Bigger isn’t always better — and this is especially true when purchasing a home. Larger homes may seem glamorous, but they’re also more expensive to purchase and maintain. Just think about all the extra cleaning you’d have to do if you added more rooms to your living space.

Whether you’re a first-time homebuyer or an empty nester looking to downsize, buying a smaller home can come with financial and logistical benefits.

What Is a Small Home?

Small homes are a relative term to describe traditional homes that are smaller than the average home but bigger than a tiny home.

For reference, the median size of a new single-family home sold in 2022 was 2,383 square feet, whereas a tiny home is typically 400 square feet or smaller — although there’s no set standard. That means the size of a small home falls somewhere in the middle.

Who usually buys small homes?

Small homes can appeal to different types of people, including:

  • First-time buyers. If you’re looking to buy your first home, you might be interested in a small home as a less expensive way start building equity.
  • Vacationers. If you want to buy a vacation home to stay in for part of the year, you may opt to purchase a smaller, more affordable property.
  • People who prefer a simple lifestyle. If you’re the type of person who thinks less is more and doesn’t want a larger home that requires more maintenance, a small home may be right for you.
  • Retirees and empty nesters. Homeowners who no longer need additional bedrooms for children or regular guests might find the idea of downsizing appealing.

15 Benefits of Buying a Small House

Whether you’re a retiree looking to downsize or a first-time homebuyer seeking a more affordable way to get on the property ladder, here are 15 benefits of buying a small home.

1. Smaller homes cost less to buy

Looking for homes with less square footage can have a big impact on your homebuying costs. Of course, there are other factors that determine a home’s price — including the age and condition of the home, its features, and location. But in general, larger homes cost more than smaller homes in the same area. 

Square footage is a common way to break down the cost of a home, so it helps to know the median price per square foot in the area where you want to live. In April 2023, the median listing price per square foot for homes in the U.S. was $222.

If you have a tight budget and are wondering how much house you can afford, look for a home with a smaller footprint. With a lower home price, you’ll have more money for a down payment and closing costs. Putting down at least 20% means you can avoid private mortgage insurance on a conventional loan. You’ll also start with more equity, which typically helps you secure a lower mortgage rate.

2. Lower mortgage payments and better cash flow

A smaller mortgage typically means a lower monthly payment, which can help you reap the benefits of homeownership while comfortably affording your monthly payments.

Housing programs have historically considered homebuying to be affordable when the associated costs account for 30% or less of a household’s income. If buying a bigger home means exceeding that threshold for your mortgage, utilities, and other housing expenses, then you run the risk of becoming “house poor” — which is when those costs eat up too much of your budget and leave little money for much else. 

If you buy a small house with lower mortgage payments, then you’ll have more room in your budget. For example, if you put 20% down on a 750-square-foot townhouse for $240,000, the monthly payment would be $1,151 before taxes and insurance, assuming an interest rate of 6% on a 30-year fixed-rate mortgage. Putting 20% down on a 2,500-square-foot house for $600,000 would result in a monthly payment of $2,878 before taxes and insurance, assuming the same loan terms. The monthly payment for the smaller townhouse would be less than half the monthly payment for the larger house — a savings of $1,727 per month.

3. Other escrow costs are cheaper

A downsized home can cut more than just the cost of your mortgage. 

Monthly payments to your lender typically include fees for property taxeshomeowners insurance, and mortgage insurance, if applicable. In many cases, payments for taxes and insurance are pulled from an escrow account. These costs often depend on the square footage or price of the property, so having a smaller home can significantly affect your bills for taxes and insurance.

A standard homeowners insurance policy, for example, should provide enough coverage to rebuild the home if disaster strikes. But the higher that estimated cost, the more you’ll pay in insurance premiums. Rebuilding costs can be estimated by multiplying local per-square-foot building costs by the total square footage of the home. This means a smaller home likely requires less coverage, allowing you to buy a cheaper homeowners insurance policy.

The way property tax is calculated depends on where you live. But the method that your local government uses to assess your home’s value, and the taxes you pay on it, often takes the home’s square footage into consideration. Check your local property tax codes to see how a home’s size can affect property taxes.

4. Smaller homes are more energy-efficient

Another benefit of small-house living is that energy bills are cheaper. It requires less energy to keep a smaller space temperature-controlled and comfortable. Smaller homes also tend to have fewer lights and household appliances.

A home under 1,500 square feet saves $260 to $653 per year compared with the average home’s energy costs, according to 2018 data from the Energy Information Administration. 

Here are average annual energy expenditures by square footage:

Average Annual Energy Expenditures by Square Footage

Square FootageAverage Annual Energy Expenditure
Average of all homes$1,884
Less than 1,000$1,231
1,000 to 1,499$1,624
1,500 to 1,999$1,957
2,000 to 2,499$2,172
2,500 to 2,999$2,349
3,000 or more$2,809
Source: Energy Information Administration

Generating energy also produces carbon dioxide emissions. When a home is more energy-efficient, it reduces emissions and has less of an environmental impact.

5. Lower maintenance and upkeep costs

Whether you’re maintaining your home or simply cleaning it, having a small home helps you save time and money.Having less space could mean the difference between handling a weekly cleaning yourself or needing to pay for a cleaning service. A smaller property also means spending less on lawn care and landscaping.

Even if you can handle those tasks on your own, you’ll need to pay for more supplies and cover higher maintenance costs for a larger space.

Consider the opportunity costs as well. With a larger home, you may end up spending the day on maintenance and upkeep when you could be enjoying time with friends or family.

