Data suggests that there is a significant increase in the number of American homeowners who are downsizing their homes. Statistics released by the National Association of Realtors highlight that in 2017, more than 10% of home buyers between 45 and 64 years of age were downsizing. According to a Zillow Group Housing Trends Report, more than 45% of homeowners in the given age group did the same.
Moving to a new and smaller home can be a daunting and time-consuming process. In addition, while it works well for some, it does not for others. This requires that you consider various aspects before making a decision.
Downsizing comes with multiple benefits, and here’s what you might expect.
While moving to a smaller home comes with benefits, you also need to be aware of possible drawbacks that you might have to face.
If your only reason to downsize is to reduce your home loan expenses, other ways to go about the process might need your attention. For instance, you could consider switching from making monthly repayments to bi-weekly repayments. Refinancing your existing home loan might also work in your favor, given that interest rates are now at all-time lows.
Once you’ve decided that you wish to move into a smaller home, you will need to pay attention to several aspects. Streamlining the process ensures that you minimize the possibility of encountering problems along the way.
Do not make a spur-of-the-moment decision when you plan to downsize. Take into account any extra space you might need, be it for working from home or having your grandkids over. Only you can determine just how much space you might need down the road.
Buying a smaller home might lead to lower mortgage payments. However, you need to consider other costs as well. For instance, does your existing home need repairs? If so, how much might you need to spend to make it market-ready? In addition, will your existing furniture and appliances fit into your new home, or will you have to budget for new purchases? You also need to take into account the actual cost of moving as well as possibly higher property taxes and housing association fees.
You obviously cannot take everything from your existing home to your new home when downsizing. When deciding what to take and what not to, your main focus should be functionality.
In case you end up with a significant number of items you wish to hang on to but don’t have the required space in your new home, you might consider renting a storage unit.
Generally, it’s a good idea to sell an existing home before buying a new one. This way, you don’t have to worry about your emotions getting the better of you. However, buying before selling might be the order of the day in some markets. This is an aspect that you need to discuss with your real estate agent in detail.
Buying first makes sense in case you’re looking for a home in a market where sales are happening quickly. In such a scenario, you should be able to buy with cash or have a preapproval for a mortgage. You might also consider buying first in slow markets where sellers might be more willing to accommodate your requirements. For instance, you could make a conditional offer that links to the sale of your existing home.
In case you plan to rent your existing home, you can expect most lenders to consider 75% of the rent amount as income, provided there’s a signed lease in place.
A conditional offer linked to the sale of your existing home might not work, especially if a seller has multiple offers. Most real estate agents suggest selling first mainly because they view this as a safer bet in terms of not losing out on commission.
Once you agree to vacate your home in a given time period, you might feel pressed to settle for a home that is not up to your liking. If a seller knows you’re in a hurry to make a purchase, negotiating for a better price becomes even harder.
If you’re selling first, make sure you negotiate terms that would offset problems you might face with your impending purchase. For instance, you can ask the buyer for more time until closing, which could be 90 days as opposed to the usual 60 days.
Alternatively, you can ask the buyer to consider renting the home to you for a short-term after the closing, which could be a month or two. In this case, you should ideally offer a reasonable security deposit, as well as rent that covers the monthly cost of the new owner’s mortgage. If this is possible, both parties need to determine if their homeowner’s insurance companies provide suitable cover during temporary rent-backs.
If you’re wondering whether you need to use the services of a real estate agent in the first place, know that while you need to pay a commission, it takes a lot of guesswork out of the process.
It’s not uncommon for people who wish to downsize to wonder if they need two real estate agents – one to buy and another to sell. To some degree, this depends on the localities of your existing and new home. For instance, out-of-area agents are not appreciated by local agents in some places.
Go through home pricing and comparable sales. This way, if an agent has contacts in your area, and your home is easy to price, the actual location of the agent doesn’t really matter. Besides, if you get an agent to handle both transactions, you might even be able to negotiate on commission.
Before making your decision to downsize, consider these points.
A number of people manage to downsize to smaller homes with success. The trick, in a way, is to find the right balance between what you really need and what you can do without. While the process might seem intimidating at first, following some simple guidelines can ensure that you come out on top. If you need assistance at any step of the way, professional help is typically easy to find. This includes finding a suitable lender, should you need a new mortgage.
30-YEAR FIXED-RATE MORTGAGE: THE PAYMENT ON A $200,000 30-YEAR FIXED-RATE LOAN AT 3.875% AND 80%LOAN-TO-VALUE (LTV) IS $940.14 WITH 0 % POINTS DUE AT CLOSING. THE ANNUAL PERCENTAGE RATE (APR) IS 4.026%. PAYMENT DOES NOT INCLUDE TAXES AND INSURANCE PREMIUMS. THE ACTUAL PAYMENT AMOUNT WILL BE GREATER. SOME STATE AND COUNTY MAXIMUM LOAN AMOUNT RESTRICTIONS MAY APPLY.
Considering homeownership but not sure where to begin? The Meadowbrook Financial Mortgage Bankers Corp. guide to home buying will make the process easy all in one packet.
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