If you are grappling with overpowering debt including unsecured loans and credit card debt, many strategies could be providing relief like an aggressive debt repayment stratagem or an effective debt management plan. However, as a homeowner, you have access to another effective solution. The solution to your debt issues could be as simple as downsizing your home for reducing your debts.
Downsizing your home implies that you would be trading your current house for a relatively smaller or cheaper house. For example, you may consider shifting to a townhouse or condo or you could consider shifting to your kind of a home in a relatively more affordable locality.
Successful downsizing would involve reducing your mortgage debt simply by switching to a cheaper home and additionally, you would have adequate cash surplus for paying off all your existing debts like credit card debt or student loans. Downsizing may also culminate in reducing your mortgage payment every month. That should be leaving you with some savings in your bank account every month for tackling other needs.
If you are the outright owner of a house, you could sell it off and buy a cheaper one so that you are free to buy a new house. Moreover, you could simply pocket the difference. As per experts, savings that you get by opting for a smaller house could prove to be quite beneficial in the long run and would make good sense to opt for it.
This is a good option especially for retirees who are thinking of stretching their savings. This could be a wise retirement stratagem. This is an effective way of freeing up money for living a more relaxed, stress-free and comfortable life.
What Is Necessary for Downsizing?
Downsizing your home seems to be an effective two-part transaction. It involves selling your present property and buying a new but cheaper one. This necessitates both a lifestyle and financial modification or adjustment. You could enjoy a definite financial benefit but it is accompanied by the compulsion to lead your life with enhanced efficiency.
If you require financing, the process seems seamless if you have a robust credit score preferably 700 and above. If you are having a mortgage outstanding or balance and if you are intending to achieve immediate debt mitigation, you would be requiring adequate home equity-meaning the difference between the market value of your home and the present mortgage balance-for coming out of this transaction with sufficient cash.
Ideally speaking you must have adequate equity in the existing home for covering the new house’s down payment and for repaying all your other debts.
Advantages of Downsizing Your Home
A Boost in Cash-Flow: If you need to spend less in terms of mortgage payments every month, you would be left with more cash every month for allocating to other requirements. Or maybe you could consider paying in cash for a relatively smaller house straightway from the proceeds of the existing house.
Definite Time Saving: A smaller home means smaller spaces and fewer rooms for reducing the time spent every day cleaning the house and maintaining it. Smaller homes could effectively cut down the time devoted to household chores. That gives you more hours during the day to pursue your hobbies or take up a part-time assignment.
Lower Utility Bills: You would require to pay fewer energy bills because it would cost you far less for cooling and heating a smaller home. A smaller home would not have vaulted ceilings or any such wasted space. Thanks to less square footage the overall amount of energy used would be lesser. Reduction in energy proves to be good for the environment and keeps your home green.
Reduction in Consumption: In a smaller home you would have no place to put things hence, you are less likely to purchase them that implies you would be acquiring fewer consumer goods, food, and clothing.
Alleviation of Stress: Smaller workload, less responsibility, a boost in cash flow, and increased flexibility would all help in reducing stress. We know that homeowners who have managed to downsize their home lead far happier and stress-free lives since they are not distressed or daunted by overpowering debts and the demands of maintaining a bigger house.
Challenges to Downsizing
Downsizing your current house may look like an easy affair on paper but you could encounter a few hurdles along the way. The biggest challenge is to identify a reliable lender who would give a mortgage approval for a new house while you are obligated presently at your original home. You would be requiring plenty of cash and a robust credit score to opt for downsizing.
Suppose you are not having a high credit score or adequate cash, you could consider closing the sale of the existing house first. Then you could proceed by buying a new but downsized house. You could use the money from the sale as a down payment on the new house.
Another potential issue could be coming to know that your current home would not fetch as much as you expected. Often homeowners are underwater implying that they owed more in terms of mortgage as compared to the value of the home. In this situation, homeowners may go ahead with downsizing but it would not enhance your debt situation immediately.
If you seem to be underwater on the house mortgage, try for a short sale. You may hire a professional lawyer if the situation demands it for negotiating the process in your favor so that you could shift to your new house without damaging your credit much.
Conclusion
You must fix up your existing home to the extent possible so that it gets a favorable appraisal. Your intention is maximizing the equity in your current home. Usually, it is a good idea to sell off your current home before purchasing a new house. This should be keeping your emotions in control. However, certain markets would necessitate buying the new house before disposing of the old. You could get in touch with a reliable real estate agent to decide the course of action.
In case you missed:
The Expert Guide to Buying a Home7 Signs That Reveal You’re Ready to Buy a HouseBest Ways to Pay for Your Home Remodel ProjectPlan Your Budget Before Going for Door Replacement8 Most Common Causes of Roof Damage
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