When most people move, they are looking to move into a bigger place. I would suggest considering an alternative view and instead of going bigger, look to find the smallest house which will still comfortably meet your needs. Why? Because of the many money saving advantages that come with downsizing which will allow you to spend money on the things that you really love. Being contrarian when it comes to your house size has a ton of financial benefits. Here are a few of them:
1.Reduced Mortgage Payments
Home loans are usually the largest financial expense for homeowners. Depending on how your house is financed, your payment could be a large portion of your monthly net income. If you're planning on moving, downsizing your house will drastically cut the principal balance and interest that you pay on your mortgage.
2.3Lower Real Estate Taxes
Taxes, especially real estate taxes, are another major financial expense for most homeowners. Real estate taxes are generated by the amount of property you own, so naturally, the larger the space, the more you pay. Moving to a smaller house obviously reduces your tax rate. For instance, if you currently own a 4,000 square foot house and decide to move to a 2,000 square foot house, your real estate taxes will be reduced by 50%.
3.Lower Utility Bills
If you're thinking of moving for financial reasons, downsizing to a smaller house is a great way to decrease the cost of your utilities. While some utilities such as water or gas might not change, other utilities such as heating, air conditioning, or electricity can definitely be decreased. If your current house has five large rooms, you're probably paying to heat them all. If you downsize to a house half the size, you'll be paying to heat fewer rooms. Utility bills are usually the third biggest concern after mortgage and tax payments, so being able to cut how much you spend will be a great benefit.
4.Less Maintenance Costs
Generally, the less space you have, the less it will cost to keep it maintained. If you need to replace wood floors or carpeting, the overall cost will be cheaper in a downsized house. If you need to replace the roof of the house or redo the landscaping, you'll have fewer square feet to work with, so you won't have to spend as much money. Lower maintenance costs are a great reason to downsize on your next house.
5.Cheaper Homeowner's Insurance
Similar to your mortgage payments and tax rates, downsizing your house will mean a decrease in your homeowner's insurance. Houses are insured by their location and size, meaning the larger the space, the more you have to insure, which creates a higher insurance rate. If you downsize to a smaller house, your homeowner's insurance will cost less as you have less space and items to insure.
6.Smaller Houses are Less expensive to Buy
This might seem obvious, but it's still one of the best reasons to buy a smaller house. Like most things, the bigger something is, the more is costs. Houses are no different. A small house will ultimately cost less than buying a large house. When you decide to downsize, keep in mind that you'll be paying a lot less money for a smaller house than you would for a larger house. If you've just sold the house you're moving from, you'll hopefully have left over money to spend in the ways you want!
7.Smaller Houses are Easier to Sell
The real estate market is constantly chaotic, and the one main problem that homeowners discover is that it's hard to sell a house, especially if it's a large house. Smaller houses are easier to sell for many reasons, though the most notable is that the price is usually low. The potential selling issues should be in the back of your mind when you're thinking of downsizing. Many people like smaller houses because of their convenience. Think about the reasons you're downsizing. If or when you need to move, you won't have to worry about your house staying on the market the way you would if you were trying to sell a large house.
8.Easier to Live Simply
Downsizing to a smaller house forces you to only bring the necessary belongings when you move. You're moving to a house with less space and less storage, so you'll be forced to either sell or store your belongings. On the plus side, if you don't have the room, you won't be going out to buy furniture or items you don't need. This will help you live affordable and will hopefully save you a lot of money in the long run.
If you're drowning in debt, downsizing your house is probably a great option. While you're still going to be paying for a mortgage and utilities, you'll be paying less. The money you previously spent on taxes or a mortgage for a larger house can now be put aside to pay off your debt.
By downsizing to a smaller house, you might be able to unlock your equity. Equity is the difference between how much your house is worth and the cost of your mortgage. If your house is worth $500,000 and your mortgage is $200,000, then you have $300,000 in equity. Depending on your equity lender, you might be able to unlock your equity and use it to buy your new home without the need of a mortgage at all.
While downsizing your house goes against conventional wisdom when purchasing a new home, there are a lot of financial advantages which are worthwhile seriously considering. You may find that a smaller home is the answer to attaining many of the financial goals you have.