Avoid These 6 Mistakes When Upsizing to a New Home

Tired of having your already cramped bedroom do double duty as a home office and at-home gym? It might be time to upsize. But while getting more space may seem enticing, upsizing can hold pitfalls for unwary home buyers.

“It is important to be aware of these mistakes because upsizing can be expensive, but if you plan it well, do your research, and shop around, it doesn’t have to be,” says Lior Rachmany, founder and CEO of Dumbo Moving and Storage in New York.

Mistake No. 1: Rushing to buy a bigger home

You can’t stop fantasizing about bigger spaces, but take a break for a reality check. You don’t want to ditch your current dwelling without understanding the market and thinking things through.

“Although the frenzy of the current real estate market creates motivation to move as quickly as possible, it is important to be diligent and thoughtful in your decision process,” says John Hollyer, senior portfolio manager at Bespoke Real Estate in New York. “Make sure you understand the market, comparable sales, and value of the house you may bid on. Your broker can assist with an analysis of sold properties and competing inventory.”

And in the rush, don’t get suckered into paying for any conveniences you don’t need, such as expediting certain services.

“A lot of times, when you want service to your old home or upsized home, you are paying more for speed,” says Rachmany.

Instead, allow yourself time to get those things done.

Mistake No. 2: Miscalculating your space needs

It’s important to be realistic about how much space you actually need.

“Assess your space in your current home, and what’s missing or necessary to improve upon it,” says Hollyer. It may turn out that the floor plan or your furniture layout is the problem, and not a lack of space. By the same token, make sure that space in a new home is laid out for maximum usability.

And once you move into that bigger space, live in it for a while, without buying extra furniture, to assess what pieces you really need, says Rachmany. He says furniture needs space to be used effectively, so you can move between pieces without squeezing through.  

“Also, plan your home for everyday use, not for special occasions. People have a habit of buying too much chairs and larger-than-needed sofas for company. But you can always use foldable chairs for that,” says Rachmany.

Mistake No. 3: Ignoring long-term factors

When making any major purchase, try to picture how your life might change in coming years.

“Buying a new home that won’t potentially fit your needs in the future will only lead to another purchase and move that could be avoided with proper forward thinking,” says Hollyer.

He says to make sure to have a realistic projection of how long you plan to stay in the new home, how your family’s needs might change in that time, and whether the home would continue to meet your requirements.

Another thing homeowners often forget is that upsizing brings extra costs that can snowball over time—bigger homes cost more to maintain. 

“Factor in for larger utility bills, and have [more] money set aside to do repairs when budgeting for your new home,” says Rachmany.

Mistake No. 4: Disregarding financing

Make sure to do your homework on financing, and don’t go in blind when trying to buy a bigger (read: more expensive) home.

“Without accurate information regarding what you are qualified for, you’ll be wasting time,” says Hollyer.

Rachmany suggests leaving it to the experts if you aren’t well-versed in applying for loans or mortgages. Consider using a financial consultant and/or a mortgage broker—ask around for referrals.

“It is very easy to get screwed over by interest rates when applying for loans,” says Rachmany.

And while mortgage rates are at historic lows, experts say you should still compare financing options, which can vary considerably.

“Bigger homes mean larger property taxes, larger mortgage, and larger homeowner insurance,” says Rachmany. “Only upsize your home if you have the budget, realistically, for it.”

Mistake No. 5: Neglecting your current home

Don’t let maintenance of your current home fall by the wayside in your rush to upsize.

Rachmany suggests keeping up the maintenance of your home, and if something breaks, to fix it before you move out.

“In order to capture your current home’s peak value, you want to keep it in top condition,” says Hollyer. “Investing in routine and proactive maintenance of your current property is necessary to provide more value to you when it’s time to sell.”

Mistake No. 6: Spending too much on items for the new home

Upsizing to a new home doesn’t give you carte blanche to go crazy and overspend.

“People have an initial ‘hotel’ experience with their new home, where they leave all their lights on, and just really change their living at home habits and become more wasteful,” says Rachmany.

