Before making a move, it's important to think about more than just extra square footage. You should make sure a larger home fits your budget, financial goals, and future plans. In this article we’ll look at the costs of moving to a bigger home and show you how to determine whether it can comfortably fit into your budget. We’ll also give you some tips for deciding if a larger home is the right next step for you.
Why Do People Buy a Bigger Home?
Homeowners often look for a larger home when their current space no longer meets their needs.
Common reasons include needing or wanting:
- More bedrooms or bathrooms
- A dedicated home office
- Additional storage space
- A larger yard
- Room for aging parents or frequent guests
However, more space often comes with higher costs, so it’s important to consider the financial impact of a larger home before making the decision to buy one.
What Are the Hidden Costs of a Bigger Home?
Many homeowners focus on the purchase price but overlook the ongoing costs that typically come with a larger home. These can include:
- Higher Mortgage Payments: If the home costs more than your current home, you'll likely have a larger mortgage. Even if you use the proceeds from selling your current home as a down payment, your monthly mortgage payment may increase.
- Increased Property Taxes: Property taxes are often based on the value of your home. A larger and more expensive home may result in a higher tax bill.
- Higher Homeowners Insurance Costs: Because larger homes usually cost more to rebuild or repair, their insurance premiums are often higher than smaller homes.
- Increased Utility Bills: Heating, cooling, and powering a larger home typically costs more. More space usually means higher energy use and bigger energy bills.
- More Maintenance and Repairs: A bigger home often requires more upkeep than a smaller home. Lawn care, landscaping, repairs, and routine maintenance can add up over time.
- Furnishing Additional Rooms: Many homebuyers forget to budget for the additional furniture, window treatments, appliances, and decor they’ll need to fill a larger home. Furnishing and decorating those extra rooms can become a significant expense after moving.
How Do Current Mortgage Trends Affect Affordability?
Mortgage rates play a major role in determining how much home you can afford. Even a small rate increase can raise your monthly payment and increase the total amount you’ll pay over the life of your loan. If you currently have a very low mortgage rate, moving to a new home could mean paying a much higher rate on your next mortgage.
It's also important to consider local housing market conditions, including home prices, inventory levels, and buyer demand.
Talking with a mortgage professional can help you understand your options and estimate what a move could cost.
How to Tell If You Can Afford a Bigger Home
Before shopping for a bigger home, take a close look at your finances. You’ll want to make sure you can comfortably handle the higher costs while continuing to save for your other financial goals. Here’s how to determine if you can truly afford to upgrade to a larger home.
1. Review Your Current Housing Costs
Before you can compare your current situation to what a larger home might cost, you need to understand what you spend on housing today.
Consider:
- Mortgage principal and interest
- Property taxes
- Homeowners insurance
- Utility bills
- Maintenance and repairs
- Homeowners association (HOA) fees, if applicable
This information will serve as an important baseline as you evaluate how your budget could change with a more expensive home.
2. Evaluate Your Home Equity
Many homeowners use the equity they have in their current home to help pay for their next one.
If your home’s value has increased and you've paid down a significant portion of your mortgage, you may have more buying power than you realize. Understanding your available equity can help you estimate your down payment and determine how much home you can realistically afford.
3. Estimate Your New Monthly Payment
Once you know how much you could realistically contribute as a down payment, estimate what your monthly mortgage payment would look like with a larger home. Using a mortgage calculator and a ballpark home price, see what you’d likely be paying each month. Be sure to factor in taxes, insurance, and utility bills, just like you did for your current housing costs in step one.
4. See How the New Home Would Impact Your Monthly Budget
Compare what you spend on housing today with what a larger home would cost. Plug that new estimated amount into your monthly budget and ask yourself:
- Can I afford a larger housing payment?
- Will it affect my emergency savings?
- Will I still be able to save for retirement or my other financial goals?
Is It Better to Renovate or Move?
Sometimes, moving isn’t the only way to get more space. Depending on your needs, a renovation may be less expensive than purchasing a larger home.
You might be able to gain the space you need by:
- Finishing a basement or attic
- Building an addition
- Remodeling existing space
Making the Right Choice for Your Family
The right time to buy a bigger home depends on your space needs, financial situation, and long-term goals.
A larger home can offer more comfort and flexibility, but it also comes with higher costs. Before making a move, take time to evaluate your budget, home equity, future plans, and alternative options.
If you’re ready to explore the possibility of upgrading to a larger home or remodeling your current one, BankFive can help. Our mortgage team is here to answer your questions and help you make an informed decision. Contact us today to learn how we can support your goals.