6. Cheaper to furnish and less obligation to decorate

A small home is less expensive to furnish. With no space to put a second or even third TV, and no spare room to house a guest bed, you can skip those expenses altogether. You’ll also save on home decor and holiday or seasonal decorations, if that’s up your alley.

Smaller homes can limit the temptation to keep buying things, since you only have so much storage space. This could help you make mindful and intentional choices about what you want to bring into your home, and spend less money on stuff you don’t really want or need.

Having fewer things doesn’t need to be a sacrifice. You may find that smaller homes feel cozier than drafty, sprawling houses.

7. You can indulge in nicer things for your home

If your budget is tight and you have a big house, then you might not be able to purchase high-quality furniture or other home essentials that you truly love. Having a smaller space can help create more room in your budget and allow you to dig deeper into your wallet to buy higher-quality items. As a bonus, these pieces may last longer than cheaper alternatives.

A smaller house could also mean you’ll be able to afford home improvements that increase your property’s value.

8. Easier to sell

Home values are typically tied to square footage, so a smaller home will cost less than a larger one. That means if you choose to sell, there likely will be more buyers on the market who can afford a smaller home than a larger one. You may be able to sell more quickly as a result.

Selling costs also increase with home size. Staging, for example, will likely cost less for a small home than it would for a large home with more rooms. Staging typically costs $500 to $600 per month per room.

9. You might be able to buy in a more desirable location

One of the starkest examples of trading square footage for location can be found in New York City, where renters and buyers often opt for smaller homes to be at the center of the action. Wherever you hope to live, you’ll have a better chance of affording a home in a central area if you’re willing to live in a smaller space.

It comes down to how you prioritize the amount of space you have versus the location. If you’re looking to live in a more in-demand neighborhood, then choosing a smaller home could be a way to make that happen within your means.

10. Living simply could mean less debt and risk

Instead of maxing out your homebuying budget, the financially responsible choice is to buy a smaller home that costs less than the total loan amount you’re approved for. Mortgage payments, other monthly expenses, and unexpected bills will be more manageable, and you might be able to avoid accumulating debt.

Having too much debt is risky. If you struggle to pay your mortgage, you could start missing monthly payments and fall into foreclosure.

11. You can spend more on other areas of your life

According to a survey of over 1,000 people who downsized their living spaces, 69% of homeowners said the primary reason was to save money, and 62% said lower costs were a major upside.

A more flexible budget from small-home living can open up your options. You could save money to put toward a new car, vacation, or passion project instead of spending it on housing expenses. You could build your emergency savings, or even invest the money you would otherwise be using to pay off a bigger mortgage.

Smaller homes can also save you time. The less time you spend cleaning your home and working in the yard, the more time you have to focus on hobbies or spend with loved ones.

12. Downsizing is an opportunity to get rid of junk 

According to the same survey, up to 16% of homeowners said that the primary reason they downsized was to declutter.

The longer you’ve lived in your current residence, the more likely you’ve accumulated stuff that you don’t use or need. Moving to a smaller home requires you to take inventory and focus on what you truly want to keep versus what you can let go of.

Decluttering can help you earn money, too. Consider selling your unwanted items on platforms like Mercari or OfferUp to make extra cash.

13. You can become a homeowner sooner

Choosing a more affordable property means you won’t have to spend as much time saving for a down payment, and your dream of homeownership can be achieved sooner.

Emily Guy Birken, co-author of “Stacked: Your Super-Serious Guide to Modern Money Management,” opted for an 1,800-square-foot cottage for her four-person household, which includes a cat and an 80-pound greyhound.

“If we had been set on a 3,000-square-foot home in the same area, we would have had to rent for several years while saving up for the down payment,” Guy Birken says. “Because we chose a smaller home, we were able to buy when we moved to Milwaukee, rather than waiting.”

14. More opportunities to bond with family or housemates

Studies suggest that families who spend more time together feel closer and experience other benefits, such as better overall health. For example, those who sit down and eat meals together report less stress overall.

In a large home, everyone’s in separate rooms, and it can feel like you rarely see the people who live with you, whether they’re roommates or family. Having a smaller home can encourage everyone to bond more in the same space.

15. You can save on HOA fees

Homeowners associations are neighborhood groups that provide amenities and other community services, and maintain property values by setting rules for how people can use their homes. In exchange, homeowners pay monthly dues to the HOA.

In some cases, the HOA assesses these fees based on the size of your home. The smaller your home’s footprint, the less you’ll pay in HOA fees.

Is It Better To Buy a Small Home as a First-Time Homebuyer?

Small homes can be a great choice for first-time buyers. Buying a home is expensive, and prices tend to rise over time. If your goal is to purchase a forever home, you could find your savings chasing a constantly moving target while you spend money on rent.

Buying a small starter home offers multiple benefits, including:

  • It’s easier to afford.
  • You get experience with homeownership and the responsibilities involved.
  • If your home appreciates in value, you can use your equity to help purchase a larger home down the road.
  • If property values fall, you have less to lose than someone with a larger home or mansion.

The Bottom Line on Buying a Small Home

Choosing a smaller, more affordable home could help you spend less on the upfront costs of getting a mortgage and become a homeowner sooner. It’s also easier on your wallet once you own your home, as you’ll likely have a lower monthly payment and cheaper utility costs. Along with paying less, you can enjoy other benefits, such as increased flexibility to invest in other areas of your life. That’s why it’s worth considering whether buying a small home might be a better fit for your budget and your lifestyle.

Elyssa Kirkham and T.J. Porter contributed to the reporting of this article.