Downsizing your home doesn’t mean taking a step back in life. In fact, there are many reasons why downsizing might make sense. For instance, if you’re an empty nester, you may not need such a large house anymore. In fact, many American families have plenty of room to downsize their homes without negatively impacting their lifestyle.
According to the United States Census Bureau, today’s average single-family home is approximately 2,600 square feet. In comparison, the average home size in 1950 was under 1,000 square feet! Put simply, the average American family home has considerably more space than ever before. But with a bigger house comes more significant utility bills and higher property taxes. Downsizing into a smaller home may feel like a step-down, but there are plenty of advantages. From saving money, to saving time on maintenance, and having less clutter! If you’re thinking about downsizing your home, here are some things to consider.
Downsizing Your Home — Important Considerations
While lower mortgage payments and spending less time cleaning sounds like a win-win scenario, there are some things to consider when downsizing your home.
Downsizing your home is futile if you don’t also downsize your belongings. It’s important to sell what you don’t need so that your belongings fit into your new, more compact home.
Remember Hidden Costs
Moving into a new home includes moving costs, property taxes, storage expenses, and potentially higher HOA fees. When deciding to downsize, it is crucial that you consider all of these additional costs before you take the leap.
Benefits of Downsizing Your Home
We’ve discussed the considerations you should make if you’re planning to downsize, but what about the significant benefits you could take advantage of? Here are some advantages to reducing your home.
Reduce Your Debt
If you’ve acquired debts that you’re working hard to pay down, downsizing your home could help you make a substantial cut into them. By reducing your mortgage and utility bills, you’ll have a lot more cash left over each month to put towards your debt payments. Of course, there are many other factors to consider, like how much you will be saving each month and how high the interest rates on your debt are. It’s crucial to sit down and create a strategic financial plan before making any decisions.
Boost Your Retirement Fund
Once you’re debt-free and have a healthy emergency fund in case of a rainy day, you’re in an excellent position to build wealth for the future. A good rule of thumb aims to invest 15% of your household income into a Roth IRA and pretax retirement plan. Reducing your mortgage could free up significant cash to help you achieve your financial goals.
Pay Off Your Mortgage
It’s almost every homeowner’s dream to be mortgage free. Selling your existing home and downsizing may allow you to purchase your new home outright. With the freedom of not having a mortgage, you would have the ability to try something you’ve always wanted, like travel, or turning your hobby into a business! Alternatively, if your existing home doesn’t have enough equity to enable you to buy a home outright, you may still be able to pay a significant downpayment. A downpayment of 20% or more would help you to avoid paying PMI (Private Mortgage Insurance), saving you thousands of dollars in the longterm.
If you’ve found your home is too big for your current needs, or you’d like to save money by downsizing, there are plenty of things to consider. You can gain an idea of the market value of your home by using an online evaluation tool. This can help you determine how much your home might sell for and how much money you’ll have leftover after closing.