Guide to downsizing your home

What is downsizing a home?

Downsizing is the process of moving from a larger home to a smaller one, often one that costs less in upkeep. This might mean moving from a detached, single-family property to a condo or townhome, or to an assisted living facility or retirement community. For some, it might involve moving into an accessory dwelling unit, or ADU, on a family member or friend’s property.

Regardless of where you move to, downsizing involves scaling back your possessions, including furniture or your car. This step in the process is often the most difficult, especially if you’ve lived in your current home for a long time. As such, many downsizers turn to professional help to get ready for the move.

Aside from downsizing, some homeowners opt for the process of “rightsizing,” or moving to a home that isn’t necessarily smaller or less expensive, but one that’ll best fit their needs in the future. This process could see you moving from a family home or a starter home to a forever home.

Why should you downsize?

There are many reasons to downsize, including:

• Economic necessity – Many older adults face higher costs like medical expenses or rising home insurance premiums and utility costs. For some, it can be more financially practical to sell their current home and move into a more affordable one.
• Retirement – Fifty-seven percent of American workers feel behind on their retirement savings, according to a 2024 Bankrate survey. Downsizing before or during retirement can help you save and stretch your retirement dollar.
• Convenience – You’re not alone if you’re tired of doing all the housework and maintenance for a larger home. Many downsizers switch to smaller homes where the upkeep is less expensive and taxing.
• Desire for minimalism – If a minimalist lifestyle appeals to you, downsizing can help you cut back on clutter, allowing you to focus your time, energy and money on the things that matter most to you.
• Health concerns – Many seniors downsize to a home where at-home care is more widely available and there are fewer everyday obstacles, such as stairs or other mobility constraints. The quality of and proximity to hospitals could also be motivators, along with access to public transportation, especially if driving has become an issue.
• Seller’s market – Some downsizers simply seek to take advantage of a seller’s market. If you’ve been living in your current home for a while and it’s a seller’s market, you might be able to walk away with a good chunk of change, enabling you to buy a smaller home, sometimes outright with all cash.

What to consider when downsizing

What are you paying now? What will you pay for a downsized home?

Make a list of all the expenses associated with your current home, plus anything else you pay related to housing on a monthly basis. Compare those figures to what you expect to pay for your next place. If you plan to move to a homeowners association, find out the monthly fees and include those in your estimates, as well.

What’s your current financial situation?

This is an especially important question if you’re downsizing for retirement. If that’s the case, consider:

• When and where you plan to retire
• How much money you’ll bring in via retirement savings and any other income sources
• What your current expenses are, and how much you can afford based on your expected retirement income
• Whether or not you’ll need a mortgage, which could eat up a big chunk of your budget

If you still expect to take out a mortgage when you move, you’ll want to figure out the monthly payment for your new home — Bankate’s mortgage calculator can help you crunch the numbers. Map out different scenarios based on your expected longevity and worst-case scenarios, as this affects how much you’ll have to live on.

“The financial benefit of downsizing in retirement typically results when going from a large mortgage to a small mortgage, or from a small mortgage to no mortgage at all,” says Greg McBride, chief financial analyst for Bankrate. “If you have substantial equity in your existing home, downsizing can mean taking that equity when the home is sold and using it to pay cash or make a large down payment on a lower-priced home, reducing your monthly living expenses.”

What will it cost to sell your home and buy another?

As the seller, you’ll need to pay for expenses like home repairs, your Realtor’s commission and other closing costs, including transfer taxes in some states. You’ll then need to turn around and pay buyer’s closing costs, such as attorney fees and title insurance, when you purchase your new home.

To be sure, homes are also much more expensive today. The smaller home you hope to save money with might cost more now than your current home.

“It is easy to downsize in terms of space, but downsizing in cost may not be as simple,” says McBride. “If you’ve been in your current home a long time, the smaller place you look to downsize to may be selling for more than you’d originally purchased your existing home. You don’t want to go from a small mortgage to a larger one or from no mortgage to now having a monthly mortgage payment.”

Downsizing tips

1. If you’re moving to a new location, do your homework. If you plan to downsize out of state, take a trip or two to visit the new location and learn what it’s like to live there. Consider its cost of living for expenses like healthcare, utilities and groceries, as well as quality of life factors like weather and opportunities for recreational activities. If you plan to move to a retirement community, talk to neighbors to get a sense of what they like or dislike about the area.
2. Get organized. Start clearing out clutter and packing boxes. Decide whether to keep, donate, sell or toss items. If you find this overwhelming, it might help to have a trusted family member or friend by your side as you sort through your home.
3. Start living on less now. If possible, begin cutting down your spending ahead of downsizing. This can make it easier to make the transition to lower-cost living when you move.

FAQ

• Should I pay cash for a house in retirement?

  If you have equity in your current home and want to significantly lower your expenses in retirement, it might make sense to pay for your new home with cash (the proceeds of the sale of your home) instead of a mortgage. That way, you won’t have a mortgage payment — although you’ll still need to pay for home insurance, property taxes and maintenance.Another benefit to paying cash: You could have a leg up on other buyers. This might make the difference between getting the home you want or settling.

• What are popular housing options for seniors?

  Many seniors want to live at home for as long as possible, with a plan to retrofit the home so they can age in place. Others like the idea of a retirement community, which often comes with opportunities for recreation and social connections. Still, others might need help with daily tasks and they (or their loved ones) prefer the peace of mind of assisted living.