Homeowners downsize, selling a larger home to move into a smaller one, for a wide range of reasons: cutting monthly costs, entering retirement, adjusting to an empty nest, or spending less time on upkeep. Others transition to single-level living due to limited mobility, move closer to family and grandkids, or minimize for a simpler life.
Currently, the average homeowner holds around $310,500 in equity. Downsizing from a four- to a two-bedroom home could net an average of $200,000. While the payoff varies by market, it’s worth running the numbers if you want to cut housing costs or leverage the equity you’ve gained.
8 helpful tips for homeowners ready to downsize
Whatever’s driving the decision, a few practical moves can make the process smoother:
1. Run the math before you fall in love with a listing
Get a real number from your loan officer for your home’s value and your remaining mortgage balance, then compare that to what a smaller home costs in your target area. Some cities offer a big financial payoff for trading square footage, while others have small-home prices that have caught up to large-home prices, narrowing the gap.
- Decide up front whether you’re buying with cash or financing a smaller mortgage
- Factor in taxes, HOA (Homeowners Association) dues, and closing costs, not just the sale price
- Ask your loan officer how much cash you’ll walk away with for a down payment
A bigger home isn’t always better. Get in touch to explore your options.
2. Downsize to a home with an ADU and rent it out
If income matters more to you than square footage, look for a smaller home with an accessory dwelling unit (ADU), like a garage apartment, casita, or guest house. Renting it out can offset your mortgage or add steady monthly cash flow. As of 2026, Fannie Mae lets you count a portion of that rental income, up to 30% of your qualifying income, when you apply.
- Decide between a long-term tenant for stability or short-term rentals for potentially higher income
- Confirm the ADU is permitted and legal before you count on the income
- Ask your loan officer whether the projected rent can help you qualify
3. Know your home sale tax break
When you sell a home you’ve lived in for at least two of the last five years, the IRS lets you exclude up to $250,000 of profit from federal capital gains tax, or up to $500,000 if you’re married filing jointly. For most downsizers, that means the equity you unlock stays in your pocket. If your profit could run higher than those limits, talk to a tax professional before you list.
4. Time your sale and purchase together
Selling first can mean temporary housing. Buying first can mean carrying two payments. That’s why bridge loans exist, to address this exact problem. Your loan officer can walk you through your bridge loan options, so you’re not left overpaying in a time of transition.
5. Solve the storage problem before you list
Family photos, heirloom furniture, seasonal gear: There are some things you may not be ready to part with but don’t need to come with you either.
- Photograph sentimental items you’re on the fence about; sometimes the photo is enough
- A monthly self-storage unit buys you time to decide
- Check whether your target home has a garage, basement, or shed before you pay for outside storage
6. Call a junk removal service early
Get stained furniture, old exercise equipment, and yard debris off your property before you list, not after an offer comes in. Many junk removal companies now quote by photo, so you can get a price without a home visit.
7. Furnish for function, not just for less space
Items like a fold-out table, a storage ottoman, a daybed, and a rolling kitchen island aren’t just dorm-room fixes anymore. They’re standard moves for anyone living in less square footage who wants to avoid feeling cramped.
- Do a second sweep before moving day and sell anything too bulky for the new space
- Measure your new floor plan before buying anything
- Prioritize furniture that serves two purposes over furniture that serves one
8. Remember to right-size your insurance
Insuring a smaller home usually costs less than insuring a larger one, so downsizing is the ideal time to revisit your home insurance policy. You may be able to bundle home and auto or trim coverage you don’t need anymore. Our agents can shop hundreds of carriers for you, so your protection fits the home you’re moving into.
Can less house give you more?
Downsizing may have big benefits, depending on your situation. With less house, you could potentially decrease your monthly payment, freeing up funds to save, travel, remodel, or get some breathing room. If you have questions about downsizing, connect with a local loan officer for guidance.
Sources deemed reliable but not guaranteed. For educational purposes only. Cornerstone Capital Bank does not provide tax advisory services. Please contact a qualified professional for specific guidance.
You’re receiving this resource from your loan officer, who operates within the lending division of Cornerstone Capital Bank, a full-service financing institution.
Cornerstone Capital Bank is the parent organization that brings together multiple affiliated lending teams, providing shared resources, solutions, and long‑term support to help clients make confident financial decisions now and in the future.