A recent study by market research firm, Edelman Berland showed 1 out of 3 people thinking about selling their homes plan to buy a smaller house in the future.
Here are a few thoughts from well-known financial expert, Dave Ramsey. Ramsey discusses three financial advantages that can come from scaling down your home.
While a smaller home does means you’ll have less space, it also means you’ll spend less time and money on maintaining your home. This usually means a lot less stress.
Plus, you can save more money. For example, if you saved $500 a month on your mortgage payment, you’d be able to put $1–1.6 million more in the bank to help support you as you get older.
You can also eliminate your mortgage by taking the proceeds from the sale of your old, bigger home and paying cash for a smaller, less expensive one. If that’s not an option, you can at least do a 15-year fixed rate mortgage. You can get about a 3% interest rate with a 20% down payment on your new home. So you could add the $500 you save every month to your new mortgage payment. You could pay off a $200,000 mortgage in just over 10 and half years and save nearly $16,000 with this strategy.
But downsizing is not right for everybody, so how can you figure out if it makes sense for you? A recent article on Realtor.com advised that you ask yourself these four questions:
What kind of lifestyle do I want after I downsize?
“For some folks, it’s a matter of living a simpler life focused on family. Some might want to cross off travel destinations on their bucket lists. Some might want a low-maintenance community with high-end upgrades and social events. Decide what you want to achieve from your move first, and you’ll be able to better narrow down your housing options.”
Do you want a BIG house or a GREAT LIFE STYLE!
What should my buying budget look like?
“If you’re planning to retire soon or have already entered those coveted golden years, you’ll likely be on a fixed income. Downsizing might net you a decent profit, especially if the home you’re buying next costs considerably less than the one you’re selling. Consider other expenses as you age: medical bills, health and life insurance, travel, estate planning, final expenses, and home maintenance. The common rule of thumb: Spend no more than 30% of your monthly income on housing. But in theory, it should be a lot less if you’re downsizing.”
Have I built up enough equity in my current home to make a profit?
“For most homeowners, the answer is yes. This is if they’ve held on to their properties long enough to have positive equity that will be sizable enough to put a large down payment on their next home. Unless you have a significant amount of debt to pay off, chances are you’ll see enough profit from your sale to buy your next home outright or bring a sizable down payment on closing day.”
Will I be able to find another home that’s affordable in a seller’s market?
“OK, this is where things might get tricky. In some fast-paced markets (such as Denver or San Francisco) where soaring home prices show no signs of letting up, you might have a tougher time. If you’re relocating from a pricier part of the country such as California or the Northeast for states such as Florida or Texas, however, you should be in a better bargaining position than first-time home buyers.”
If you answered, “yes” to most of these questions, it’s time to find out what your home is worth and the homes for sale in your “new” price range. Call me if you’d like a free home valuation and a list of homes that fit your buying criteria. Or you can go to www.myhomesavannah.com to search homes for sell or www.myhomesavannah.com/sell for a free home value evaluation.