Momo Productions/GetTyimages; Illustrations by Hunter Newton/Bankrate
Downsizing is the process of moving from a larger home to a smaller home, often with low maintenance costs. This may mean moving from the property of a detached house to a condominium or townhome or assisted living facility or retirement community. For some, this may involve moving to an accessory housing unit or ADU on family or friends’ property.
Rather than downsizing, some homeowners also choose to “give rights” or move to a home that suits their future needs, regardless of size or cost. This means moving from a two-storey home to one house, or moving from a country home to a city or suburban home.
Either way, an emotional process can be an emotional process. This is especially true when you leave the house you have lived in for many years. And if you’re doing it for financial reasons, you’ll want to make sure that the house you’re buying actually saves you money. Here’s what you need to know.
Why do you need to shrink?
There are many reasons to shrink, including:
- Economic Need: Many seniors face fixed income medical expenses and housing insurance premiums. For some, selling your current home and moving it to a smaller, cheaper home is financially practical.
- retirement: According to a 2024 Bankrate Survey, 57% of American workers feel they are behind in retirement savings. Downsizing before or during retirement will help you grow your savings. You can also deposit the remaining proceeds in the bank after purchasing a new small home.
- Convenience: If you’re tired of doing all the chores and maintenance for a big house, you’re not alone. Many downscissors switch to small homes where maintenance costs are cheaper and taxable.
- Health concerns: Many seniors will either reduce or grant the right to a home with fewer everyday obstacles, such as stairs. Some people approach hospitals and other health services, especially when driving is an issue, while others prioritize access to public transport. Others choose to live near family and friends.
- Seller’s Market: Some downscissors are simply trying to take advantage of the seller’s market. If you have lived in your current home for a while, you may be able to leave with a lump of change, you will allow you to buy a small home with cash.
What to consider when downsizing
If you are shrinking for financial reasons, it is important to make sure that after selling your home and buying a new one, it is actually important to make sure it will actually come out first.
“The economic benefits of miniaturization in retirement usually occur when there is no presence from a large mortgage to small mortgage or from a small mortgage to a mortgage at all,” says Greg McBride, Bankrate’s chief financial analyst. “If your existing home has substantial capital, downsizing means taking that capital when the home is sold, and you use it to pay cash or make a massive down payment in a low-cost home, reducing your monthly living expenses.”
This is something to consider.
What are you paying now? What do you pay for a small house?
In addition to a list of all costs associated with your current home, we will create anything that pays for the home related monthly. Compare these numbers with what you pay for at: If you are expecting to withdraw your mortgage on the move, Bankate’s mortgage calculator can help you estimate your monthly payments.
If you plan to move to a homeowner’s association’s neighborhood, find the monthly fee and include it in your quote.
What is your current financial situation?
If you are shrinking before you retire, you want to make sure your new home is still affordable in the future. That includes looking at your finances overall and keeping housing costs in mind. Think about it:
Map different scenarios based on expected longevity and worst scenarios.
How much does it cost to sell your house and buy another one?
As a seller, you will need to pay expenses such as home repairs and closing costs, such as transfer taxes for some states. You might also be on the hook on the Real Estate Agents Board. You will then need to pay the buyer’s closure fees, such as attorney’s fees and title insurance, when purchasing a new home.
Note that homes today are much more expensive. A small home you’re hoping to save money may actually cost more than your current home.
“It’s easy to shrink in terms of space, but reducing costs may not be that simple,” says McBride. “If you’ve been in your current home for a long time, the small places you’re trying to shrink might sell more than you originally bought your existing home. You don’t want to go from a small mortgage to a big mortgage or go paying for your current mortgage.”
How to reduce your home
Downsizing – or giving rights is like selling a house and buying a new home in other circumstances. You will list your current homes, looking for a home that meets your needs, looking for a home to apply for a mortgage if necessary, and listing your current homes.
However, if you retire and need a mortgage, the process may look slightly different than when you were working. you want to:
- Do a financial examination. Whether you are working or not, the lender wants your credit score to debt income (DTI) ratio to meet that requirement. If you freeze your credits as a precaution against fraud, you will need to lift the freeze temporarily.
- Consider a variety of mortgage types. Previous mortgages may have been traditional, but another type may be suitable for you now. For example, you may need a loan from a bank statement. This allows you to qualify for a mortgage using your bank statement rather than your tax return or W-2.
- Collect the documents. No matter what type of mortgage you choose, you need to prove that you can afford the lender. Find the required documents and assemble them in advance to help the application process go smoothly.
- Find the right agent. You can benefit from agents who specialize in the needs of older adults. Ask your friends, family, or a senior local service organization for referrals.
Tips for downsizing
- If you are moving to a new location, do your homework. If you’re planning on reducing it out of state, you’ll travel, visit new places and learn what it’s like to live there. Consider the cost of living for healthcare, utilities, groceries and other expenses, as well as quality of life factors such as weather and recreational opportunities. If you are planning to move into a retirement community, ask your neighbors what you like or dislike.
- I’ll sort it out. Start to clear the packaging box with confusion. Determine whether you are holding, donating, selling, or throwing items. Once you find this to be overwhelming, ask your trusty family and friends to help you organize your home. Experts can also assist with this task.
- Start living less now. If possible, start cutting your spending before downsizing. This makes moving to low-cost living easier.
