Is Buying a Starter Home Smart?
Traditional real estate advice says you should buy a starter home, a small and affordable property that gets you into homeownership even if you know you won’t stay there long term.
Is this advice still relevant in today’s market? Here’s what you need to consider as you decide if a “starter home” is the right first move for you.
What is a Starter Home?
A starter home is usually a smaller dwelling chosen for its affordability as a short-term home. Starter homes generally have one to two bedrooms and are under 1,300 square feet. A survey by Zillow in 2020 says the average starter home is valued around $132,000, though that number fluctuates widely depending on location.
What is a Forever Home?
A forever home is a home you can imagine living in for decades, or possibly until the end of your life. Forever homes are generally much larger than starter homes, starting around 2,000 square feet.
To be considered a forever home, it needs to be something that can evolve with the changing seasons of life, including adding children to the family, career changes, and children moving out.
Pros of a Starter Home
- Smaller down payment: here are many mortgage options available to first-time home buyers , offering down payments as low as 3% (and even offering down payment assistance in some cases to bring your down payment down to 0%). A small down payment on a starter home may be far more attainable than you thought!
- More affordable: A starter home will be more affordable in many ways. Not only is the down payment likely to be much lower, but the monthly payment and utilities on a smaller home will also be easier on your wallet.
- Build equity faster:According to a real estate analysis starter homes appreciate faster than other types of properties, with a steady demand for these entry level homes in all markets.
- Less upkeep: A smaller home usually means less upkeep. Housekeeping and yard work will take less or your time, or cost less to hire a professional.
- More affordable to furnish: Homes with a smaller footprint, fewer windows, and less rooms will require less money to furnish. If you know the house is your starter home and is a short term location, continue to dedicate as much of your disposable income as possible to saving for your next home and avoid investing heavily in furniture, window coverings, and other furnishings.
- Easier to sell: While it is not always the case, starter homes are often the easiest to sell. As long as the home is not in need of major repairs or updates, an affordably priced starter home will sell more quickly than other properties in the same market.
Cons of a Starter Home
- More competition: Buying a starter home usually means competing with multiple offers, from other people in your position as well as real estate investors looking to flip a house or invest in an income property.
- More expensive homes build more wealth: A more affordable starter home will save you money on a monthly basis, and will likely require lower down payment and closing costs. However, even though a starter home build equity faster and costs you less, it won’t build more wealth. The more you invest in your home, the more equity you will have in the future. In other words, if a $150,000 home and a $300,000 both increase in value by 10% this year, their growth rate will be identical but the equity built in the more expensive home is double. Work with your lender and financial advisor to determine the sweet spot in your budget that makes for a comfortable payment but maximizes your ROI.
- Additional moving costs: If you know you will only be staying in the home for a few years, you need to factor in the moving costs and closing costs you’ll need to pay again to move on to the new house. Any money you spend on your starter home that doesn’t purchase something you will bring with you to the next home should be considered part of the money spent to invest in this starter home.
What to Look for in a Starter Home
If after considering the pros and cons of buying a starter home you have decided it’s the right move for you, here are some things to look for in a starter home:
- Comfortable monthly payments
- Convenient location
- Fits your needs for the foreseeable near future
- Low maintenance
- Resale value
To begin looking for your first home, or for more information about becoming a homeowner, contact us today! We are ready to help.
Looking to relocate to the Orlando area, perhaps outside the hustle and bustle of downtown? At Buyers Broker of Florida, we work solely with buyers looking to find the perfect home for their lifestyle and budget. Contact us at any time to start your search for Orlando homes for sale and all surrounding communities and towns.