For many people, more seems like better. If you look at two homes, one measuring 4,000 square feet and another measuring 2,000, the natural impulse is to go for the bigger one. Don’t move too soon: there are real benefits to downsizing your home.
If you’re thinking about buying a home and trying to decide on the right size or want to know if a smaller home is right for you, it’s essential to know the benefits to downsizing your home.
Lower Purchase Price
One of the most obvious benefits of downsizing your home or buying a smaller one is that you can save money. Smaller homes typically sell for less than larger ones. Price per square foot is a common metric for real estate, so the less square footage a home has, the lower its price will tend to be.
According to data from the Federal Reserve Bank of St. Louis, the median price per square foot in the United States is $225. In 2022, the Census Bureau reported that the median newly built single-family home measured 2,299 square feet.
All told that means that the median home would cost, on average, $501,525 to purchase. Imagine you choose to downsize, moving to a home that is just 1,500 square feet. Assuming a price of $225 per square foot, you’ll spend $337,500, a savings of more than $164,000.
That’s a lot of money that you can dedicate to other things, such as saving for retirement, going on vacation, or helping build a child’s college fund.
Save on Your Mortgage
Few people can afford to buy a home outright. If you’re downsizing from a larger home, you might have the equity to buy a new home with cash, but you might also consider using a mortgage to buy the home.
Opting for a smaller living space has its perks, one of which includes the financial benefits to downsizing your home. Lower purchase prices mean a less expensive mortgage. Spending less means borrowing less, which reduces the interest and the amount of principal that you pay each month, but there are other factors to consider.
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The price of private mortgage insurance (PMI) is often based on the loan amount, totaling about 1% of the loan amount per year. A cheaper home means paying less for PMI. Closing costs are also measured as a percentage of the home’s sale price, meaning you’ll save at closing, too.
📖 Learn more: If you’re self-employed and navigating the housing market, our latest post provides a guide to securing a mortgage when self-employed.
Lower Property Tax, Utility, and Insurance Bills
Saving on property taxes is another one of the benefits of downsizing your home. Each municipality charges property taxes based on the value of your home. Smaller homes tend to have lower values, which leads to lower property taxes.
Insurance bills are also very closely tied to the value of a home. Insurance needs to cover the cost of repairing or replacing a home, and the less the home costs, the less repairs will cost. That allows for lower premiums.
One cost that depends on home size, rather than the lower price that accompanies a smaller home, is utilities.
The less space there is in your home, the less it will cost to keep the home climate controlled. According to data from Sense, a smart home company, a 4,000-square-foot home, for example, will cost $114 more to keep cool over the summer than a 2,500-square-foot home. Smaller homes tend to cost even less to heat or cool.
Smaller homes also tend to use less electricity. A one-bedroom apartment might use a few hundred kilowatt hours of power each month, while a large home could use thousands. With the average price of electricity in the US sitting at 16 cents per kWh, using an extra 500 kWh per month means spending almost an extra $1,000 on electricity each year.
Pay Less for Maintenance
Another one of the primary benefits to downsizing your home is that smaller homes generally have fewer maintenance requirements than larger ones. There’s simply less stuff in the home to wear down or get damaged, which means spending less to keep the home in working order.
A popular rule of thumb is to budget between 1% and 2% of your home’s value for repairs each year. Buying a smaller home could mean saving thousands each year on repairs.
On top of lower maintenance costs, you’ll also save a lot of time. A large home that has lots of room means more time spent cleaning, dusting, sweeping, and making sure the home looks nice. Larger properties also tend to have bigger yards, which means more time spent mowing and doing outdoor maintenance.
Move to a Better Area
Home prices can vary massively depending on where you live. In 2023, the median home in Illinois cost $133,750, making it the cheapest state in the nation. At the same time, the median home in Hawaii sold for $805,775.
Even within a state, prices vary widely. The median home in Boston, Massachusetts, sold for $801,000 in June 2023, while the median home in Worcester sold for just $402,000.
One of the benefits to downsizing your home is that you may be able to move to a more appealing area for the same price. Whether you’re looking for a better school district, nicer weather, or just a change of scenery, being willing to move to a smaller home can make it easier for you to afford a property in areas with higher real estate prices.
Downsides of Downsizing
Along with the benefits of downsizing your home, there are important potential drawbacks to consider.
Downsizing could mean giving up some privacy. If you’re used to living in a home that has enough space for you to have a home office, you might have to get used to working at the kitchen table and dealing with the others in your home while taking work meetings. It could also mean giving up a finished basement or other spaces that give your family space to spread out.
That smaller footprint and lower number of rooms can also impact your ability to entertain. If you have less square footage, there’s simply less space for people to occupy if you decide to host a party. That could force you to limit your guest lists. Giving up a guest bedroom can also make it harder for family or friends to come for extended visits.
Storage can also become an issue. If you have too much stuff, you’re left choosing what to keep and what to give away or sell. If you can’t decide, you’ll have to rent a storage unit to keep your excess stuff, which can get expensive.
📚 Learn more: Looking to save on storage costs? Our post reviews Neighbor.com’s offerings, a platform that lets you access storage space for less than typical storage companies while also offering a way to monetize your unused space.
If you already own a home, consider the potential costs of downsizing. You’ll probably sell your existing home to buy a new one, which means paying hefty realtor fees and closing costs. If you’re planning to get a mortgage for the new purchase, you might wind up with a higher interest rate, which could bump up the cost.
Who Should and Shouldn’t Downsize?
Downsizing makes sense for a few groups of people.
One of the most obvious is older empty nesters. Having a larger home with many bedrooms makes sense when you have a growing family and a child or two. Everyone gets their own private space in the home.
As your kids grow up and move on to college and start their own lives, you won’t need as much space. That makes downsizing to a smaller home a reasonable thing to do and a good way to lower your monthly budget, which can help you afford retirement more easily.
There are benefits to downsizing your home if you’re feeling overwhelmed by home maintenance and upkeep. Keeping a large home clean and properly taken care of can be a big job, especially if you’re living alone. Hiring cleaners and landscapers to help gets expensive, so you might consider downsizing to a more manageable property instead.
Another consideration, though not necessarily tied to the size of your home, is your neighborhood. If your neighborhood has changed, you might not feel like you fit in as well. If long-time friends and neighbors sell their homes and move, the vibe of where you live can change, and you can start to feel isolated.
Moving to a new home in an area where you feel more like you fit in can be appealing. This is especially common for seniors, who may choose to move to a senior living community.
Conclusion on the benefits to downsizing your home
There are benefits to downsizing your home. You can save money in a variety of ways or help you stretch your money to afford a home in a nicer neighborhood or location.