through such a tough time. It’s a tough job market out there for certain sectors, particularly for tech workers. Before you make any drastic moves, identify whether you have exhausted all of your options, before you turn to the idea of selling your home. 

Tania Brown, a certified financial planner and director of financial coaching at OfColor, advised against making a choice in the present moment — to sell your home — that could hurt you in the future. 

“This is a permanent solution to what’s probably a temporary problem,” she told MarketWatch.

First, you need to call your mortgage servicer and ask for assistance options, such as a forbearance. Find out what sort of assistance programs your servicer offers for the type of mortgage you have, whether it is a government-backed mortgage or a conventional loan. This sometimes comes without any additional fees or payments. 

You could also look into a loan modification program, which would lower your monthly payment to make the mortgage more affordable.

If you end up not being able to make the mortgage, you can once again, ask your lender and the federal government (if applicable) for repayment plans or other options.

Turning to your job situation, have you talked to a career coach, or consulted a professional to re-do your resume? Brown suggested taking a “bridge job” just to pay the bills, or even freelance work, if your line of work allows for it. They may not pay $10,000 a month, but side hustles could give you more than just $1,200 a month you receive through unemployment benefits.

Why selling should be a last resort

But if you’ve already gone through this list and still find yourself short, then perhaps you do need to consider selling or, at the very least, downsizing — but please do so only as a very last resort.

You asked for the pros and cons of doing so. If you do sell, that could help with your financial situation, particularly if your home has appreciated significantly since you bought it. But the gains may be short term.

There’s nothing wrong with renting, and given that your son will soon be moving out, you may find downsizing not only more financially manageable, but also sufficient.

If you can hold on until your son moves out, you could rent a room in your house to make extra money. It’s commonly referred to as house hacking. Roommates could help you cover the mortgage, as well as other expenses.

But some of the other issues you need to consider: It’s not a guarantee that you’ll be able to cash in on your home, and potential taxes from the sale. Plus, real-estate agents take an average commission of 6%, so please figure that into your calculations.

If you bought very recently, you may not necessarily make a big profit — or one at all. Home prices in Phoenix are down 0.1% from a year ago, according to the Zillow’s
Z,
-0.61%

Home Value Index. You may also be faced with local rents that could be steeper than you imagined. 

If you do make a profit upon selling, you could also be hit with a tax liability if you haven’t lived in the house for at least two of the last five years, according to Internal Revenue Service rules. Read more on that here.

If you decide to rent, you could run into trouble with landlords that may require employment before you sign a lease. But if you show that you have sufficient funds to cover the rent for a few months, or pay a large deposit upfront, that could help you.

Just think carefully before giving up your home — and risking an uncertain and prolonged period of housing insecurity. Talk to friends and family for support. Don’t feel like you have to go through this alone.

By emailing your questions, you agree to having them published anonymously on MarketWatch. By submitting your story to Dow Jones & Company, the publisher of MarketWatch, you understand and agree that we may use your story, or versions of it, in all media and platforms, including via third parties.



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