Five Considerations Before You Purchase a Larger Home
A lot has been written and discussed over the years about the benefits of downsizing your home when you reach a certain point in your life, typically retirement or when your grown children move out. However, there are many people in a different phase who are currently facing the exact opposite scenario – upsizing.
As you contemplate upgrading your starter home, maybe your family is growing and requires more room, or you would simply like a more spacious floor plan, upsizing is a big step. The decision to purchase a larger home, and likely take on a larger mortgage payment, requires thoughtful consideration.
Below, we discuss five things you may want to think about as you make this important move.
1. Understand ‘Why?’
People upsize their homes for a variety of reasons. You may want to upsize because you need more bedrooms for your growing family, you may be running out of storage space and in a desperate search for more, or you may have experienced a recent increase in your income and want to upgrade your lifestyle. Whatever the reason, make sure it is clearly defined. Ask yourself whether you are trying to achieve an intrinsic goal by upsizing, rather than an extrinsic one, in keeping up with the neighbors’ upgrades, for example.
2. Keep Your Emotions in Check
In this era of countless home renovations or lottery winner home shows on HGTV, many people often find themselves dreaming big – too big, in fact. When you are dreaming of a larger and fancier home, it is easy to start thinking you need certain features. However, many times your wants are masquerading as needs, and it is important to be able to distinguish between the two. You may want the big eat-in kitchen and the farmhouse sink, but do you really need it? Keeping your emotions in check in this way allows you to focus on what you truly need from your next home.
3. Consider ALL the Costs
When looking at larger and more expensive homes, you should naturally understand that your mortgage will be higher. However, are you neglecting other rising costs? Often times, real estate taxes will increase due to the size of the house and size of the new property. Homeowners insurance may also increase. Are there immediate home improvements you want to make? What about ongoing maintenance or landscaping costs? Have you considered whether you need to buy more furniture to outfit a larger home? These are all important questions to consider before deciding if it is the right time to upsize, and costs that need to be considered that will impact you both short- and long-term.
4. Maintain Your Safety Net
You should hopefully have an emergency fund of cash reserves set aside for a rainy day. Most experts recommend keeping at least three to six months of expenses in your savings that you can easily access in the case of an emergency. However, moving to a larger home with greater expenses means that your emergency fund will not stretch as far. Your regular bills become higher, and therefore your emergency fund will need to be bigger to compensate.
5. Test-Drive Your New Budget
If you have an idea of how much you can afford to spend on a new home, taking into consideration a new higher mortgage and monthly expenses, it may be a useful experiment to try live off of this new budget scenario for several months before you purchase a new home. You may discover that an increased housing budget means that your discretionary income (money spent on clothing, entertainment, etc.) may decrease. Are you comfortable with the shift in expenses? Taking your proposed new budget for a test-drive will help you clearly identify your new spending habits.
Deciding to upsize your home is a big decision and one that will impact your finances in a multitude of ways. Remember to be thoughtful about all five of the above considerations and be sure to reach out to your financial advisor with any questions or for more guidance.
