Is Downsizing Right For You?

For years, developers have considered downsizing to be an old man’s game. Downsizing, it was assumed, fit the budgets of retirees with empty nests.

Then came the tiny house movement and with it a whole group of young people devoted to downsizing. Now, people across age groups are attempting to spend less on property to free up cash for recreation, travel, or investment. Why not minimize housing costs and maximize fun?

But when a building trend receives no less than three shows on HGTV, you know the real estate community has achieved peak hysteria. Sure, downsizing has become a young person’s game, but when is it actually right for you? These experiments in small living can often go awry. One tiny house builder ended up spending $220,000 to build a 500ft² cabin in Colorado—that’s $440 for every square foot of her small cabin!

Downsizing Is Ultimately A Cost-Cutting Move

The lessons of tiny house hysteria perfectly apply to the situation of an average downsizer; it is important to manage expectations and prices. Unless you have decided to move to a radically more expensive neighborhood, the price of your new home should cost a fraction of your previous one.

The goal here is to free up cash. Especially during retirement, this extra money can be critical for quality-of-life improvements.

According to the Center for Retirement Research, downsizing can lead to major financial gains. Home equity is your largest store of wealth while, paradoxically, home ownership is often your biggest single expense.

Researchers at the center hypothesized that downsizing from a house that costs $250,000 to one that costs $150,000 could increase yearly income by $3,000 and reduce annual expenses by $3,250. Overall, the household expenses of the downsized home are half those of the costlier one, from $8,125 to $4,875.

Who Is Downsizing, Why, and How

For the older crowd, downsizing is still an alluring concept. Who needs 4 bedrooms once the kids have all moved out? Who needs to climb multiple sets of stairs when their knees start to go?

In these cases, smaller homes carry the added bonus of being a health and sanity booster. Homes adapted to older communities eliminate the stairs and provide single-floor living spaces, wide hallways, and outlets accessible at any height. For a vastly reduced price, you can get a livable, affordable new home with minimal upkeep.

Others choose to downsize for environmental reasons. A larger house leaves a noticeably larger carbon footprint on the world. In contrast, smaller homes require less energy and have the ability to run self-sufficiently if supplied with solar panels and other green devices.

If you plan on staying in a large home, fortunately there are some green energy solutions that can help minimize your costs, but the fact remains that smaller homes are a vastly more sustainable option.

A Final Word on Financing Your Downsize

If you are seriously considering a downsize, it would be advantageous to get the equity back on your home first. Experts suggest that you close on the new purchase after closing on the current home’s sale. Once you have secured the funding, it’s time to go ahead and purchase that dream home—tiny, small, and anything in between.

from Total Mortgage Underwritings Blog http://ift.tt/28SgH9K