In this article:
When looking for a home that you can afford, it’s okay to think small.
- When buying a first home, many people want to buy a larger home to accommodate them in the future, a home that they will stay in for decades. However, it is important to note that moving is often not optional, as life events, such as a job change or a marriage change, could force you to move independently.
- A modest 750-1,250-square-foot home may suit many first-time homebuyers for years to come. A smaller home almost always means a smaller down payment and a shorter wait before you’re ready to buy.
- Regardless of the home you are looking for, a large down payment may not be necessary. Many government-backed mortgages require only a 3.0 or 3.5 percent down payment; some do not require any down payment.
Tiny house movement – something for everyone
Google “small house” and it will probably get more than a billion visits. The movement that advocates living in smaller homes is becoming increasingly popular.
And that makes sense because, compared to the average American home, a small home brings many benefits.
It generally causes less harm to the environment. It costs less to buy and run, from property taxes and home insurance to heating / cooling and maintenance costs, and it’s much easier and cheaper to furnish and keep clean and in good repair.
You may not have noticed, but American households have grown rapidly over the last century. According to PropertyShark, the average home built in this country in the 2010s is 74 percent larger than one built in the 1910s.
Now there are fewer people in each home and that means that the space that each person occupies has more than doubled.
When the American Enterprise Institute looked at the figures, it looked at a shorter period: 1973-2016. At the beginning of that time period, the occupants of a newly built home averaged 551 square feet each. In the end, just 43 years later, they each occupied 1,058 square feet.
In some ways, we’ve come to view oversized homes as desirable, just as many of us prefer our oversized McDonald’s meals. But neither can be good for us or the environment.
Of course, no one wants to feel overwhelmed, nor does anyone want to feel hungry. Today’s tiny home designs make the most of limited space and many who live in them report that they have become happier and richer.
Reduction and “adaptation” from the beginning
The idea of downsizing seniors has been around for a long time. Many reach a stage in their lives where they perceive all of that excess square footage as a liability rather than an asset.
Yet many millennials seem to resist the idea of ”downsizing” when they buy their first homes. For them, it is a house the size of a family or nothing. And that applies, even if they are currently just a couple or a single person.
Planning the future
Presumably, they would argue that they want a home that meets their long-term needs. Why, they asked, buy something that will stop growing in five or 10 years? And that’s a legitimate point.
After all, moving house is expensive and disruptive. So why not buy one that is big enough to fit your next few decades?
Moving often is not optional
Yet Americans move an average of 11.3 times in their lives. That’s based on fivethirtyeight.com calculations based on US Census data.
Finding a larger place to accommodate a growing family is just one of the many reasons people move. Others include:
- New job or transfer
- Change of marital status
- To get an easier ride
- Want / need cheaper housing
- Foreclosure / eviction
No matter how confident you are today that your first home will meet your needs for decades to come, events have a bad habit of overtaking you. And chances are, you’ve moved in anyway in seven or eight years.
Down payments a self-built barrier
When the Urban Institute published “Barriers to Accessing Homeownership” in November 2017, its findings surprised few. The biggest barrier, cited by more than half of those surveyed, was saving a down payment.
Some of that is due to the fact that saving is a difficult process. It can be the result of widespread misunderstandings about how much is needed for a down payment and how much help is available (more on this below).
It could also be because prospective homeowners often want to buy large family homes. And those are very expensive.
Modest houses and the small house
By some definitions, a small home is one that is 750 square feet or less. Even those who find the prospect of living in such a space unappealing need not obsess over size.
Few first-time buyers need close to 2,000 square feet, at least initially. A more modest 750-1,250-square-foot home could fit most for many years.
The key point here is that a smaller home almost always means a smaller down payment and a shorter wait before you’re ready to buy.
Remember: in most markets, waiting longer than absolutely necessary means you will lose money. Not only will you have to keep paying rent that is likely going up, but you’ll also have a hard time keeping your down payment savings keeping up with house price inflation.
House price inflation is your enemy
Now, the next thing depends on where you plan to buy, because if that place has a stagnant or declining housing market, you will not be in a rush to buy. Hell, if house prices are going down, you better rent until they start going up.
Fortunately, that is the case in a relatively small number of localized markets. As of November 2017, every state on the continent had some level of home price inflation, according to CoreLogic.
The problems arise in states such as Washington, Idaho, Nevada and Utah, each of which saw home prices skyrocket by more than 10 percent in the 12 months leading up to that November.
It is now true that house price inflation is projected to slow in 2018. Even as a national average, it is likely to exceed wage inflation. That means saving for a down payment could become an even bigger challenge for most first-time buyers.
Are you convinced to reduce the house of your dreams?
Help with down payment
A surprising number of people who are actively saving for a down payment don’t really know how much they need. That 2017 Urban Institute research found that “eighty percent of consumers are unaware of how much lenders require for a down payment or believe that all lenders require a down payment greater than 5 percent.”
That is simply untrue. Many government-backed or Fannie Mae or Freddie Mac mortgages require a minimum down payment of 3.0 percent or 3.5 percent. Some do not require any. Learn more at “Low Mortgages and No Down Payment for 2018. “
Meanwhile, very few are aware of the thousands of down payment assistance programs operating across the country. These provide easy grants or loans that can cover all or part of your down payment and closing costs. And state governments or charities often run them. Find out more at “Complete guide to initial payment assistance in the US.. “