Downsizing Your Home the Right Way

Who wants to move down in life? Down sounds bad—like you’re being left behind or getting less out of life. Up sounds so much more fun! But when it comes to homeownership, down might be just what the doctor ordered. Let’s walk through all the details and see if downsizing is the right move for you.

What Are the Best Reasons to Downsize?

People downsize to lower their mortgage payment, spend less money on upkeep, and simplify life during a new season—such as retirement or becoming empty nesters.

Some people think moving up in life means buying a bigger home—well, it’s time to set the record straight. Most American families have plenty of room to downsize their home without cramping their style.

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Consider the numbers: The average new single-family home comes in at nearly 2,400 square feet.¹ You may not think that’s very big until you look back at history. The average home size in 1975 was nearly 800 square feet less (around 1,600 square feet) than homes built today, even though households were bigger back then.^2,3 By those standards, today’s homeowners are living large!

Having a large home is nice, but what happens when it isn’t necessary? Maybe your kids have moved out and you and your spouse want less space to manage. Maybe an aging parent can no longer care for their home—or themselves. Or maybe you bought too much house to begin with because of a few buying mistakes, and it’s become more of a burden than a blessing.

Moving into a smaller home may feel like a step down, but it can also create a fresh start: less space to clean, fewer belongings to manage, and more freedom to focus on what matters most.

Emotional Reasons That Prevent Downsizing

The emotions that stop most people from downsizing usually come down to four main things: leaving behind memories, guilt from family, fear of change, and pressure to keep up with the Joneses.

If you never thought you were sentimental about your home, try putting it up for sale. Suddenly every nook and cranny is the source of some sweet memory that makes you second-guess your decision to move.

Those feelings are normal. But recognizing what’s holding you back can help you decide whether staying is truly best—or whether fear is keeping you from a change that would serve you well.

Memories

You raised your kids and made a million memories within the walls of your home, so the thought of leaving it can feel heartbreaking. To ease the transition, photograph your favorite spaces or host a farewell gathering with loved ones before your moving day. It’s a meaningful way to honor the memories you’ve made there.

Family Guilt

Your adult children might make you feel guilty for leaving the place that holds their childhood memories. Or if your folks live with you, they may throw the guilt on you for “forcing” them to move from their home (even if a move would be better for them). But never let your kids or parents dictate what’s best for you. Besides, think of how much fun the grandkids will have making new memories in your cozier house when they visit for the holidays. Or how much easier life will be for your folks when they don’t have stairs in the house.

Fear of Change

Are you paralyzed by all the unknowns that come with downsizing your home? Or maybe you feel overwhelmed by all the work your home needs before it goes on the market. We get it. But putting together a clear plan will help calm your fears.

Keeping Up With the Joneses

Moving to a smaller home might be a humbling experience—especially if your friends have large houses and might look at you sideways in confusion. But you have to do what’s best for your family, no matter what anyone else thinks. Real friends would understand that. And who knows? Maybe when you’re free from the unnecessary burdens of a larger house, you’ll inspire them to follow.

What Are the Financial Benefits of Downsizing?

Downsizing can deliver three big financial wins. It could help you attack debt faster, invest more for retirement, and even pay off your home for good. Run the numbers in our Mortgage Calculator to see how much money you can save by downsizing.

For example, let’s say you downsize from a $450,000 detached home to a smaller $250,000 condo. Assume both homes were purchased with a 20% down payment on a 15-year fixed-rate conventional loan at a 6.5% interest rate. For simplicity, we left off property taxes and insurance, which could add even more savings.

Estimated Monthly Savings Comparison

In this example, downsizing frees up nearly $1,500 a month. That’s around $18,000 a year you could put toward other Baby Steps.

Even if your monthly savings are $1,000 less than the example above, you could still make major progress with an extra $500 a month. Here are three financial strides you could make:

Attack Your Debt

If you’re working hard to kick debt to the curb, downsizing your home is a huge way to crank up your intensity. Let’s say you owe $18,000 on a student loan. With a 6% interest rate and a minimum payment of $200 a month, you’ll be paying on that loan for 10 more years.

But throw an additional $500 at your loan each month, and you’d trim a whopping seven-plus years off your payoff date. Sallie Mae will have to find a new place to live because you’ll be free from student debt in less than two and a half years!

Boost Your Retirement Fund

Once you’re debt-free with a fully funded emergency fund, it’s time to build wealth for the future. We recommend investing 15% of your household income in a tax-advantaged retirement account—like a Roth 401(k) or IRA.

And, boy, an extra $500 can really add some fuel to the fire. According to our Retirement Calculator, investing an extra $500 per month for 30 years could grow to about $1.1–1.7 million (based on a 10–12% annual rate of return). You can do a lot of living and giving with that nest egg.

