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!
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!!
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?
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* .. .
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.
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".
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.