Can you afford your home?
If your current economic situation is challenging, you might think that selling your home and moving into a rental or a smaller home might be your best option. But staying put and finding other solutions may be a better fit.
Check rental and home prices in your desired area to see if they would actually represent a cost savings. Factor in the proceeds you are likely to receive if you sell your larger home. If you’ve owned your home for a long time, you are likely to have equity built up that can help you make a sizable down payment on a smaller home, provide financial stability during a period of hardship, or help you pay the costs associated with moving into a rental.
However, rents and prices on small homes have increased substantially, so it is essential to ensure that your payments will decrease if you move. If monthly payments would be more or about the same, staying in your home might be more prudent. Consider refinancing while rates remain low to help cover expenses and lower your payments.
If that’s not an option, you can ask your current lender for forbearance. This option should not be your first choice, as it can extend the life of your loan, but it can help alleviate pressures and let you get ahead by taking a break from mortgage payments for a short period. Be frank with your lender about your issues and ask them the consequences of this step before deciding.
Are your kids moving out?
The home that was perfect for your family when your kids were young may just be too much house now that they are starting their own lives. And with rising home prices, you might get a sizable payout when you sell, allowing you to move into a home that is a better fit for your smaller family.
Cost may not be the driving force here, but it is still wise to ensure that your new payments would be affordable and that selling would make financial sense. A smaller home with a higher mortgage or rent payment might not be a great option, although the reduction in maintenance might make it worth it.
Also, look at options other than selling. The rental market is hot, and you might consider buying a second smaller home and renting your family home. There are costs associated with renting, so speak with a financial adviser to make sure this option is right for you. But if your home is paid off (or nearly paid off), and you have a reasonable down payment saved, this could be a great financial option that would also leave a sizable financial legacy for your children.
How is your health?
Although none of us like to think about declining health, it is a fact of life. As we age, a multi-story home may be much less attractive when we consider the potential for falls. A smaller house with only one story could be a better option as you get older. Not only are you avoiding the dangers of stairs, but it can also be much easier to maintain a smaller home yourself. For example, unused rooms may fall into disrepair and be expensive to fix.
If health concerns are your main reason for downsizing, make sure you look for accessibility features in your new, smaller home. Easy-to-use showers, accessible door handles, and other features may not be necessary now, but as you get older, you will appreciate having home features that are easy and safe.
Do you want to travel?
When you retire, do you plan to stay home and enjoy the amazing home you’ve built? Or are you planning to see the world and spend months at a time away from your home? If your house will be more of a home base between trips, then something small and easy to maintain will be key. You don’t want to burden your kids with keeping an eye on your home, and you probably don’t want to pay someone to take care of a huge house when you’re away.
Although retirement is usually the time most people think about downsizing, it can make sense at multiple life stages. If you’ve asked yourself these questions and decided that downsizing is the right option, find out more about how we can help you pay for that dream small home.
