blog

Subscribe to Newsletter

Receive the latest tips via email.

All You Need to Know About Downsizing Your Home

September 24, 2020

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.

The Benefits of Downsizing

Downsizing comes with multiple benefits, and here’s what you might expect.

  • This is among the top reasons for downsizing. If your existing home is mortgage-free, you might be able to buy a new home and still have some reserve money. If it’s not, you may look forward to reduced monthly payments with your new mortgage. Downsizing can lead to reduced property tax, insurance costs, as well as maintenance costs. It can also result in lower utility bills.
  • Reduced clutter. Downsizing gives you a great opportunity to eliminate things you don’t really need or use. You might be surprised to find out just how many of your existing possessions actually end up making it your new home, simply because they provide little to no value.
  • Easier to maintain. A smaller space reduces the time and energy you put toward maintenance, be it day-to-day or long-term. With less time spent on everyday upkeep, homeowners have more free time on their hands.

benefits of downsizing your home medowbrook

Possible Disadvantages of Downsizing

While moving to a smaller home comes with benefits, you also need to be aware of possible drawbacks that you might have to face.

  • No spare room. A spare room comes in handy when you have to deal with someone who wishes to sleep over after a late night, or when you have out-of-town guests. When you downsize, you can say goodbye to your spare room. However, you’ll still have the couch in your living room.
  • Fewer belongings. You will, in all likelihood, give away, throw, donate, or sell a number of your possessions before you shift into a smaller home. Some people might have a hard time dealing with this aspect, especially when it comes to items that could not make it because of lack of space or ones that have emotional value.
  • Space restrictions. People who are used to living in large homes might feel cramped for space in smaller homes. In addition, fewer rooms might result in reduced privacy.
  • Changes in social life. This essentially depends on the locality of the new home. If it’s in the same neighborhood as the existing one, there shouldn’t be too many changes. However, relocating to a new area might require adapting to big changes. For example, how quickly would you be able to make few friends?

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.

How to Go About the Process?

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.

Plan for the Long-Term

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.

Think About Hidden Costs

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.

Focus on Functionality

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.

  • Decide on big items first. Scan every room in your house and identify all the big items. Among other things, these include all your large appliances such as dishwashers, refrigerators, and TVs. Does the new home have any of these? If not, will the ones you have fit well into the new space? Will the cost of moving a heavy item outweigh the cost of making a new purchase?
  • Donate, sell, or throw away. Create separate spaces for items you wish to take with you, as well as for ones you will give away, donate, sell, or simply throw in the trash. Items you can consider giving away may include family heirlooms and possessions that carry sentimental value. This way, you know they’ll be taken care of well. Consider selling items of value you no longer need, as this gives you some extra cash. Donate items that aren’t valuable and you no longer need but still serve their purpose. Salvation Army gives you easy means to schedule a free pickup from your home for most types of items. Anything that does not make it to these three piles should head to the trash.
  • Check storage and infrequently used spaces. Over time, various items get to spaces in homes that are rarely entered or used. When you start to clear out your existing home, begin by checking your attic, basement, closets, spare rooms, bathroom cabinets, and storage units in the kitchen. What you end up finding will include items you can sell, items that bring about fond memories, and just plain junk. Place them in the relevant piles you create.
  • Furniture comes next. Moving into a new home does not imply that you revamp your furniture completely. Identify pieces of furniture that will fit comfortably in your new home, and also serve a purpose. Make sure that the doors and passageways of your new home are big enough to move the existing furniture you plan to take. The furniture that’s left goes into the give, donate, sell, or throw piles. With furniture you wish to donate, the Furniture Bank Network can work well in finding households in need that cannot afford to buy new furniture.
  • Check all other spaces. This step requires that you go through each room with a fine-toothcomb, one by one. With the kitchen, you’ll probably find more items you wish to take than leave behind. This is because most of the things in kitchens tend to find frequent use. However, keep space restraints in mind when thinking about taking appliances, unnecessarily large utensils, and crockery/silverware that can do with replacement. When you move to the other rooms, such as your living room or bedrooms, make de-cluttering your main aim. Each time sentimentality creeps in, remind yourself of the all-important 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.

Should You Buy or Sell First?

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

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.

Selling First

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.

process of downsizing your home by medowbrook

Do You Need Two Real Estate Agents?

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.

A Checklist for Downsizing

Before making your decision to downsize, consider these points.

  • Are you happy about your plan to downsize, or might you feel better if there’s another solution such as refinancing your existing mortgage?
  • If you’re happy with the idea of moving, determine where you wish to live. Do you want to live in the same neighborhood, move away from the city, or find a home by the sea?
  • Look at homes that really appeal to you and check if they fit in your affordability bracket. This gives you an indication of whether you might have to compromise on your needs.
  • If you have an existing mortgage, would you want to pay it off completely before the sale?
  • How comfortable would you be in getting rid of some of your possessions, be it selling things or simply giving them away?
  • While you’ve purchased a home in the past, are you aware of all the possible home buying mistakes you need to avoid?

Conclusion

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.

DISCLAIMER:

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.

First Time Homebuyer’s Guide

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.

Recent Articles

All You Need to Know About Downsizing Your…

24 September, 2020

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…

12 Questions You Need to Ask When Buying…

27 August, 2020

Fall is typically not a popular time to buy a home. With several people expecting bonuses in the New Year - and with the holidays…

Millennial Home Buying Trends in Long Island

27 June, 2020

According to the United States Census Bureau, millennials, those born between the early 1980s and early 2000s, now make up for the country’s largest living demographic.…