Should you buy a starter home?
Most first-time homebuyers typically begin their path to homeownership by purchasing a starter home before settling into their long-term “forever” home.
Buying a starter home, which can be a condo, townhome, or small single-family home, is a great way for newbies to get a grasp first-hand of all the responsibilities that come with owning a home. Starter homes are also smaller and more affordable, making it a bit easier for first-time homebuyers to enter the real estate market.
Some starter homes may need some TLC, or they may not have all the amenities and features that meet higher standards, but they’re a great stepping stone into homeownership for first-time homebuyers. Buyers will get to know what they like or don’t like from the first home before moving onto their forever home. So, if you’re tired of paying rent and want to make a bigger financial real estate commitment, here are some factors to consider if you think you’re ready to buy a starter home.
How much can you really afford?
Before you can sign on any dotted line and get the keys to your new home, you’ll need to figure out if you can actually afford it.
Luckily, starter homes are generally smaller and more affordable. A good rule of thumb when purchasing a home is to put down 20 percent, or buy a house that costs less than three years’ worth your gross annual income. Although these are common rules for homeownership, it isn’t always attainable for first-time homebuyers. About 80 percent of first-time homebuyers used low down payments to finance their first home purchase, according to the Genworth Mortgage analysis.
Fortunately, there are several grants and programs available for first-time homebuyers. Depending on the market, first-time homebuyers can find suitable lenders, low mortgage rates, down payment and closing costs assistance, and homebuyer education programs to help them on their homebuying journey.
Another great tool for first-time homebuyers to figure out how much they can afford is an affordability calculator.
Decide on a Location
Location is a major factor when deciding to purchase a home, and it becomes even more important if you only plan to live in a certain location for a few years. This is why starter homes are perfect for first-time homebuyers who are unsure of how long they want to stay in a specific location.
Whether you decide to live in the suburbs or an urban neighborhood, if you don’t plan on putting down long-term roots, then a starter home gives you the flexibility to move around a bit more, and eventually move on to your dream home in your desired location.
Consider Your Lifestyle
Another important factor to consider during your home search is your lifestyle. Are you planning to start a family? Are you planning to switch careers or go back to school? These lifestyle changes can affect your decision when buying a starter home.
“I wanted just enough space for me and my partner, but now we have two small boys. We’ve outgrown our condo and are now looking for a larger single-family home in a more family-friendly neighborhood within a good school district.”
Since homeowners tend to outgrow their entry-level home after a few years because of lifestyle changes, it may be smart to consider these options before closing on a deal. If you can see yourself staying put for a few years in your starter home, and it works for your current lifestyle and budget, then it may be the right decision for you.
Make Some Compromises
Since most starter homes are smaller in size, square footage may be one of the things you may have to compromise. But think about how much space you really need.
Bianca Sanchez bought her 800 square-foot two-bed, one-bath starter home several years ago in the East Side neighborhood of Chicago. And although she compromised on buying a smaller home due to budget constraints, she wouldn’t compromise on the outdoor space.
“I wanted a big backyard and that was one thing I wouldn’t sacrifice during my home search. I knew I didn’t have a big budget to buy my dream home in the suburbs that I wanted, but at least I got a spacious backyard that I use a lot during the summer."
Starter homes are also not as move-in ready and some are even labeled as fixer-uppers, meaning they’ll need some repairs to get it to your liking or standards. The kitchen may not have the latest stainless steel appliances or the living areas may be covered in green shag carpeting, but if you can look past these features and decide if it’s worth your investment with some minor repairs, then you’ll be the proud owner of a starter home with plenty of character.
Best of all, the beauty of owning a starter home means you can sell it when you’re ready to move onto a bigger or long-term home. And since you’ve built equity with your first home and gained some homeownership experience, you’ll be more confident and knowledgeable with your second home purchase.