He suggests holding off on buying all new stuff. Instead, replace items when they break or are no longer usable.

“Extra space doesn’t always need extra items. You don’t have to fill up your kitchen counter with gadgets just because you have extra space,” says Rachmany. “See how much your living expenses change, then get extra items if needed.”

Can I (and Should I) Tap My 401(k) To Buy a House?

Buying a house has never been easy, but it would be tough to find a time that was more challenging than 2022. Homebuyers have been put into a vise by multiple economic factors, including high home prices, a historic housing shortage coupled with a spike in demand, and climbing mortgage rates.

Bidding wars are common, and homebuyers are having to use creative tactics to find extra cash for down payments or appraisal gaps. Some homebuyers might even consider tapping their hard-earned 401(k) retirement fund. But is this really a wise decision?

We reached out to real estate and financial experts to learn about the consequences of taking money out of your 401(k) account to buy a house.

What is a 401(k)?

A 401(k) is a retirement savings plan offered by many employers. If you have one, it means that you agree to have a percentage of each paycheck deposited into the account. Typically, the employer matches some or all of that sum. Employees choose which funds to invest in, with the goal of creating a nest egg for retirement.

Many financial experts advise against withdrawing money from your 401(k) before age 59.5 as you will have to pay a 10% early withdrawal penalty on the sum you take out.

How to use money from your 401(k) to pay for a home

There are two ways to tap your 401(k) to buy a house. You can either take a 401(k) loan or withdraw the funds from your account.

If you opt for a 401(k) loan, know that the amount is limited in size and must be repaid with interest. The maximum loan amount is 50% of your vested account balance or $50,000—whichever amount is less. The repayment deadline is usually five years, and the interest rate varies; right now it’s between 6.5% and 7.5%

On the other hand, a withdrawal from your account is not limited in size, but it will incur that 10% penalty if you are younger than 59.5.

Does tapping your 401(k) affect your credit score?

Taking out conventional loans can affect your credit score, but a 401(k) loan has zero impact on your credit score.

“Getting a 401(k) loan won’t require a hard pull on your report,” says Jeff Zhouhere, a personal finance expert and CEO of New York City’s Fig Loans. “And if you default on your 401(k) loan, it won’t affect your credit history since the national credit reporting bureaus don’t track your 401(k) loan payments.”

Should you tap your 401(k) to buy a house?

Borrowing from your 401(k) isn’t advisable, but some experts say it can be done in a pinch.

“ I wouldn’t recommend it, but I will say that a loan from your 401(k) has a flexible repayment schedule,” says Zhouhere. “You can pay within the five years, or you can pay faster than that without penalty. You can also pay what you borrowed through payroll deductions, but using the after-tax dollars.”

Others urge homebuyers to never remove money from their 401(k) to buy a house.

“I’ve been representing lenders and borrowers for 15 years, and I’d never advise this,” says Matthew Carter, an attorney at Las Vegas’ Inc and Go.

Buyers “might think they are just borrowing the money from themselves, but they are really borrowing it from the future. They’re losing the interest and value they can build on that money to purchase a home that will likely put them into further debt,” adds Carter.

“Homeownership comes with a lot of unexpected costs, and borrowing from your future to suffer those costs is reckless,” he says.

Still, in the current competitive real estate market, tapping your 401(k) might be a worthwhile move, as long as you run the numbers and know that you can afford the fees.

Rising home values alone should make people seriously consider borrowing from their 401(k), says Chris Barnett at eXp Realty in Birmingham, AL.

“Even if you only own a home for a few years, it’s more than likely your home will be worth substantially more than when you purchased,” says Barnett. “I have seen sellers tap $100,000 to $200,000 in equity in their home here.”

“Tapping your 401(k) fund is ideal if you need quick cash for short-term liquidity,” Zhouhere says.

In this situation, a short-term 401(k) loan might be a means to help you make a lucrative long-term investment in a home. Plus, as an investment, real estate historically grows in value better than a 401(k). But, before you draw any money from your 401(k), be sure to consult a financial expert.