By Guest Blogger at Money.com
For most people, the very phrase downsizing calls to mind empty nesters and people of retirement age. That’s not an unreasonable association. According to Forbes, baby boomers aged 65 to 73 made up the largest portion of home sellers in 2020. A study by Homes.com found that 23% of homeowners downsize once their children grow up and move on. For many, their homes represent their largest financial asset—one they use to fund the years of travel they have ahead of them.
But other real estate industry statistics reveal that downsizing cuts across generations. That’s because the most common reason for downsizing is to save money—something people of all ages need to do at various times of their lives. And the decision works for most people who make it. Rent, utility, insurance, and tax savings are some of the benefits of downsizing. Over the past several decades, real estate prices have climbed steadily. In 2020 alone, they jumped 11%. Depending on how long you’ve owned your home, the amount of equity you’ve established might surprise you. Even if you take some of the profit you reaped by selling your home to buy another, your downsizing decision could go a long way toward paying other expenses.
If you decide to downsize soon, you have another real estate market dynamic working in your favor. During the COVID-19 crisis, mortgage interest rates have plummeted, reaching record lows in the mid-2020s. They’re still below rates we’ve seen for a decade and economists predict that they’re likely to stay that way. That means the money you make from the sale of your large home will go farther when you make mortgage payments on your new, smaller one. Shop around for the lowest mortgage rate you can find and crunch the numbers carefully to see how much you’ll stand to gain when you downsize.
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Buying A Home Comes in Many Shapes and Sizes.
You have options. For some people, it can even look like upsizing or “right sizing”. Swapping an expensive condo in the city for a rural ranch home with acreage is one way to downsize. And so might be trading a sprawling suburban home for a pied-à-terre in town that’s walking distance from restaurants and entertainment. Simply moving to a less expensive real estate market is another way to downsize. You can buy a six-bedroom home in Toledo, Ohio for less than half of what it would cost to buy a one-bedroom condo in Westchester County, New York.
Ready for the next step?: Homebuying Tips
With the historic fluctuation in mortgage rates within the last year, one could say that mortgages and mortgage refinances have been the one silver lining of the ambiguous economic climate last year.
While shopping around and finding the perfect fit for you, note that there are plenty of factors that are considered upon submitting your application. Items such as credit scores, loan terms, interest rate types, down payment, home location, and the loan size, in general, can all have an impact on your application. If you need some help calculating your budget, check out Money’s mortgage calculator tool.
Other factors will affect how much you’ll pay each month too. Items such as your PMI, closing costs, loan term, taxes, HOA fees, insurance, and even the type of loan (i.e. fixed vs. ARM) can each play a large part in your monthly payment.
Follow Your Dream and Your Instincts
With a little bit of planning, you can have the best of both worlds. Now, you may be thinking you have some work to do before you’re ready to go after your dream home. Or you may be realizing your years of hard work are about to pay off! Regardless, you’ll find the house you’ve always wanted and avoid a purchase you’ll regret.
Lastly, consider the type of mortgage loan you might need. Veterans and active-duty service members should take advantage of VA loans offered. Whereas first-time homebuyers should shop around and seek discounts.
Ultimately, finding the best mortgage shouldn’t be seen as a one-size-fits-all approach. Work with a firm that will provide hands-on assistance to meet your needs.
