By DAVID HOUCK
Qualifying Broker
Atomic Realty LLC

Downsizing – Many older Americans are choosing to go to smaller homes and downsize when retiring. Moving is a stressful experience, at any age, and downsizing for retirement carries unique challenges. Downsizing involves letting go of 60 to 80 percent of the belongings that took a lifetime to accumulate.

Downsizing Advantages

Saving money is one of the primary reasons people downsize their home for retirement. Less expensive housing is a reasonable way to increase budgets and retirement savings.

Some possible financial advantages of downsizing in retirement include:

• Selling your home and moving to a less expensive home can boost savings and increase your retirement nest egg.
• Selling your home current can increase your cash.  The money from selling your home can be spent slowly on a smaller mortgage or rent, increasing your available cash.
• A smaller mortgage. A home is a less expensive market or a smaller home, with a lower monthly mortgage payment, can give your budget room to breathe.
• Less cleaning and maintenance for you. A newer home will likely need fewer repairs. less cleaning, and have lower upkeep costs than an older home.
• With a newer smaller home, if hiring out work cleaning and landscaping, you probably won’t spend as much money hiring help to take care of the smaller property.
• Lower Utility Bills: Higher efficiency, smaller spaces and fewer rooms mean lower utility costs. If you’re moving to a home with newer windows or energy efficient appliances, you may save even more.

Retiree – Plan Your Future Housing

• Do you want to obtain a new home by taking out a mortgage, paying for it in cash, or renting? Evaluate your options.
• If you are thinking of taking out a mortgage, talk to your lender BEFORE you retire. It may not seem logical but generally lenders make loans based on your INCOME, NOT YOUR SAVINGS. While you may have plenty of savings, once retired you may have very little income. A lender may be hesitant to loan to you because your income is too low. This is particularly relevant if retiring prior to collecting social security or if social security will be your only income.
• If you are moving the equity from the home you are selling to a new home consider the timeline. 
  • Can you buy the new home from your savings, or do you need to sell the old home first? Will you need to make contingent offers on the new home?
  • Do you have 401k you can temporarily liquidate? If so how long do you have before you have to replace the money into your 401k?  What are the tax consequences if you don’t? Be aware that money will be out of your 401k and “locked up” in the new home until you sell your old home to replace it.  Talk to your investment and tax persons about this.
  • You must live somewhere between the time there is a purchase contract on your old home until the day of closing. Where are your belongings going? Storage?
  • If you have closed on your old home and if you haven’t already bought the new home, have a plan regarding where you are going to stay until you do buy the home? Family? Rent something?
• If you have already retired and have lots of cash but no income you may find yourself forced to spend a chunk of that cash on your new home as it may be difficult to find a bank to loan to you because of low income. Talk to your bank and investment advisor regarding what makes sense for you.
• If you have a lot of equity in your existing home but little other cash and perhaps don’t want to move you may want to look at “reverse mortgages”. To free up cash. We at Atomic Realty are not lenders so please contact a lender and do research as to whether these work for you. 
• Renting – If you retire and want to downsize but are not 100% sure the house is your last redoubt, perhaps renting makes sense. Many of us want to move close to family. However, if the kids move away or you lose other family members that you just moved close to, are you sure you want to stay there? If not, consider renting. If you have retired but do not want to spend that large amount of cash you receive from your old house, renting may be a good option.

If you would like to see a reprint of this column or any past column, please go to the AtomicRealty.net webpage and look under the FAQ tab.

Editor’s note: David Houck is the Qualifying Broker of Atomic Realty, (AtomicRealty.net), has over 40 years of real estate experience, a BS degree in math and physics, and a juris doctorate.  He is volunteering on the New Mexico Association of Realtors forms committee working towards clear concise forms that best serve and protect the public.