Guide To Downsizing Your Home

MoMo Productions/Getty Images; Illustration: Hunter Newton/Bankrate

What is residential downsizing?

Downsizing is the process of moving from a larger home to a smaller home, often one that is cheaper to maintain. This could mean moving from a single-family detached property to a condo or townhome, or even an assisted living facility or retirement community. For some, this may mean moving into an accessory dwelling unit (ADU) on a family member or friend’s property.

Regardless of where you move, downsizing involves reducing your belongings, such as furniture or your car. This step in the process is often the most difficult, especially if you have lived in your current home for a long time. That’s why many downsizers seek professional help to prepare for the transition.

In addition to downsizing, some homeowners choose the process of “rightsizing.” That is, you choose to move into a home that is not necessarily smaller or cheaper, but that best suits your future needs. This process may involve moving from your family home or first home to your forever home.

Why do you need to downsize?

The reasons for reducing the size are:

• economic necessity – Many older adults are facing increased expenses, including rising medical costs, home insurance premiums, and utility costs. For some people, it may be more financially practical to sell their current home and move to a more affordable home.
• retirement – According to a 2024 Bankrate study, 57% of American workers feel behind in saving for retirement. Downsizing before or during retirement can save and stretch your retirement funds.
• convenience – If you’re tired of the housework and maintenance of a large home, you’re not alone. Many downsizers switch to smaller homes that are less expensive to maintain.
• desire for minimalism – If you’re interested in a minimalist lifestyle, downsizing can help you reduce clutter and focus your time, energy, and money on what matters most to you.
• health concerns – Many older adults are downsizing to homes where home care is more widely available and there are fewer daily obstacles such as stairs and other mobility limitations. Access to public transport, as well as hospital quality and proximity to a hospital, may also be motivators, especially if driving is an issue.
• seller’s market – Some downsizers simply try to take advantage of a seller’s market. If you’ve lived in your current home for a while and it’s a seller’s market, you may be able to walk away with some serious change and maybe even be able to buy a smaller home for all cash.

Things to consider when downsizing

What are you paying now? How much would you pay for a downsized home?

Make a list of all the costs associated with your current home and any other costs you pay each month related to your home. Compare these numbers to what you can expect to pay for your next location. If you’re planning on moving into a homeowner’s association, check your monthly fees and include that in your estimate.

What is the current economic situation?

This is an especially important question if you’re considering downsizing in preparation for retirement. If so, consider the following:

If you plan on taking out a mortgage when you move, you’ll need to calculate your monthly payments for your new home. Bankate’s mortgage calculator can help you crunch the numbers. Plan for different scenarios based on expected lifetime and worst-case scenario. This is because it affects the cost of living.

Greg McBride, Principal Financial Analyst at Bankrate, said, “The economic benefits of loan sizing in retirement are typically seen when moving from a larger mortgage to a smaller mortgage, or from a smaller mortgage to no home at all. “You get it when you don’t take out loans.” “If you have a lot of equity in your existing home, downsizing means using that equity to pay for cash when you sell your home, or to make a larger down payment on a lower-priced home, to reduce your monthly living expenses.” It means reducing.

How much does it cost to sell your home and buy another?

As a seller, you’ll need to pay for home improvements, real estate agent fees, and other closing costs (including transfer taxes in some states). Then, when you buy a new home, you’ll need to pay the buyer’s closing costs, such as attorney fees and title insurance.

Indeed, today housing is also much more expensive. The tiny house you’re looking to save money on could end up being more expensive than your current home.

“Downsizing in terms of space is easy, but downsizing in cost may not be so easy,” says McBride. “If you have lived in your current home for a long time, the smaller home you are downsizing to may sell for more than when you originally bought your existing home. You don’t want to have to pay a mortgage every month even though you didn’t have a mortgage.

downsizing tips

1. If you’re moving to a new location, do your homework. If you’re planning on downsizing out of state, take a trip or two to visit new places and learn what life is like there. Consider living expenses such as medical costs, utilities, and groceries, as well as quality of life factors such as weather and opportunities for recreational activities. If you’re planning on moving to a retirement community, talk to your neighbors to get a sense of what they like and don’t like about the area.
2. Let’s sort it out. Start cleaning up the clutter and packing it into boxes. Decide whether to keep, donate, sell, or discard the item. If this is overwhelming, it may be helpful to have a trusted family member or friend by your side as you organize your home.
3. Start living with less money now. If possible, start cutting expenses before downsizing. This makes the transition to lower-cost living easier when you move.

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