Decide If Buying a Smaller Home Makes Sense for You

Downsizing your home can make sense for many reasons, from retiring — to your kids moving out — to being tired of cleaning a big house — to wanting to save money. No matter the reason, the goal should be to find a smaller and less expensive house that's a better fit for your current life circumstances.

This guide will help you decide whether downsizing may be right for you and how to do it successfully so you end up with your perfect home.

Signs It May Be Time to Downsize Your Home

If you're thinking about making the decision to downsize but aren't sure whether to move forward, here are a few signs that looking for a smaller home may make sense for you.

• High housing costs: If your mortgage payments, taxes, and insurance are a financial burden, downsizing could help you enjoy more stability. This may be a good idea if you're spending more than 25% to 30% of your income on housing costs.
• Big life changes: Some major life changes may mean you no longer need a larger house. Examples include retirement, your children moving out, or changes in mobility that make it harder for you to get around.
• Too much space: If you aren't using very much of your home (and you're tired of paying for space that sits empty), downsizing could be the right move.

Pros and Cons of Downsizing

There are both benefits and disadvantages of downsizing that are worth considering. Here are some of the biggest benefits and drawbacks.

Benefits of Downsizing Your Home

• Saving money: A smaller space typically means lower monthly mortgage payments, taxes, insurance, utility bills, home maintenance, and repairs than a larger house.
• More time: Larger homes take more time and money to clean and maintain. With a smaller home, you'll be able to spend more time (and more money) doing things you enjoy.
• Less stress: A large home can come with more headaches and demands, especially if you have a large property to maintain.

Drawbacks of Downsizing Your Home

• Sorting and getting rid of belongings: Some furniture, clothing, toys, and sentimental items may need to be sold, donated, given away, or thrown out.
• Less room to socialize. If you like to host guests at your home or have your grandchildren sleep over, it may be harder with a smaller home.
• Personal space. If you're used to having a lot of "your own" space for watching TV or participating in hobbies, downsizing could be an adjustment.
• The expenses of buying, selling, and moving. Moving costs, closing fees, new furniture, repairs, and remodeling can add up.

How To Downsize in 3 Phases

If you're interested in downsizing, doing so in three phases can simplify the process by helping you stay organized and on top of things.

1. Take Inventory of Your Life

Moving to a smaller home often means you won't have space for everything you own. Start by paring down your possessions early (giving you ample time to decide what matters most). This can include decluttering your home by selling or giving away items that you no longer use.

There are many different techniques you can use to decide whether to sell or donate, including paying attention to the items you know have credible value and donating those that don't.

2. Review Your Finances and Housing Costs

You next should take stock of your current financial situation and know what your finances will look like after you downsize.

If you have a lot of equity in your home, you have many options. For example, you could refinance your mortgage and take cash out of your home, tapping into your equity to fix up the property before selling or to pay for your new home. You just need to know what type of loan to use:

• A "rate and term" conventional refinance allows you to change your current mortgage rate and term, but you don't tap into equity to get extra cash to use to prepare for your move.
• A cash-out refinance allows you to both change the rate and term of your current loan and borrow by tapping into your home equity. You can use the extra you borrow to get your home upgraded and ready for sale, or to buy your new, smaller home before selling your current property. Freedom Mortgage can help you know which option is best for you and saves you the most money.

A cash-out refinance can make life simpler because you can buy your new place before selling your old one. This eliminates the risk of ending up without somewhere to live if you can't find a new home after you sell.

3. Find Your New Place and Plan Your Move

Finally, the last step in the process is to buy a new house for your downsize — and plan the logistics of your move.

Consider your priorities when looking for a new, smaller home, such as whether you want to be close to family or in a walkable area (or both). Search for a property that is well within your budget and make sure it will be available when you're ready to move in.

Once you've found the right new home, get accurate measurements to make sure your furniture and other items you're bringing will fit into the space. Sell or give away anything that you can't bring based on the size and layout of your new home and arrange for movers to come and move the rest.

Considerations for Choosing Your Downsized Home

Deciding which kind of home is the right choice for you is also important. We recommend considering these questions when you're downsizing:

• What type of property do you want? You might want a smaller, single-family home, or you might want to buy a condo or townhouse where someone else handles the maintenance and landscaping.
• How long do you plan to live in the home? If you're downsizing to a home where you plan to live in your elderly years, consider one without stairs and with bathrooms that include large walk-in showers.
• How much time will you spend in the home? If you plan to travel or spend the colder months in a warmer place, a smaller home might better fit your needs and your budget.
• Where do you want to live? Do you want to stay in your current community, move closer to friends and family members, or move to a place you've always wanted to live?
• How much home can you afford? Before you list your current home, consider how much equity you can use to help buy your new home, and what new monthly payment you'd be comfortable affording. Use our home affordability calculator to see an estimated price range for your next home.

Final Thoughts: Downsizing Your Home

Downsizing your home can save you money and make your life easier — but consider the pros and cons before deciding if it's the best thing for your lifestyle. If you're ready to move forward with downsizing, create a plan to make the transition a success by using a cash-out refinance loan to buy your new home (or explore other low-rate and cost mortgage solutions).

Freedom Mortgage can help you find the right loan to save you the most money, so give us a call today to get prequalified and understand your borrowing options.