Considerations for Downsizing your Home
Are you thinking about downsizing your home? There are a few considerations to be made if you plan on moving into a smaller home.
Advantages of a Smaller Home
- More Cashflow – Purchasing a smaller home may result in a lower mortgage and depending upon where you are in the Chicagoland area – lower property taxes. This extra cashflow can be redistributed into retirement savings or allow fun extras like travelling or dining out more. Or for some, just give you the room to breathe.
- Less House to Maintain – Many homeowners that I speak with that are considering a downsize do so to have less house to maintain. The bigger home that worked so well when the kids were younger may be a bit much to clean and maintain now. Many homeowners who downsize move to a condo or townhome which eliminates yardwork, cleaning the gutters and other home maintenance tasks.
- Lower Utility Bills – A smaller home is likely to bring a reduction in your utility bills. Winters in the Midwest often bring high heating costs and a bigger home is more expensive to cool in the summer.
- Avoiding Foreclosure – Many Chicago area homeowners are struggling to pay their mortgage and property taxes. As a result, some communities in the south suburbs top the list for foreclosure activity. Downsizing can avoid foreclosure for many of these homeowners and remove this stress from their life.
- Less Stress – Less responsibility, smaller workload, increased cash flow and greater flexibility — added together, they all reduce stress. Homeowners who have successfully downsized sometimes appear happier when they’re no longer overwhelmed by the demands of a larger home.
Disadvantages of a Smaller Home
- Fewer Belongings – Moving into a smaller home usually requires downsizing your stuff and decluttering. It may mean getting rid of that dining room set or king-sized bedroom furniture. It also may mean going through those boxes in the basement and garage and deciding which items to keep, donate or trash. This can be more difficult if you have a sentimental attachment to these things.
- Less Space – If you value having plenty of space to escape other family members and have some privacy, a smaller home may not feel as attractive.
- No room for guests – One benefit of a larger home is having room for guests to stay when visiting. A smaller home may mean guests having to stay in a hotel or doubling up. You also may not be able to host huge holiday dinners.
- Less Prestige – A smaller home may feel less prestigious to some that place importance in how they are perceived by others. If having a bigger home is important to you, downsizing may not be ideal. This concern would have to be weighed against the benefits of downsizing.
- Lifestyle Changes – Especially for long-term homeowners, trading down means changing a lifestyle, and some people are resistant to change. There is a certain comfort level obtained by staying with what is familiar. The lifestyle change may also be considered if entertaining is important.
The Chicago area like most of the country has experienced a seller’s market in the last few years. Prices have steadily increased partially due to a lower supply of available homes and a decline in the number of foreclosures. However, real estate is local. Some neighborhoods and suburbs have not recovered as much. Foreclosures are still an issue in some communities which has affected price recovery. Price growth in some suburban communities have also been affected by high property taxes. Speak to your real estate agent to get a feel for the market in your current neighborhood as well as the community you are considering moving to.
Buy or Sell First?
Should you buy your new home first or sell your current home? Your individual situation is the best indicator. If you have a fair amount of equity in your current home or have paid your mortgage off, you have more flexibility. You may have the luxury of buying first to reduce the stress of moving twice. Some homeowners will need to sell first to avoid having two mortgages or to gain the money needed for the down payment on your new home.
Other homeowners may be able to coordinate both transactions with contract contingencies to time things to their benefit. Contingencies can be set that minimize risk of selling without having contract on new home. Other contingencies allow them to sell first and stay in the home (if needed) for a short time after closing so they can stay until new home closes. Click here for an article that dives deeper into this consideration.
Important note – speak to a lender early and get pre-approved. You want to make sure there won’t be any issues when you’re ready to buy your new home. In addition, your realtor should run a “net sheet” upfront. This will let you know what proceeds you are likely to receive from selling your home after paying off your mortgage and other closing costs.
Think through the pros and cons of moving to a smaller home. As you weigh considerations, be honest with your needs and requirements in your new home. You will also want to factor in any financial benefits of moving. For many homeowners, this is the right decision. Only you can decide if it is right for you.