how do you think through downscaling a house?

Can any of you wizards help me think this through? 

I have been using YNAB since Jan 1 and I love it. It got me thinking in whole new ways. I have been reading the blogs and forums ferociously.

One idea I read about is downsizing. There is some appeal, but my head gets dizzy thinking about it. 

I'm in a moderate sized home that meets my needs well. I bought it thinking to raise my family here and maybe always live here. I bought it about ten years ago for not much, but it has gained lots of value in the past five years. I don't need to live in an expensive house. I'd rather be mortgage free. The problem is, all the homes around me, have also gone up in price since I bought. And I love my community and don't want to move out of my town.

I could probably sell this house, which I bought for 140K, for 260k. I have 10 years left on the mortgage at 3.25%. I pay about $850/mo for principal and interest and then pay my property taxes separately (not through escrow). I am having no problem meeting that obligation, but I'd love to free up $850/mo!

I found a new house in my town for 225k. I like it. Good neighborhood, same town, good school, better commute to work (slightly). 

I figure that I would about break even (after closing costs, moving costs, repairs to new place etc.) BUT breaking even could mean . . mortgage-free.

Some things stopping me  - 1) moving is . . moving.

2) single parent of a preschooler, moving is SO not a preference

3) did I mention moving?

4) property tax. In my city, property tax doesn't rise with the property value. We have a law that limits property assessments to increase only by inflation. So I am paying property tax on a 140K home and will for pretty much the rest of the time I live here. My neighbors, who've been around for 25 years, pay soooo little in property tax! Right now, with a house I purchased for 140K, in my town, I pay almost 5K/year. 

On a 222K home I think the property tax would be maybe 8k or more.

So I would just be trading mortgage, for property tax? Especially if I plan to stay in my community for many years? How do you calculate this out over the years?

Is there anything else I'm not thinking of? Part of me thinks - with this property tax law- I should stay put and pay off the mortgage and then enjoy $400/mo housing expenses for the rest of my life. 

I'm new to calcuations like this so any insight is appreciated.

Thank you all!

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  • Heh you sound like me when I get one of my "bright ideas" and run with it.  But all your reasons for not moving are totally valid.  Smart of you to consider property tax.  My township has the same inflation rule.  But seriously, how many unanticipated costs can come with a move?  It's infinite.  

    I think this is something you need to sleep on for like, 6 months :).  You're on one of those new budgeter highs.  Maybe keep a personal journal of notes and ideas as you get them from reading articles, and then revisit them as things become more clear.

    That's my subjective advice.  I'm sure a bunch will help you out with the nitty gritty numbers for the objective side.  Good luck!!

    Like 6
      • Ivory Storm
      • Ivory_Storm.3
      • 8 mths ago
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      Annieland ha ha this made me laugh :) very true :) 

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  • You're still ahead $600 each month until income stops. You would be behind $250/mo from retirement onward.

    A lot depends on when retirement starts and the expected state of retirement funds.

    Like 1
    • dakinemaui what am i missing? because I don't see how retirement is a factor at all?

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      • dakinemaui
      • dakinemaui
      • 8 mths ago
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      Ivory Storm your monthly expenses after retirement will be $250 higher if you buy this house. Assuming you're not planning any particular age to die, the 4% guideline mandates an additional $75k of retirement savings.

      Whether that's feasible depends on how long you will continue to receive income.

      Of course, that $250/mo might be a wash with cheaper utilities/repairs/etc., but other expenses may also rise (e.g., travel). I'd just as soon as assume the known increase will be just that.

      Like
  • Can you explain the math on how you would be mortgage free?

    How much do you still owe on your current mortgage? If you sell for $260k you'll probably have $225 to $235 after closing costs and moving (seller closing costs are local, and you may have to make some concessions, so 7-10% is not unheard of), but that's before also paying off the remainder of the current mortgage as part of closing.

    So where will the money come from to cover the gap of the remaining mortgage balance?

    If you have that money now, why not just pay off the mortgage?

    Like 4
  • Oh! Ok. I owe about 100k on my current mortgage. Right, so I would need to buy a new house for 125 to 135 in order to really pay off the mortgage. That seems so obvious -  thanks - this whole way of thinking is pretty new to me so i appreciate y'alls tolerance. The idea of cashing out was exciting but it looks like, in my town, I haven't yet seen a place to cash out *to* .. . 

    Like 1
  • Instead of selling do you have any options like AirB&B or other ways to make money on your property where you are? If you have the freedom to do it, it can be a pretty lucrative way to increase your income, which would help you pay down the mortgage faster.

    It's smart to consider the taxes, especially if you know they are high. The higher tax may off set any savings that you might having in the utilities/maintenance of a smaller house.

    As an additional thought - is there anything you can do to the current house to make it more energy efficient, which helps with the overall utilities? New windows? Roof? Better insulation in the walls? Many of those things will also give you a tax break, which is handy, but will also lower the utility bills and help mitigate the cost of running a slightly larger home.

    These kinds of thoughts are fun to explore. But yeah, I hear you on the moving. UGH.

    Like 1
      • Ivory Storm
      • Ivory_Storm.3
      • 8 mths ago
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      farfromtheusual this is also something I've been pondering. Airbnb - no. After work hours with a young'un are super intense, and single parent, and we don't need strangers moving through our space right now, however lovely those strangers may be.

