The phrase “home is where the heart is” rings true for many Americans, and making the decision to downsize to a smaller, more affordable residence can be a difficult choice to make. However, many owners who are facing tens of thousands of dollars in credit card debt or are struggling to make their monthly mortgage payments should consider relocating as a viable option.
There are several factors individuals can consider to determine if downsizing is the right choice for them. First, it’s important that consumers examine how much they are paying each month in housing costs. Experts discourage borrowers from paying housing costs that exceed 28 percent of their take-home pay. When expenses – including mortgage payments, maintenance and property insurance – surpass this amount, it makes it more challenging for households to put money aside for other crucial financial considerations, such as retirement savings and paying off debt.
If consumers realize that they are paying too much for their home, it may be a good idea to enroll in housing counseling to discuss options to lower their balances. For example, individuals with strong credit scores and a solid repayment history may be eligible to refinance their home to a lower rate. This will decrease their monthly payment and free up more income to devote to other categories. In other cases, borrowers may also be able to modify their mortgage to accomplish the same goal. These options may help make the cost of homeownership more affordable for those who do not want to downsize.
However, if these options don’t pan out, consumers may benefit from looking at more affordable homes in a similar neighborhood that will allow them to save money. Even saving a few hundred dollars on a monthly mortgage payment can make a notable difference in borrowers’ finances and allow them to put more money toward credit cards, student loans or future savings.
It can also be helpful for owners who are on the fence to think about their future needs when making their decision. For example, if they already planned on selling their homes in retirement and moving to a smaller location to save money or stretch their income, it may make the process of parting with a home easier.