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I want to simplify things and downsize my home. Feature Image
Posted on 06/23/2020 9 minute read

I want to simplify things and downsize my home.


Simplifying your lifestyle has become increasingly important to you. 

You know that decreasing the cost and size of your home will be a major factor in freeing up your time and money, allowing you to focus on other priorities in life.

Before you sell your current home, you’ll want to get specific about what goals you have for downsizing and how it will fit your needs moving forward. From there, our Homefinity professionals will help you secure a home loan that fits your finances and your lifestyle.

We’ve outlined where to start, how to determine your priorities and prepare your finances, what loan options are available, and how to secure the most affordable home loan for your situation.

Where to start before you apply

Housing costs often make up a majority of our monthly bills. Choosing to downsize from your current home and move to a smaller or less expensive home can help to reduce these monthly housing costs.

In owning a smaller property, you will likely save on property taxes, utilities, maintenance, and landscaping in the long run.

However, before you apply for a home loan, be sure to clarify your priorities, timing, and finances to determine your goals and needs moving forward. Because there are many factors involved, you don’t want to make assumptions about how much time or money you will spend or save when purchasing a smaller home. 

What are your priorities?

Downsizing your home can often mean giving up space, amenities, and personal belongings, as well as the memories attached to your current home. To make sure you’ll feel comfortable moving into your new home, think through what matters most to you and why downsizing can improve your situation.

Think about how a new, smaller, or less expensive home can meet your future needs. This could include whether the location and size will work for you socially, if you’ll have easy access to amenities, if the maintenance will be easier, if you’ll need space for guests, and how accessible or adaptable the property is, both for your current needs and for your needs as you age.

What is your timeline?

Depending on your reason for downsizing, you might be in a hurry or able to take your time with the transition. You might have had time to save for a down payment, you might have enough equity in your current home for a down payment, or you might need a lower down payment, which could increase your new monthly mortgage costs.

Determine a timeline that fits your financial and lifestyle needs for both the sale of your current home and the purchase of your new one. Once you know a reasonable timeline, we can work with you to meet it. The typical timing from application to closing can take about 1 month. Our technology and nationwide professionals can accelerate parts of the process to ensure you have quick approval if needed, and convenient closing.


Compare the savings and the costs 

As you will need to sell your current property to downsize to a new home, you will want to weigh the costs and benefits of both of these transactions.

Costs

  • There will likely be closing costs for both transactions, and you might have to pay a capital gains tax on any profits you make from the sale of your current home.
  • You’ll spend time and money moving from one house to another.
  • Although your new home may be smaller, it might also have added costs such as being in a higher-cost location or having homeowners association (HOA) fees.

Savings

  • The net profit from selling your current home could give you a sizeable down payment on a new home.
  • A large down payment and a less expensive property could significantly lower your monthly mortgage payment.
  • A smaller property will likely provide savings with cheaper utilities, property taxes, and less maintenance.

Are you financially ready?

Your credit score

Credit score requirements can fluctuate, but we can typically find an appropriate loan program or assist you in improving your score

Using a free site like CreditKarma, CreditSesame, or CreditWise can be a quick way to get an idea of how you’re doing with your credit. But, just keep in mind that when you go to qualify for your mortgage we’ll need to request your actual credit report and score, which will give us “official” credit scores and the full details of your credit history.

Your income vs debt

When looking at your credit score and monthly budget, pay close attention to the amount of debt you carry compared to the amount of consistent income you earn. This determines your debt-to-income (DTI) ratio, which is your monthly expenses divided by your gross monthly income. If you have enough consistent income to pay the added cost of a mortgage, you are more likely to get approved. To learn more about your DTI ratio and how it will effect your loan talk to one of our loan professionals.

Planning a down payment

The down payment for a house can range from as low as 3%. If you want to purchase a $150,000 home, that could mean a payment upfront of anywhere around $4,500, depending on your loan. With this wide range, you’ll want to understand what loan options you’re eligible for before deciding how affordable it is to downsize.

Typically the more you can put down, the cheaper your monthly payments will be. If you put less money down, then you may take on higher monthly payments to cover costs such as mortgage insurance premiums.


Is a Conventional or an FHA loan better when downsizing your home?

Conventional

The flexibility of conventional loans make them a common choice for homebuyers interested in downsizing. Although a higher credit score is needed to qualify for a conventional loan, it presents several options for determining your down payment, closing costs, monthly payments, and length of your mortgage.

Conventional mortgages meet the down payment and income requirements set by Fannie Mae and Freddie Mac, which help fund the US housing market. Conventional loans also follow limits set by the Federal Housing Finance Administration (FHFA).

Features

  • Most common loan for homebuyers
  • Down payment as low as 3%
  • No out-of-pocket closing cost option
  • Choose fixed or adjustable-rate

Term Options

15-Year 

  • Stricter credit requirements
  • Lower interest rates
  • Higher monthly payments
  • Paid off faster

30-Year

  • Most common among homebuyers
  • Lower monthly payments
  • Higher interest paid over time, totaling more than twice the cost of a 15-year mortgage

Requirements

  • Credit score requirements can fluctuate, but we can typically find an appropriate loan program or assist you in improving your score
  • Downpayment of 3% or more, with 5-10% being typical
  • Monthly mortgage insurance payments required if the down payment is less than 20% until your loan-to-value ratio reaches 80%
  • Depending on location, typically for a loan no larger than $510,400 to $765,600 for a single-family home

FHA 

With federal assistance, we can provide an FHA loan, which allows you to get approved even if you’re a repeat buyer, your first mortgage was FHA, or you have a low income, credit score, or down payment. The Federal Housing Administration provides insurance to make this possible, as loans like this would otherwise be a riskier investment for lenders.

Features

  • Repeat homebuyers are eligible
  • Down payment as low as 3.5%
  • No-closing-cost option
  • Gift down payments allowed

Requirements

  • Credit score requirements can fluctuate, but we can typically find an appropriate loan program or assist you in improving your score
  • Qualifying debt-to-income ratios* can vary by the loan program, but typically the lower this ratio the better the terms of your mortgage.
  • Home being purchased will be your primary residence 
  • A required home inspection that meets minimum property standards
  • A mortgage insurance premium paid at closing and monthly mortgage insurance payments, likely for the life of the loan
  • Depending on location, typically for a loan no larger than $314,545 to $726,525 for a single-family home

How does Homefinity work with you?

Now that you know what to consider, prepare, and prioritize before downsizing your home, let’s find out what loan options will work specifically for your situation. Homefinity’s professionals will work with you from start to finish to secure the loan you need.

  1. With a phone call to our loan professionals or a convenient online form, you can start the application process, where we’ll ask questions about your credit and finances to learn about your needs.
  2. Your information helps us make the best possible recommendations on what loan options will work best for you, such as whether you qualify for a 30-year Conventional, 15-year Conventional, or an FHA loan. We’ll discuss the options with you and any questions you have about your situation.
  3. Once you feel comfortable with choosing your loan, we’ll help you through the approval process. With approval, we can lock in your interest rate so it won’t fluctuate throughout the process.
  4. As you head toward closing your loan, we’ll guide you through every step, updating you at each point in the process with clear details and next steps. Your dedicated loan officer can answer your questions at any time.
  5. We work within your timeline to sell your previous home or pay off a previous mortgage. When you’re ready, we can close your loan on the day, time, and place that works best for you.

Get Started. Make it home.

Connect with a dedicated loan officer to discuss your options for downsizing your home. Apply online or over the phone to start the approval process so that you can secure a home loan that fits your finances and your lifestyle.




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