When you’re buying your first home, should you look for a place where you could live for a long time? Or one that works for right now? Many first-time buyers assume that buying a starter home is the mandatory first step of homeownership. But that might not be the case for everyone.
So, should you buy a starter home? Let’s explore the idea of a starter home and help you decide whether buying one is the right move for you.
What is a starter home?
A starter home is a place that fits the needs of young people buying their first house. That means these homes are typically smaller in size and in the lower price range for your area. People who buy starter homes do so with the intent of staying in them for a few years, then selling it and buying something bigger and nicer when they can better afford to do so.
Those bigger places are typically considered “forever homes,” or a house that can accommodate your needs now and in the future. This is especially relevant if your long-term plans will require more space, such as growing your family.
Note that this isn’t so much about the quality of the home. Both starter homes and forever homes can be move-in ready or they could be fixer-uppers. It’s more about the factors that are more difficult to change, such as size and location, that will dictate how long you can live there comfortably.
Should you buy a starter home?
It’s a question that plagues first-time buyers. Should you buy a starter home now ? Or save up so you can buy a forever home down the road? The answer is, there’s no right answer. It all depends on a mix of what’s happening in the market and your personal situation. A few things to consider:
- Interest rates. One good reason to scoop up a starter home is low interest rates. If rate are low now, it may be in your favor to lock in a mortgage now before they swing back up. Waiting too long may mean you get stuck with a higher rate, and can’t even afford that nicer home you were saving for in the first place.
- Market conditions. You’ll need to consider whether you’ll be able to sell your starter home when it comes time to upgrade. That means you want your starter home to hold or appreciate in value over the next few years. Ask your real estate market about your local market conditions and whether you can expect a buyer’s or seller’s market.
- Potential to rent. If the market won’t cooperate and you aren’t able to sell your starter home, would you be able to rent it out? This can help generate the extra cash you need to move and prevent you from getting stuck in a house that’s no longer right for you. Check out rents in the area and make sure they’d cover your mortgage payment.
- Possible costs. While a starter home may be cheaper up front, there are also additional costs to consider. There’s the price of moving twice, plus a second round of closing costs. And if your starter home place isn’t in great shape, there are repairs that you might need to make that you won’t be around to enjoy. Try to focus on improvements that will increase the resale value of your home.
The bottom line
If you’re ready to buy your first home, you’ve probably thought about whether you should buy a starter home or if you should stretch your budget for a more long-term place. There’s no one-size-fits-all verdict when it comes to starter homes. But taking the time to think about the potential costs, market conditions and your financial situation can help you make a decision that’s right for you.