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If you've lived in your current home for many years and no longer have a need for so much space, you may be considering downsizing to a smaller home. This is often how many people feel once their kids are grown or when they're approaching retirement age.
But before you rush to put your home on the market and find a mortgage lender so you can buy a smaller property, you should consider how your finances will be impacted. Here's what you need to consider before you downsize to a smaller house.
Home prices are skyrocketing nationwide
If you've been a homeowner for many years, you likely bought your home during a very different market. Home prices have skyrocketed in recent years.
Many people who want to be homeowners are forced to continue renting because they can't afford current home prices. Those who have bought a home recently often spent months searching and had to put in multiple offers to get one accepted. Many hopeful buyers have to adjust their expectations and budget.
If you're considering downsizing your home, research the current market and look at available homes and prices in your area so you know what to expect. Buying another home may cost more than you realize, and downsizing your home could negatively impact your bank account .
Current mortgage rates make buying a home expensive
High mortgage rates are another reason you may want to wait to downsize your home. While average mortgage rates have decreased slightly, they remain higher than they were several years ago. At the time of writing, the average rate on a 30-year fixed-rate mortgage is 6.73%.
When you sell your home and buy another, you don't get to keep your current loan rate. You'll need a new mortgage unless you have enough cash from the sale and savings to purchase your new home outright.
High home loan rates can make your monthly mortgage payments more costly and result in you paying more in interest. Even if you attempt to buy a modest home with smaller square footage, current home prices and interest rates could make your new purchase more costly.
Considering all this, it may not make sense to sell your current house in favor of a smaller home.
Consider doing this instead
If you can't afford to downsize your home at this time, here are some options to consider.
Rent out a room in your home
If you have more space than you need in your current home and are struggling to afford rising living costs, consider renting out a portion of it. The additional income can cover some of your expenses and you'll still be able to keep your home.
Consider a loan modification
Another option to explore if you're struggling to afford your loan payments is a mortgage loan modification . If your lender agrees, you may be able to have your loan modified due to financial hardship. Doing this would change your loan's terms and make payments more affordable.
Get help with cleaning and upkeep
If you can afford your mortgage payments but feel overwhelmed with maintaining and keeping your home clean, it may be time to consider hiring professional help. Investing in cleaning, lawn maintenance, and other home upkeep services can reduce stress and ensure you keep your property and home in good condition.
Keep your finances in mind
Before downsizing to a smaller home, explore all options and research how your finances could change. It's always best to consider your finances before making big, life-changing decisions like this, so you don't put yourself in a difficult situation.
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