      But the improvements . . more there worth considering. I don't yet have the cash on hand to do those. New windows and a new furnace would absolutely lower utility bills, this is an old drafty house with single-pane windows . . Before I found YNAB I was thinking I would do all of that this summer on a HELOC. But now I got the debt-free bug and I am thinking to wait until next year for the furnace and longer for the windows? I am not sure. I think financing a new furnace would pay for itself in just a few years (mine is over 50 years old so it'd be moving from at best 65% efficiency to upwards of 95% and in an area that needs heating 6 mos of the year).

      But do I want to take on debt for that, or do I want to fully commit to this new vision of a debt-free lifestyle, is my question . .  

      Windows would take much longer to pay for themselves so I decided I would save up the cash for that - the furnace is the only place I'm really on the fence . . thoughts?

      Like 2
    • Ivory Storm You might be surprised at how much new windows could save you, especially if you need heat that much of the year. Have you used the plastic over the windows before? If you haven't tried that you might get some and experiment to see how much it helps... and then know that new windows will help even more than that! I live in a 1960's brick rancher with terrible windows and NO insulation in the walls (seriously, my plates get COLD in the cabinets! I have to remember to take them out while I'm cooking dinner so they're at least room temp so they don't make the food cold!), and I know that windows would make a huge difference.

      And from the perspective of something that could potentially save a LOT of money - I have no issues taking on debt - at least not smart debt. If you find a company that is offering zero percent for a certain amount of time that might be a good thing to take advantage of if you can keep the payments within a limit that you can handle for a certain amount of time. I'm in favor of doing things like that strategically then you can take advantage of the energy cost savings right up front, instead of trying to struggle through paying the higher energy cost and saving money at the same time. Strategic debt is not a bad thing in my opinion as long as it is well thought out and manageable within the budget. (and of course you read all the fine print!!)

      Like 1
      • Ivory Storm
      • Ivory_Storm.3
      • 8 mths ago
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      farfromtheusual Yup I always do the plastic, it helps a lot.  I added insulation a few years ago and it made such a huge difference but there's still quite a ways to go . . 

      the other factor in favor of strategic debt in this case is reducing carbon emissions sooner not later.

      so yeah, lots to consider . .

      Like 1
    • Ivory Storm True, good point!
      Sometimes when I'm looking into things like this I just set the intention that it's going to be a thing, and then keep my eyes open for more information. Often it comes to me, I'll see an ad for a good deal with zero percent financing or something like that, and then I know that's the time to jump.

      Like 1
      • Mary Sue
      • Powder_Blue_Rain
      • 8 mths ago
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      farfromtheusual I suggest checking with your utility, when I owned a home I got a free home energy assessment from a contractor, and had new insulation and a heat pump installed (in a home with electric wall heaters and zero insulation) at a decent rate, with some state tax incentives. 

      Like 3
    • Mary Sue that's a good tip, I'll have to check into that. My BF does a lot himself, which is a life saver, but I think I need to talk to him about figuring out what the cost would be to have someone else do it and get the tax return vs him doing it and likely not being able to take advantage of the tax break....

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  • Ivory Storm said:
    I haven't yet seen a place to cash out *to*

    Typical, unfortunately. We would love to cash out, but a "downsized" house in this area is more expensive than the one we already have!

    Like 2
      • Ivory Storm
      • Ivory_Storm.3
      • 8 mths ago
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      dakinemaui I guess it means that we didn't fall into the trap in the first place of overextending ourselves? Or maybe overextending is relative. I think that the house I am is affordable, not too big, it meets our needs well, I don't feel like it's more than I can handle . . .  It's just that housing is so much of a budget, there's a lot to be said for eliminating that cost!

      Like 1
  • Hi,  

    Being in the UK I can't comment on the costs involved on moving in your country but we did downsize 2 years ago and loving it.

    We moved in order to get to a better area and because our 3 bedroom 2 reception room home with massive garden was way too big for us.

    We had to increase our mortgage to move into a much better area but are "winning" every month with a better quality of life.  Most of our bills are smaller (mortgage, council tax are slightly bigger) and the house and garden take minimal time and energy to clean and upkeep compared to our old home.  Our house and car insurance came down too as the area is better and of course heating bills are reduced.  

    For us the costs and stress involved in moving were more than offset by our new "little house".

    Like 3
  • Have you considered becoming a landlord and converting your home into a rental and renting in the neighborhood you like? Does the math for that work out? It did for me despite the psychological hurdle of renting your "home", but once I got going, life was so much better. There are so many tools today that make it a breeze.

    Like 1
    • Festive Healer I had never considered that! This could be a really nice idea for us! I like it that I could try it out and then move back if I wanted . . thanks!

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      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 7 mths ago
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      Ivory Storm just remember that even if the math works out, you lose all the freedom that comes with home ownership, while still enjoying all the responsibilities. Additionally, you need enough in reserve to be able to cover the months when you do not have tenants.

      Like 1
    • nolesrule Thanks for this, I am really coming to appreciate your perspective after lots of reading on the forum. I think I decided it isn't the right pathway for me anyways. We are experiencing a rental crisis in our community and it connects to gentrification and some pretty harsh politics. I don't want to take a rental off the market which is affordable for lower income families simply in order to cash in the equity increase (which due to the mortgage interest deduction and other aspects - I think that lower income people already are essentially subsidizing housing for homeowners).  So, for other reasons, I decided this wasn't the right fit for me .

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