There are several reasons you may want to downsize your home. Maybe you’ve just retired and want to spend your golden years focusing on experiences rather than buying possessions and constantly maintaining your house. Or, perhaps your kids finally left the nest and now you and your spouse have a family home with too much space. Whatever the reason, downsizing has advantages and disadvantages, so be sure to consider them before making a big life decision.
Advantages of Downsizing Your Home
Downsizing your home can have its perks, including:
Lower Mortgage and Taxes
Depending on your location, a smaller house typically equals a lower mortgage payment. This means you can allocate your money towards fun things like vacations and experiences while comfortably paying your monthly mortgage fees. Property taxes are also generally cheaper for smaller homes because square footage is a primary factor for determining your home’s value for tax purposes.
Getting Rid of Junk
Downsizing your home is the perfect opportunity to eliminate all the unnecessary items that have been piling up in your house over the years — i.e., toys, clothes, unused kitchen appliances, etc. Plus, throwing a garage sale or listing your items online is a great way to turn your old stuff into cold, hard cash for your next home purchase.
Cheaper Utility Bills
According to the U.S. Energy Information Administration (EIA), heating and air conditioning account for more than half of the energy use in homes. Since there’s less space to heat and cool your downsized home, your utility bills will likely be cheaper. This also means you’ll reduce your carbon footprint since you won’t expel as much energy in your smaller home.
Less square footage means less housework. For instance, if you’re downsizing from a four-bed, four-bath home to a two-bed, two-bath house, that’s two fewer bedrooms and bathrooms you must clean and maintain. While downsizing to a smaller home won’t eliminate chores, you’ll spend less time keeping the house tidy and more time relaxing, volunteering, and getting together with loved ones.
Disadvantages of Downsizing Your Home
While downsizing to a smaller home can have its benefits, it can also bring disadvantages, such as:
Selling a Home Can Be Expensive
The cost of selling your home can add up quickly. First, you need to estimate the cost of repairing and renovating your home to make it sellable, such as painting and installing new carpets. Once you sell the house, you’ll need to pay your realtor’s commission fee — typically up to 6% of the sale price. On top of that, you’ll likely pay taxes, escrow fees, seller concessions, moving expenses, and more.
Buying and Selling Simultaneously Can Be Stressful
When you’re selling your home, you may be looking to buy a new home at the same time. However, it’s important to know that this process can be taxing, so make sure you’re mentally prepared to handle stressful situations. If you don't think you can manage to sell and buy simultaneously, consider temporarily renting an apartment or condo after selling your home. That way, you’ll have time to focus on finding the perfect downsized home without the stressors of selling weighing you down.
No Extra Space
Depending on your needs and lifestyle, less living space may be advantageous. However, if you love entertaining or often have guests stay the night, you might wish you had a little more room. Out-of-town guests would have to stay at a hotel, and you would need to reserve an event space to throw a party. Plus, if you have belongings or heirlooms you can’t sell or throw away, paying monthly rent on a storage unit is likely your best option.
Living in a smaller home is much different than residing in a bigger house, so there are a few adjustments you’ll likely have to make. For example, you might have to minimize your grocery spending due to your home's lack of refrigerator and pantry space. On top of that, change can be difficult. Your home probably contained years worth of memories, so it can be tough to part ways with your old life and begin a new chapter.
How to Downsize Your Home
When it comes to downsizing your home, you must have a plan and consider the housing market.
Have a Plan
Downsizing without a plan is one of the biggest mistakes you can make. You should have a general idea of where you’re going before you sell your home, and then strategize the moving details. To help get your plan in order, ask yourself a few questions:
- Do I want to live in a house? An apartment? A condo?
- Do I have enough equity built up in my current home to make a profit?
- How close do I want to be to my family?
- Do I enjoy a more urban, suburban, or rural lifestyle?
- Do I have or want a pet?
- What does my ideal community look like?
- What life do I envision for myself and my partner?
- What do I want more of?
Consider the Market
It’s crucial to carefully consider the market where you’re planning to buy your smaller home. Look at housing indicators such as home prices, competition, cost of living, and local property taxes. Additionally, you may want to hold off on downsizing if interest rates are too high or the housing inventory is limited.
Is downsizing the right choice for you? It’s a hard question to answer because everyone’s situation is different. Ultimately, you’ll need to review your finances, estimate your home’s value, and weigh the pros and cons of downsizing. If you decide to downsize your home, it’s important to know that smaller homes are generally cheaper to insure. That’s why you should consider getting homeowners insurance from Mercury, where we provide reliable coverage at an affordable price.