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With tiny houses becoming a trend in the last few years, more people are considering downsizing their homes. You may consider downsizing if your children are grown and have left home or if you’re close to retirement. Preparing for retirement at any age is not only challenging, it’s downright scary, especially in an unpredictable economy, with near-historically low interest rates and looming recession. When preparing for retirement, the best approach is to first create your vision, priorities, and goals and then assess how much you will really need. 

Avoid getting caught up in the misinformation. Keep in mind these common myths, and plan your retirement with a big dose of reality.(1) You may also want to downsize because you want to leave a lighter environmental footprint or if you’re tired of maintaining a large home. To help you decide if downsizing is the right option for you, you should review the pros and cons highlighted below. 

kansas city home buyers

Merits of Downsizing Your Home

Choosing a smaller, more affordable home can free up funds for other financial goals such as going on vacations, saving for retirement, creating an emergency fund, paying debts, or paying for your children’s school fees. Downsizing your home can help you save money in a variety of ways.

Reduced Tax Bill

Property taxes are generally lower for smaller homes because square footage is a factor in determining a home’s value for tax purposes. To save even more money, consider moving to a state with lower or no income taxes, property taxes, or sales taxes. 

Profitable Possessions

You’ll almost certainly have to get rid of some items before downsizing. By choosing to sell these items to Kansas City home buyers, you could make money to use in planning your future. You can make a huge profit selling furniture, clothing, and other items depending on the quantity and value of the items.

Home Insurance at a Lower Cost

Your insurance premiums are affected by the size of your home, with smaller homes generally being less expensive to insure.

Lower Utility Bills

Because there is less space to heat or cool in a smaller home, utility bills are usually lower. Buying a home without a backyard can also significantly reduce water bills.

Membership Discounts

You won’t have to pay for gym, club, or pool memberships if you move to a senior living community or condominium with amenities like a gym, swimming pool, tennis court, clubhouse, and rooftop sun deck.

Reduced Mortgage

If you’re currently paying for a mortgage, the mortgage for a smaller home will most likely be less than what you are currently paying.

Reduced Auto Expenses

During downsizing, you can move to a walkable community or one with good public transportation. In this case, you can get rid of your car, along with its maintenance, payments, insurance, and fuel costs.

Lower Maintenance

Larger homes require more maintenance because there are more things that can break. Moving to a property with a small yard can save you money on hiring a gardening professional or purchasing garden equipment to work on the yard yourself.

Demerits of Downsizing Your Home

Work-from-Home Opportunities Are Limited

Working from home can provide access to a broader range of higher-paying jobs than you might find in your current community. A larger home with dedicated office space can make remote working easier, potentially increasing your income. On the other hand, working from home can be difficult in a small house where your only “workspace” is the dining room table or a corner of the bedroom.

The Costs of Purchasing or Selling a Home

The average cost of selling a home to we buy houses Kansas City companies is more than $35,000. Aside from the costs of preparing the home for sale to home buyers Kansas City (such as roofing or painting), you’ll also have to pay real estate agent’s commissions, closing fees, and taxes. When purchasing a downsized home, be prepared to pay closing costs, which typically cost thousands of dollars.

No Extra Space

If you have unrented rooms in your home, you can rent them out and make money. This is something you cannot do in a smaller home. 

Renter Risks

When you decide to sell your home to cash home buyers in Kansas City instead of renting it, remember that you will lose any mortgage tax deduction and won’t build any equity. In addition, increases in rent may price you out of your rental in the future.

Mortgage Costs

If your home is completely paid off, you can sell it to cash home buyers Kansas City and buy a new home with the profits. However, you may be forced to get a mortgage depending on the sale price of both homes. Consider if you want that extra expense.

What to Consider Before Downsizing

When downsizing, think about the following factors. 

  • Your kids. If you have a larger home, your adult kids can live there if they don’t have anywhere else to go. 
  • How diversified your assets are: even though selling your home and paying cash for a smaller home eliminates the need for a mortgage, tying your net worth to your home’s value can be risky if the value declines. 
  • If there are drastic ways to increase your income: If your home is paid off, a reverse mortgage can give you extra income without having to leave the house.

Is Downsizing the Right Option for You?

Whether you intend to buy a smaller home right away or to rent for a while, your credit score can impact your ability to qualify for a mortgage or a rental. Free credit reports and credit score checks are available. Before applying for a mortgage or renting a home, improve (or maintain) your credit score by making on-time payments, paying all debt, and avoiding new debt. Before making the big decision to downsize, go over your overall financial plan and think about how downsizing might help you accomplish those goals. 

To determine the value of your home, look at home sales websites and speak with real estate agents. Then look into home prices in your desired area to see if your home sale can cover the mortgage for a smaller house. You can find a place that truly feels like home if you make the decision to downsize with all of the above facts in mind.