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If you’re squeezed for space and thinking about buying a bigger house, you’re not alone. Sales for larger homes increased by 21% in summer 2020, according to Redfin, underscoring a trend across the country.
But a gain in square footage comes with plenty of hidden costs you might not have considered.
Before buying a bigger home, consider the benefits and drawbacks of such a purchase, along with the costs you’ll need to budget for:
- 4 reasons to buy a bigger house
- 4 reasons to stick with a smaller home
- Is buying a bigger house the right move?
- Find out how much home you can afford
4 reasons to buy a bigger house
While upgrading could mean having a bigger mortgage payment, you might be ready for your next home if:
1. Your family is growing
Whether you’re welcoming a new child or a relative is coming to live with you, a growing family may need more space. But consider a few of these key questions first:
- Is your family done growing?
- How many bedrooms and bathrooms will you need?
- What type of home do you prefer — for example, do you need a single family house with more privacy or a condo with less maintenance?
Planning out these details can help you make sure you get the new home you need, so you’re not looking to move again anytime soon.
Before you go to your bank for a new home loan, be sure to shop around and compare interest rates with multiple lenders. You can do this easily with Credible — and you’ll be able to see your prequalified rates and generate a streamlined pre-approval letter in just a few minutes.
2. You’d like to rent out part of your home
You might also decide to rent out part of your house, either to a long-term tenant or a quick rental using a marketplace like Airbnb. The extra cash may help you afford the larger housing payment or even pay down the mortgage faster.
3. You’d like to use a bedroom as a home office
If you shifted to a work-from-home schedule during the pandemic — and you plan to keep it that way — you’ll want to look for homes with enough space to put a desk and chair.
If you can’t swing an extra bedroom, even in a larger home, consider other private areas, such as the basement, attic, or garage.
4. You want more outdoor space
Homebuyers are hunting for more outdoor space. If you’re looking for more space to host guests, you might need to upgrade the size of the home to go with your backyard oasis. There are lots of outdoor upgrades you can make, too, when you’re ready.
4 reasons to stick with a smaller home
Generally, larger houses cost more upfront and over time — and they might not be worth the extra investment in the long run. Consider these reasons why it might be best to keep your current home.
1. You might not be able to afford your preferred location
Home prices can vary widely from neighborhood to neighborhood, and a large house in an upscale area will likely cost much more than one in a less desirable location.
If you can’t afford the price tag in your preferred neighborhood, consider whether or not it’s worth sacrificing to buy a large house in a less popular area. Location can affect the schools your kids go to, your commute, the amenities you use, and the resale value, so weigh this decision carefully.
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2. Costs generally climb with bigger homes
The upfront costs of buying the house and the monthly mortgage payment aren’t the only expenses that increase with a bigger home. You’ll need to make sure higher property taxes, higher utility bills, and a larger homeowners insurance premium all fit within your budget, along with the cost of more furnishings and potential renovations.
3. It’s not a guaranteed better investment
While you want to buy a home you love, it’s also an investment — so you’ll want to secure a home that has a good chance at appreciating in value. Real estate market trends can change over time, though.
When you’re ready to sell the house later on, it may attract a smaller pool of buyers.
4. Bigger homes come with more responsibilities
Keeping any home in good condition is a lot of work, from tending the outdoor space to making repairs, cleaning, and doing preventive maintenance. Buying a bigger house only amplifies the amount of work you need to do.
Is buying a bigger house the right move?
Buying a bigger house is a big step — here are some more questions you should ask yourself before upgrading:
- Can I afford the extra costs?
- Do I have a lot of other debt?
- How will I use the extra space?
- What kind of lifestyle am I looking for?
- How long can I stay in a smaller house?
- Am I meeting my other investing and retirement goals?
Then, consider the pros and cons of buying a bigger house:
|Accommodates a growing family||May need to buy a bigger home in a less desirable neighborhood|
|Provides income potential if you decide to rent out your space||Higher costs, both upfront and over time|
|More opportunities to work from home in a private area||Might not be able to sell the home later|
|May include more outdoor space||More responsibilities, which either cuts into your time or budget|
Costs to budget for
When you buy a bigger house, every cost of homeownership scales with the property size. So before you begin shopping for a larger space, research how your homeownership costs may increase. Then, figure out whether your budget can absorb those costs.
Here are some expenses that will increase with a larger house:
- Down payment
- Closing costs
- Monthly mortgage payment
- Property taxes
- Homeowners insurance
- Utility bills
- Repairs and maintenance
Find out how much home you can afford
If you’re trying to figure out how much home you can afford, consider the size of the mortgage, the monthly payment, and what you’re comfortable taking on. Here are general rules of thumb you can use:
- Look at the size of the mortgage. According to one guideline, an affordable mortgage is two to three times your annual household income (or less). So if you and your partner earn $200,000 a year, for example, then your mortgage may range from $400,000 to $600,000.
- Consider the size of the monthly payment. You should also look at what you’ll pay every month. The federal government suggests spending no more than 30% of your gross monthly income on a mortgage payment. That includes the principal and interest, property taxes, and homeowners insurance — plus private mortgage insurance and homeowners association fees, if applicable.
- Get pre-approved. With a mortgage pre-approval, a lender looks at your credit and financial situation to determine how much you can borrow. This can help guide your budget, although you don’t have to borrow up to the maximum limit. When figuring out your price range, consider your other financial goals and the amount of debt you’re comfortable taking on.
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