A smaller home could mean big financial benefits.
The average size of homes is decreasing as the number of homeowners deciding to downsize increases. According to Freddie Mac, downsizing is part of the Homebuying Cycle and will occur at varying ages for different homebuyers. Statistics tracked by the National Association of Realtors show that nationwide, 12 percent of homebuyers between the ages of 45 and 64 were downsizing in 2017. Whether you’re an empty nester or nearing retirement and looking to scale back, there are a myriad of financial benefits to downsizing your dwelling.
Financial Benefits of Downsizing
Lower Mortgage Payment
While there are a number of factors that go into your mortgage rate, less home likely means a lower mortgage payment. This means the opportunity to reside in a home that is completely paid for. The median monthly mortgage payment for U.S. homeowners is $1,030 according to the latest American Housing Survey from the U.S. Census Bureau. Shaving a chunk off of your payment will allow you to put money toward other possible debts or to invest in your retirement. Use our monthly payment calculator to see how much a lower mortgage payment will save you monthly.
Reduce Utility Bills
Smaller homes take less effort to heat and cool. Less square footage means the amount of energy expenditure is decreased, which almost guarantees lower utility bills for those who decide to downsize. Curious about if a smaller home would save you cash on utilities? Your local home energy provider may be able to give you an audit of your current usage and estimate how you can save on utility bills by downsizing.
Free Up Equity
Your current property could have a substantial amount of equity that selling would free up. This is especially true if you’ve been residing in a large home for a while that has now seemed to outgrow your needs. Selling and downsizing may unlock this equity so you can put it toward a smaller nest and still have money left over to invest. Another option is to refinance your home for cash to put towards a downsized one and then use your previous home as a rental property.
Lower Real Estate Taxes/ Insurance Costs
The main factor that goes into determining both your homeowner’s insurance cost and your property taxes is the value of your home. Downsizing your dwelling is likely to decrease both costs. Note: When looking at a smaller home, be careful to consider that other components such as location and the structural characteristics of your house will play a role in the cost of insurance & taxes.
Spend Less Frivolously
Homeowners are less likely to splurge on items they don’t need if there is nowhere to put them. A smaller home leaves less room for clutter, often leading to less senseless shopping. Smaller homes are easier to decorate on a budget, requiring less furniture and knick-knacks for a decreased number of rooms.
Lower Maintenance Costs
A smaller home is less to maintain, lowering maintenance costs like cleaning & gardening. Perhaps you have hired assistance to provide upkeep or you’re taking care of maintaining your larger property yourself. Either way, time is money!
Less is More
NAHB data shows the average size of new houses fell for the fourth straight year in 2019. Median square footage of single-family houses decreased to 1,900 this year after peaking at 2,687 square feet in 2015. There are multiple reasons this “less is more mentality” is catching on in the homebuying world. Modern Americans are living with less and loving it.