Should you consider a starter home?

Dipping your toes into the real estate waters for the first time?

You might be of two minds regarding whether to go for a starter home or a forever home. The dilemma is understandable. Besides the obvious price considerations, you want to weigh all your options and make a smart decision. Good choice!

Forever home vs. starter home

Most people who choose to live in a starter home are first-time homebuyers. They typically plan to reside in the property for under five years, until they eventually outgrow it. One might think: why shouldn’t I just buy a forever home instead of going through a laborious homebuying journey twice?

The answer is simple. You may initially lack the budget to buy a larger but more expensive home. Since the price of most starter homes falls between $50,000 to $300,000, your homeownership dream may be much more immediately accessible. 

Most people in their 20s opt for a starter home before buying a second home to fit the growing size of their family. Of course, there are always exceptions. Those who can rise quickly in their careers or are in high-paying fields could potentially invest much more in their first property. But you’ve to consider your own goals and current financial situation. 

When is buying a starter home a good decision?

Choosing a starter home over a forever home is a good decision when:

  • Affordability is a big factor. If buying a $300,000+ property doesn’t align with your budget and savings right now, then a starter home is a fantastic choice!
  • Liquid cash is low. In this case, making a huge down payment is currently not an option.
  • Becoming a landlord is your goal. Want to rent it out and use it as a passive income stream? This is a great way to ease into this new role. 
  • You want to save money on taxes. This is a stronger possibility as many starter homes are located in areas with lower tax brackets.
  • Less maintenance is one of your priorities. Starter homes contain less square footage and often less outdoor space, making it easier for you to keep up with property maintenance.
  • It will seed your forever home’s down payment. You intend to sell it later at a better sales price and put the proceeds toward your forever home.

And don’t forget the importance of DTI. Chonce Maddox Rhea, a BuzzFeed contributor, shared her experience. “Choosing a starter home made it easier for us to stay below the debt-to-income ratio (DTI) threshold.” 

Staying at 36% or under is the sweet spot you’ll want to hit.

When is buying a forever home a better alternative?

It’s all about individual priorities and preferences. Buying a starter home may not be a viable option if:

  • You need room to roam. A smaller space won’t accommodate your family or lifestyle.
  • It’s too much of a fixer upper. If a property needs extensive repairs and remodeling, it could add a significant burden on your expenses.
  • The location isn’t right for you. If the neighborhood isn’t ideal and you’ve got too long of a commute, you might not see yourself living there for long.
  • You have money to spend. You may not consider yourself flush with cash, but perhaps your financial situation would support a bigger down payment and sale price of a forever home. 

Rhea also emphasized repairs. In the case of her new home, expensive repairs were needed after she moved in. Fixing the plumbing alone cost $1,800. So if you’ve zeroed in on a starter home, skipping the inspection isn’t a wise idea.

Sure, if you’re a DIY expert, you can always do the minor fixes yourself. But be ready to hire contractors for the major ones, such as repairing the HVAC system. 

A starter home could prove to be a great investment for you down the road if it works for your lifestyle and preferences today. As mentioned, you can always sell your starter home to fund the next investment: your forever home!

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