Trading Up or Downsizing
Whether you're selling your current home so that you can move into a larger property or downsizing into a smaller one, there are some things you should keep in mind to be well prepared for moving day .
Most of the challenges come with trade-ups. In this case, you'll likely have a larger mortgage payment, higher utility bills, higher annual maintenance costs, larger tax payments, and higher homeowner's insurance costs.
Determine how much more home you can afford by scrutinizing your expenses as closely as you did when you were a first-time homebuyer. If affordability hinges on the amount of equity you pull from the sale of your current home, keep in mind that you probably won't know the total amount until after you've completed settlement.
Check with your homeowner's insurance agent to learn about how much more it may cost to insure your larger home.
Calculating an increase in utility expenses isn't cut-and-dried. If your new home is 40 percent larger than your current home, you can estimate that your new utility bills will be commensurate with the increase in square footage. However, if your new home is substantially more energy efficient, there may be little or no increase in the utility bills.
Property taxes are assessed based on the property's value and after you purchase your trade-up abode. The tax assessor likely will reevaluate taxes upward based on updated property value data. Check with your county tax assessor's office before you close to learn more about your potential tax expenses.
Maintenance costs will likely increase. Here you can apply a standard rule of thumb to budget your annual maintenance costs: multiply the purchase price of the home by 1 percent, if the home is newer or in excellent condition, and by 1.25 percent if the home is older. The result is the annual cost you can expect to pay for maintenance.
Dealing with years of accumulated belongings and figuring out whether you should rent or buy are the biggest issues associated with downsizing. If you're going into retirement and plan on traveling a lot or don't want to be rooted to a particular place, renting is obviously your best choice. However, if you've decided to buy you'll have to carefully evaluate which type of property best suits your needs. Are you looking for another but smaller single-family home? Or is a residential community best for you?
Downsizers looking to minimize home maintenance chores and costs may fare well in some sort of residential community living where association fees cover the bulk of the property's exterior maintenance. In this case, you'll have to decide whether you're looking for a town home, condominium, loft, or some other type of community dwelling. It may be helpful to make a list of your most important features. Are you looking for a city residence that is close to shopping and transportation? Or are you more interested in the amenities - like pools and tennis courts - offered by the residential communities?
Pets are another consideration. Some residential community living arrangements place strict limits on the number of pets you may keep and or the pet's size or type. For example, in some communities tenants may own no more than two dogs, each weighing no more than 15 pounds.
If you're looking for another single-family home, it would be helpful to create an itemized a list of what you consider to be the most important features. Will you need space for guests or are you looking for a cozy cottage? Consider taking a detailed inventory of your current living space and how frequently you use certain rooms and other amenities. Do you really need that third bedroom or formal dining room?
Whether you're moving into a smaller single-family home or some type of residential community, figuring out which belongings and furnishings to keep can be a difficult and emotional task. If the job appears insurmountable, consider hiring an expert who can help you get organized and make the best use of your new space.