Tuesday, December 11, 2018 / by Teresa McCormick
If you think moving up in life means buying a bigger home, it’s time to set the record straight. Most American families have plenty of room to downsize their home without cramping their style.
Consider the numbers: The average new single-family home comes in at over 2,600 square feet, according to the United States Census Bureau.(1) You may not think that’s all too big until you look back at history. The National Association of Realtors reports that the average home size in 1950 was 1,000 square feet or less—and families were bigger back then.(2,3) By those standards, today’s homeowners are living large!
Moving into a smaller home may feel like a step down, but a closer look reveals quite a few upsides: saving money, saving time and having less clutter in your life. Downsizing could be just the fresh start you and your family need!
How to Downsize the Right Way
Smaller mortgage payments and spending less time dusting those spare rooms may sound like a dream come true, but is downsizing really the right move for you? Before you head down the path toward downsizing, read on for some tips to ensure your downsizing-dream doesn’t become a costly mistake.
1. Think Long-Term
If you’re thinking about downsizing your house, planning ahead will help ensure your transition is a success. Do you need extra space for that freelance business you’re planning to start? Or were you left you with more than enough room to spare after the kids headed off to college? Only you know if you can spare that extra space or if losing it would be more of a headache than it’s worth!
2. Keep It Functional
Remember back in college when your entire life fit in that tiny dorm room? Somehow you had everything you needed within arm’s length. Though that may be far from practical these days, you can still benefit from cleaning out the clutter from those closets. Sell what you don’t need and take that money to the bank, baby!Or donate it to a local charity and get the added bonus of a tax benefit. Wouldn’t it be nice to have less to clean and more money in your pocket?
Think of all the fun you could have if you didn’t have to polish your miniature unicorn collection every weekend. You just might find a whole new world outside your door!
3. Consider Hidden Costs
Downsizing may save you money in those monthly mortgage payments, but what about the hidden costs? Does your home need any repairs to get it market-ready? What about your old furniture and appliances—will they fit into the smaller place, or do you need to bump up that budget for more space-efficient pieces?
And don’t forget to take into account the cost of moving, property taxes, storage, or even higher HOA fees. When it comes down to decision time, you may find that taking that leap to a smaller space will save you BIG time—or that you can save just by staying right where you are.
4. Focus on the Big Picture
Downsizing your square footage might mean your family has to gather around one TV at night instead of spreading out across three or four different rooms (Gasp!). But is more time with the ones you love really all that bad? It just might be the kick in the pants you need to spend quality time together!
Financial Benefits of Downsizing
Still not convinced? Then it’s time to bring out the big guns and talk money. What if you reduced your mortgage by $500 a month and put that cash toward other financial goals? Check out three strides you could make:
1. Attack Your Debt Snowball
If you’re working hard to kick debt to the curb, downsizing your home can help you maintain that gazelle intensity. Let’s say you owe $18,000 on your student loan. With a 6% interest rate and a minimum payment of $200 a month, you’ll be paying on that loan for 10 more years!
But throw an additional $500 at your loan each month, and you’d trim a whopping seven years and eight months off your pay-off date. Sallie Mae will have to find a new place to live, because you’ll be free from student debt in less than two-and-a-half years!
2. Boost Your Retirement Fund
Once you’re debt-free with a fully funded emergency fund, it’s time to build wealth for the future. Dave recommends investing 15% of your household income into Roth IRAs and pretax retirement plans. If you’re still working your way up to 15%, that extra $500 could be the push you need to get there. And, boy, the difference $500 could make! In 30 years, you could have an additional $1–1.6 million in the bank to get you through your golden years. You can do a lot of living and giving with that nest egg!
3. Pay Off Your Mortgage
Want to downsize Dave’s way? Trade in your mortgage for a paid-off home! Use the proceeds from selling your current home to pay cash for a smaller one. Just imagine what you could do with no mortgage holding you down!
If you can’t pay cash, aim for a 15-year, fixed-rate mortgage and put at least 10–20% down on your new home. Apply the $500 you saved from downsizing to your new monthly payment. At 4.5% interest, you could pay off a $200,000 mortgage in less than 10.5 years, saving almost $25,278 in the process. Cha-ching!
Use our full mortage payoff calculator to see how quickly you can pay off your house!
Ready to Downsize? We’ll Show You Where to Start.
Downsizing might not make sense in every situation, but it’s worth a look if saving money and simplifying life appeal to you. Ask an experienced real estate agent to help you determine what your home is worth and show you options for cutting costs. A true pro knows what it takes to get top dollar for your current home and negotiate the best deal on a new one. Ready to downsize but don’t know where to start?
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