Pay Off Your Mortgage

Okay, here’s one more smart way to use the extra money you get from downsizing your home: Trade in your mortgage for a paid-off home. Use the proceeds from selling your current home to pay cash for a smaller one. Just imagine what you could do with no mortgage holding you down!

If you can’t pay cash, get a 15-year fixed-rate mortgage and put at least 20% down on your new home. Apply the $500 you saved from downsizing to your new monthly payment.

Use our Mortgage Payoff Calculator to see how quickly you can pay off your house.

Does Downsizing Always Save Money?

Downsizing doesn’t always save money. You have to account for the cost of selling your current home—including agent commissions, inspection and repairs, staging, closing costs, moving expenses, and the cost of living in your new area.

If you move to a pricier part of the country, or buy a “smaller” home that costs more per square foot, you could actually end up spending more. Compare your real numbers—not just your mortgage—before you list.

To test this, write out all the costs it’d take to sell your home and move into a smaller one. If the monthly savings clear those costs in a reasonable amount of time—and you can cover any up-front gap without taking on debt—downsizing makes sense.

Here’s an example of what that might look like:

After paying off the remaining $360,000 mortgage balance and covering $26,500 in selling expenses, your net proceeds would be $63,500. You could put those proceeds toward the down payment and other costs of buying a smaller home.

In this example, your sale proceeds would leave you $2,300 short of the $65,800 needed to buy the smaller home. But with nearly $1,500 in monthly savings (see the first table in this article), you’d make up that difference during the second month. Still, before you move, make a plan to cover any gap without taking on debt—whether that means saving cash ahead of time, cutting moving costs or negotiating fees.

How Do You Start the Downsizing Process?

To downsize the right way, start by decluttering your belongings, calculate your new budget in EveryDollar, and partner with a real estate agent who can help you find a home that fits your financial goals. From there, a few more tips will keep your downsizing dream from becoming a costly mistake.

Think Long Term

If you’re thinking about downsizing your house, planning ahead will set you up for success. Do you need extra space for that freelance business you’re planning to start? Or were you left with more than enough room to spare after the kids moved out? Only you know if you can spare that extra space or if losing it would be more of a headache than it’s worth.

Downsize Your Stuff Before Your Home

A bigger house usually means lots of stuff in every corner. Downsizing is a great opportunity to declutter your life. Maybe it’s the bikes your kids learned to ride on, the squeaky wooden bunk bed, or the dusty grand piano. If you don’t use the stuff, why do you have it? Clutter tends to be the source of most of our emotional resistance to downsizing our home.

Downsizing your stuff before you begin the move will give you plenty of time to overcome the emotional barriers involved. Sort your belongings into four main categories:

• Keep: Limit yourself here. Keep items you’ll regularly use after downsizing, along with a small number of sentimental  items that fit in one memory box. For a big pile of kids’ artwork or school projects, choose a few favorites to keep, take photos of the rest, and let them go. If items don’t fit those specs, move them to our next category.
• Give: If your sentimental ties to an item are too strong to break completely, consider giving it to a loved one who will treasure it the same way you have. Or donate it to your favorite charity. Stop clinging to too many things from the past and start making room for all the precious memories ahead.
• Sell: Now that sentimental items are separate and safe, earn some cash with the rest. Host a yard sale or sell stuff online. All that money can go toward your move. Have stuff that won’t sell? That brings us to our final category.
• Trash: If the rest won’t sell, throw it away. After you set aside, give away, or sell the important items, there’s no reason to keep the rest. Throw away that trash and be free!

Even if you don’t end up downsizing your home, you’ll be glad you at least got rid of some stuff. Who knows? Maybe all you actually needed to do was get rid of some stuff and not downsize at all.

Consider Hidden Costs

Downsizing may save you money in those monthly mortgage payments, but what about the hidden costs? Does your home need any repairs to get it market-ready? What about your old furniture and appliances—will they fit into the smaller place, or do you need to bump up that budget for more space-efficient pieces?

And don’t forget to take into account the cost of moving, property taxes, storage, or even a higher mortgage interest rate and/or HOA fees. When it comes down to decision time, you may find that taking the leap to a smaller space will save you big-time—or that you can save just by staying right where you are.

Focus on the Big Picture

Downsizing your square footage might mean your family has to gather around one TV at night instead of spreading out across three or four different rooms (gasp!). But is more time with the ones you love really all that bad? Downsizing just might be the kick in the pants you need to spend quality time together.

Ready to Downsize?

Downsizing might not make sense in every situation, but it’s worth a look if you really like the idea of saving money and simplifying your life. Ask an experienced real estate agent to help you determine what your home is worth with a comparative market analysis (CMA) and show you options for cutting the costs of homeownership.

For a quick and easy way to find one of the top agents in your area, try our RamseyTrusted^® program. The pros we recommend know what it takes to get top dollar for your current home and negotiate the best deal on a new one.

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