By Kate Ashford | NerdWallet
Your home is your sanctuary, but it’s also a major expense. Once you retire, it might seem like your house is too big for your needs. However, in the current housing market, is it still wise to downsize when a smaller upgraded home may be similarly priced to the one you’re selling?
In some cases, downsizing is suitable, but not necessarily cost-effective. You could sell your house and purchase something less expensive, or it might make sense to downsize in order to be closer to family or have a smaller home to maintain.
It’s crucial to be clear about your goals. Juan HernandezAriano, a certified financial planner in Houston, emphasizes the importance of having clear goals, as there are various options to consider.
Here are some scenarios that may warrant putting up a “For Sale” sign.
You’re facing financial constraints
In retirement, you may find that increasing prices along with a fixed income are causing financial pressure.
HernandezAriano mentions that his clients in southeast Texas are troubled by high home insurance costs due to severe weather events, as well as high property taxes. “Many insurance companies are discontinuing coverage in the southeast Texas area,” he explains.
If cost is a concern, take into account all your housing expenses. Compare the mortgage, property taxes, and insurance, as well as basic utilities like electricity and water for your current and potential future homes.
One of HernandezAriano's clients in Houston calculated the costs and moved 90 minutes away to purchase a cheaper home, reducing their homeowners insurance by 60%. “Property taxes also decreased as they were no longer in a highly competitive school district,” HernandezAriano shares. “Although they spent more on gas and water, and incurred relocation expenses, they ultimately saved on a monthly basis.”
You live in a pricey location
If you reside in an expensive city, you have a better chance of selling your home and finding something more affordable. “In a lower-cost area, it will be challenging to find an even more affordable option,” explains David Demming, a CFP in Aurora, Ohio.
However, it’s important to thoroughly research before making a move. Inventory is limited in many areas, and competition is fierce for a smaller upgraded home.
To save money overall, the value of the home you’re purchasing should be at least 20% less than the house that you’re selling, advises Diane Pearson, a CFP in Wexford, Pennsylvania.
You can no longer live there safely
Your health may necessitate finding a new home with fewer stairs, a primary bedroom on the first floor, or an accessible bathroom. Michael Maye, a CFP in Gillette, New Jersey, observes that clients who have witnessed their parents deal with long-term care or health issues are more likely to consider future mobility when planning retirement. “I recently worked with a couple who proactively chose not to age in place, as they have a larger house,” he shares. They wanted to invest in a continuing care retirement community, where they could access various levels of care as needed. “They could stay in their house, but they don’t plan to,” Maye adds.
You desire to be nearer to your family
While being nearer to your kids or elderly parents is a valid reason to
, don't expect it to be the cheaper choice, particularly if you're moving to a
more expensive real estate market downsizeFor example, one of Demming’s clients moved within Ohio and it cost her an extra $150,000 to get a suitable house. Despite the higher cost, Demming believes it was worth it to be closer to her family, and her new city is thriving. Her new home has greatly increased in value since she moved..
You're ready to establish a new support system
If downsizing means moving to a new city, keep in mind that you may need to build a new social circle. Even if you're moving closer to family, don't expect them to be your only social outlet. Are you outgoing and able to create your own social life?
You'll have to make new friends, find new healthcare providers, and locate a new gym. These are the trade-offs that people should carefully consider.
This article was authored by NerdWallet and originally appeared in The Associated Press.
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The article From financial difficulties to physical ailments, here are some circumstances that may lead to selling your home later in life. originally appeared on NerdWallet.
