Americans live big. The average new single-family home is built at more than 2,600-square feet, according to the United States Census Bureau.
But some folks want to simplify life and save money. So, they downsize the bigger home for a much smaller, more economical place.
“Since housing prices are high and inventory is limited, it will affect the number and location of your choices,” says real estate investments analyst Allison Bethell at FitSmallBusiness.com, headquartered in New York City.
“You may need to buy a house that is livable but needs updating. You can do it over time and put some sweat equity into it. Another option is to move a little farther away from town to find a better deal on a home.”
Some 60% of people living in large homes of 2,000 square feet and over said in a Trulia survey that they’d rather pick a smaller home next time around. Big houses take more money to furnish, maintain, heat and cool, and cover property taxes and mortgages.
Here are the top ways you can save money when downsizing, get organized and get a loan for the smaller house:
If you write a list of what you need to and call ahead to get moving quotes and other things you will need, you will be ready for the upcoming expenses. Leaving things to the last minute or not having a plan is a sure way to pay more for unanticipated costs, explains Bethell.
Know what space you do need
The new space doesn’t just need to be smaller; it needs to fit the chapter of life you are in or are going into. Also, if you need an at home office, make sure you keep that in mind when deciding on your new downsized house.
Declutter to save
Save money by getting rid of the things you don’t need. If you sell them or donate them, it will be less for the movers to move. You won’t have to pay for as big a moving truck or rent an extra storage space. Keep the things that are sentimental and the basics.
Reduce overall costs in smaller home
You can save money downsizing by reducing your utility bills and maintenance bills at your new smaller place, Bethell says.
“If you have the choice, opt for a well-insulated home with energy saving appliances. A smaller home often means less cleaning for you or the cleaning company, and it can mean fewer rooms to pay to heat and cool,” she adds.
A smaller house often also means fewer televisions, so if you pay for cable boxes or digital TV hookups, you will save money there as well.
Pay less in taxes and maintenance
Other advantages of downsizing usually include paying less in property taxes and maintenance costs for your new home. Your HOA fee may be less as well.
Hidden costs in downsizing
You may need to make repairs before putting your house up for sale. You may want to put a fresh coat of paint in most of your rooms for a brighter appeal.
Also, be prepared to have commission and transfer taxes taken out of your sale proceeds, Bethell states.
“Any past due utility bills will need to be paid prior to settlement. You may need to spend some money on curb appeal such as plants, pavers and painting the front door,” she says.
You also need to make sure the home has plenty of light. If it doesn’t, you may need to install some new light fixtures, clean the windows and replace heavy curtains with ones that let the sun shine through.
Get ready to downsize
Put anything of value up for sell. Try some online sites like LetGo, eBay or even Craigslist, Bethell says. You can also use social media, local garage sales or your Facebook page, to sell things.
Whatever doesn’t sell can go to charity or a friend/family member who may need the item. Some charities will pick up the items if they are big pieces like couches.
If you have kids, you may need to register them in a new school district ,and you need to decide what you’re going to do with pets during the move.
The factors into getting a mortgage for a smaller house
If you sell a house and opt for a newer, less expensive, smaller house, it is usually easier to get a mortgage, Bethell says.
“In most cases, you will need to sell your house first unless the mortgage company is confident you can afford both mortgages,” she says. “Mortgage lenders consider your credit, savings, income and debt-to-income ratio.”
Type of loans for downsizing
The type of loan to get depends on the individual, she adds. If you want to buy a newer, smaller house before your current one has sold, you may want to look into a bridge loan which is interim financing.
Other loans may include a conventional loan or a rehab loan if the property needs work. A homestyle renovation option is offered by FHA for properties that need renovating as well. Downpayments vary depending on the borrower’s financials and the lender, but they generally range from 3.5% to 20%.
The good news is that if you already have so much equity in your big house, you may not have to take out a mortgage at all on the smaller house.