Downsizing To A Smaller Home And Qualifying For A Mortgage
This ARTICLE On Downsizing To A Smaller Home And Qualifying For A Mortgage Was PUBLISHED On October 29th, 2019
Downsizing To A Smaller Home is very common for homeowners.
- It makes no sense in having a large home when the kids leave
- Many homeowners who become empty nesters only use a portion of their home
- However, homeowners with a large home spend a lot of money on utilities, insurance, maintenance, and property taxes
- A large percentage of our borrowers at Gustan Cho Associates are homebuyers Downsizing To A Smaller Home
In this article, we will cover and discuss Downsizing To A Smaller Home And Qualifying For A Mortgage.
Reasons For Downsizing To A Smaller Home
Downsizing To A Smaller Home is not just for retirees and empty nesters.
- There are other reasons for Downsizing To A Smaller Home
- Homeowners who divorce often downsize to a smaller home
- Other reasons for Downsizing To A Smaller Home are illness, job loss, job relocation, and too much maintenance
- Larger homes on larger lots require a lot more maintenance
- More maintenance means more money
- Many homeowners who go through a divorce may not be able to afford a large home
- They may consider downsizing to a smaller home and/or renting
Homeowners who travel a lot may need to downsize to a condo and/or townhome for security reasons as well as to save on maintenance costs.
Buying Versus Renting When Downsizing To A Smaller Home
When downsizing to a smaller home, you need to consider what is better for you and your family.
- Buying versus renting
- Older folks may consider renting to avoid maintenance
- Renters do not have to worry about mowing the lawn, plowing snow, and basic repairs
- Benefits in owning your own home are you build equity, have the freedom and can decorate the property without permission by the landlord
- Pet owners can enjoy having dogs and cats whereas as a renter, they would need permission
- Landlords have the right not to renew your lease
As a homeowner, nobody can tell you they will not renew your lease.
Downsizing Due To Financial Reasons
If you are considering downsizing to a smaller home due to financial reasons, there are things you should consider.
- In many instances, a mortgage payment can be equivalent and/or less than rent
- Take the tax deductions of mortgage interest expense and potential appreciation of the home, then you will be ahead of the game as a homeowner versus a renter
- Try to choose a home where the property tax is low
Many homeowners from a high-taxed state such as New York move to lower-tax states such as Tennessee. Do your due diligence before pulling the trigger.
What Experts Say On Downsizing To A Smaller Home
Alex Carlucci, a top first time home buyer mortgage specialist at Gustan Cho Associates says the following:
If you have young children, adult children or grandkids that reside in your household, downsizing may be difficult if you need extra bedrooms. If you’re looking to downsize to a residential community or condominium, check to see if the bylaws allow younger residents to live on the premises. The same considerations apply to any pets you own. Certain facilities don’t allow pets, while others may have restrictions on pet size or the type of pet you can own.
Decide what type of home you want to buy. Condo? Townhouse? Manufactured home? Single-family home? 2 to 4 unit multi-family home?
Primary Versus Second And Investment Home Mortgage Guidelines
Most homebuyers would want to purchase an owner-occupant home as a primary home.
- Government loans such as FHA, VA, and USDA are for primary owner-occupant home financing only
- Fannie Mae and Freddie Mac allow second home and investment property mortgages
- The main reason primary home mortgages is the home loan of choice is because of little to no down payment and the best mortgage rates
- Homeowners who plan on downsizing to a smaller home are eligible to qualify for owner-occupant primary home financing
- Lenders would want to know why the homeowner is downsizing
- If a homeowner is an empty nester and is selling their current 4,000 square feet home and moving to a 1,500 square feet condominium a block away, they would qualify for a primary residence home loan
- However, if the homeowner is moving from a 4,000 square feet home to a 3,500 square feet home, that would not qualify as a primary residence
- The square footage needs to be substantial
The deal needs to make sense. Otherwise, the homebuyer would need to go with an investment property loan. Investment home mortgages require 20% down payment and mortgage rates are higher.
Qualifying For A Mortgage
Qualifying for a mortgage when buying another home may be a problem if you do not sell your existing home. Most homeowners have mortgages. If you sold your existing home and plan on closing the sale of your new home and purchase of the downsized home on the same day, it will be no problem. However, if you are planning on closing on your new home before your existing home sells, then you would need to qualify for both mortgages. In the past, homebuyers of condominiums could only qualify for HUD Approved Condos with FHA Loans. Recent HUD Condo Guidelines now allow FHA Spot Loans. What this means is condominium buyers can qualify for FHA Loans in non-HUD-Approved condo complexes. VA requires VA Approved Condo Complexes. For more information about this article and/or other mortgage-related topics, please contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at firstname.lastname@example.org.