Homeownership is usually a lifelong journey. For many people, sizing up happens over time as families and budgets grow. If you’re thinking about moving from your current home into a bigger home, we’ll help you determine whether it makes sense and what factors you should consider along the way.
What Are the Signs You Are Ready for a Larger Home?
The most obvious sign is the feeling that your current space is inadequate. If your family is growing and you have more people in it than bedrooms, you’ve probably outgrown your home. If your living areas feel cluttered even when they’re organized, it could be time to purchase a bigger home.
Bigger homes certainly have their advantages – but you’ll need to be sure you can handle the added responsibilities and afford the added costs that accompany them.
You need extra space inside and outside
Let’s say you bought a two-bedroom, 1,400-square-foot house with a yard several years ago. And since then, you got married, had twins, adopted a dog and started working from home. Your good-enough-for-you home might suddenly feel awfully small as your family grows but the amount of space you have stays the same.
Living in a space that’s too small can be frustrating and inconvenient. It might be bearable in the short term, but in the long run, it can make your day-to-day life a challenge, from preparing meals to keeping rooms neat and clean to working from home. If you’re feeling the squeeze and your home no longer fits your life or your lifestyle, it’s a good sign that you may need to upgrade to a bigger house.
You have mastery of your finances
Not everyone who could use a bigger house is in the best financial position to buy one. Yes, living in close quarters may be challenging, but buying a home you can’t afford in the long term is potentially dangerous to your financial well-being.
Here are some financial goals you should achieve before you consider buying a bigger house:
- A low debt-to-income (DTI) ratio
- A healthy emergency fund and savings you can continue to grow (six months’ salary in your savings account is recommended as a great emergency fund)
- A good or excellent credit score
- Enough money saved for a down payment of 5% or more (keep in mind that if you put less than 20% as a down payment, you may need to pay extra for private mortgage insurance)
What Are the Signs You Can Afford a Larger Home?
Once you’ve hit your financial milestones, you should run some estimates to see how much home you can afford.
Assuming that you can swing the down payment, determine how much you can afford to put toward housing every month. Ideally, it should be no more than 32% of your total income and should include:
- PITI: This is the total amount you pay each month for your mortgage including the principal and interest on the loan, property taxes and homeowners insurance costs.
- Homeowners association fees (if applicable): If your home is in a community with a homeowner’s association, you may benefit from added amenities such as security or maintenance, but you’ll pay extra for it each month.
- Utility bills: A bigger house usually comes with bigger bills to cover gas, electricity and water. Also, depending on where you live, you may have seasonal spikes to your utilities such as higher heating costs in the winter and higher energy bills for air conditioning in the summer.
- Maintenance costs: Every house needs care and repairs over time. Don’t forget to set aside money to cover regular maintenance of your home and to set aside money to make larger repairs when things break down. A standard annual maintenance fund should be about 1% of your home’s purchase price each year.
When Is It Better To Stay Where You Are?
Sometimes you can’t help but think the grass is greener on the other side. It would be easy to imagine that the only solution to your current space constraints would be a bigger home. And while that might be the case, bigger homes often come with bigger hassles.
Here are a few reasons why staying put might make more sense:
You can’t get the location you want
Finding a larger home in your current neighborhood might be a problem, especially in a seller’s market where inventory is low. And you may find yourself priced out of expensive neighborhoods with larger homes.
In real estate, location is everything, especially if you’re already thinking about the home’s potential resale value. You may need to make a choice, weighing your need for a larger home against your need to live in your desired location.
You’re not sure you can manage the responsibility of a bigger home
From responsibilities to costs, everything gets bigger with bigger homes, including your monthly mortgage payments, cost of repairs, mowing the bigger lawn, cleaning and cooling or heating the home. These ongoing expenses can come with higher price tags and bigger demands on your time – money and time that could have been spent elsewhere.
If you love traveling or trying out new restaurants, buying a bigger home might mean compromising or cutting out travel or dining out. A bigger home can quickly eat into your discretionary budget.
Instead of buying a bigger house, you can increase your current home’s square footage by building an addition, finishing a basement or converting a garage or attic.
What Are the Steps to Getting Your Next Dream Home?
The first step in this process is to budget for costs. Take some time to get your finances in order so you can make a strong offer when you find the right home. And if you don’t want to waste time, stick to your house buying budget. There’s no sense touring a $1.2 million home when your budget is $800,000.
You should also consider hiring a real estate agent to help you navigate the home buying process.
Budget for costs
It’s not uncommon for home buyers to neglect those additional costs that come with buying a home, like moving expenses, home repairs before selling, closing costs and real estate agent commissions from selling their old home.
Calculate how much home you can afford
There are several equations you can use to calculate how much home you can afford. And the result you should always aim for is confidence in your ability to comfortably afford your monthly mortgage payments and fund your emergency savings and retirement accounts.
Many real estate professionals recommend the 28/36 rule:
- You should spend no more than 28% of your pretax income on a mortgage.
- Your debt-to-income (DTI) ratio (your fixed monthly expenses divided by your gross monthly. income) should be no more than 36% of your income.
If you make $6,000 a month ($72,000 per year), according to the 28/36 rule, you should be spending no more than $1,680 a month on housing-related expenses (like your mortgage, property taxes, insurance, etc.) and a maximum of $2,160 on your total expenses.
Use a mortgage calculator to play out different scenarios and see how much home you can potentially afford.
While the 36% rule is a good benchmark, conventional lenders may qualify for you a mortgage with a debt-to-income ratio of 43% – 50%.
Get preapproved and start house hunting
Getting preapproved is a crucial step in your house hunting journey. Learn how to get preapproved for a mortgage to expedite the home buying process and avoid potential hiccups.
When applying for a mortgage, you should always get your credit in order first to help ensure you get the best possible rate. In addition, you’ll want to avoid purchasing any big-ticket items until after you’ve bought your home because those purchases can negatively impact your credit in the short term.
Mortgage lenders will also ask questions about your income and employment history, so it’s helpful to have your employer information, bank statements, pay stubs and tax documents handy.
Are You Ready to Upsize?
Buying a bigger home usually involves a larger mortgage, so think about the pros and cons of upsizing. You’ll have more space for family and guests, hobbies or a home office. But on the flip side, you’ll have more to clean, repair or renovate. And you’ll need more money to do it all.
If you need the extra space and you believe you’re financially secure enough to take on the additional costs, you’re probably ready to upsize on a home.
Think about the time commitment of upkeep when you upsize
When you buy a bigger home, you’re also committing more time and money to its upkeep. If you don’t want to clean your home, landscape your grounds or maintain your pool, you can always pay someone to do it for you.
But either way, you’ll invest time or money into the upkeep of your larger home. If you’re not ready to make that commitment, you may not be entirely ready to upsize.
Consider the housing market
If you buy a home, you have to consider the possibility that the housing market can fluctuate and even decline. While both big homes and small homes are subject to the same shifts, smaller homes tend to maintain their value or appreciate faster because they are more attractive and affordable for a larger group of potential buyers.
Meanwhile, when it comes time to sell, a larger home may shrink your pool of buyers to a select few who are in the financial position to afford a big home. This may limit your ability to command a competitive price because fewer buyers are willing or able to compete for your home.
Before you upsize, ask yourself what it might take to sell the house down the road. Would you be willing to wait out a buyer’s market or sell for a loss if the market dips?
We’ve created a list of pros and cons to help you jump-start and organize your thoughts on buying a bigger home.
✅Extra space for the family
✅Ability to turn your old home into an investment property to generate passive income
✅More outdoor space for a pool or garden
✅Space for a home office
⛔May not buy in the neighborhood you want
⛔You’ll pay more upfront and in the long run
⛔Higher cost of ownership and upkeep
⛔May be more difficult to sell than a smaller home
⛔May be more difficult to sell than a smaller home
⛔Less environmentally friendly (though some newer homes can be exceptions)
Mo’ House, Mo’ Problems?
Buying a larger home can be an exciting and rewarding step in your journey as a homeowner, but is it right for you?
Ask yourself if you really need the space and if you’re ready to buy a home that demands more of your time and money. If the answer to both of these questions is “yes,” you may be ready to move into a bigger home.
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