Starter Home Vs. Forever Home: Which Should You Buy?

Whether you’re looking to save money, stop paying rent or grow your family – buying your first home is an exciting milestone.

However, many prospective homeowners put a lot of pressure on themselves to make sure their first home is also their dream home. After all, a home will likely be the largest purchase you ever make, so it’s natural to want to “get it right” the first time.

If we consider that buying your first home may not necessarily be your forever home, what are the advantages of buying a starter home? Read on to learn about to help you choose the right home type for your needs.

What Is A Starter Home?

A starter home, also known as an entry-level home, is a smaller, more affordable home for new home buyers.

Starter homes can be older homes or fixer-uppers. You may find them in less competitive neighborhoods, and the homes may feature fewer amenities or upgrades than newer, larger homes. But because many first-time home buyers usually have limited budgets, they tend to focus more on staying within their budgets than checking off every item on their home buyer wish list.

It’s hard to know what you’re looking for in a home until you’ve owned one. Buying a starter home helps you build experience as a homeowner. Then once you’re financially ready and have outgrown your starter home, you can use that experience – and the equity you built – to help purchase your forever home.

What Is A Forever Home?

If you’re considering buying a more expensive home you can see yourself growing old in, that home isn’t a starter home. It’s likely your forever home.

For most home buyers, purchasing a forever home happens a bit further down the road. Most people start thinking about purchasing their forever home once their family life and career are more stable.

It’s important to understand that your starter home is the one that’s going to lead you to your forever home purchase. You can live in your starter home until you’re ready to start looking for your next home. It’s possible there may be many homes between your starter home and forever home.

What Are The Advantages Of Buying A Starter Home?

Depending on your lifestyle and income, a starter home may or may not be the right choice. But there are many good reasons to consider purchasing a modest first home.

They’re Less Expensive

The biggest benefit of purchasing a starter home is that it’s less expensive. Its affordability is especially beneficial for new buyers who may not recognize all the costs included in homeownership.

They Allow Owners To Build Equity Instead Of Paying Rent

If you’re working with a small budget, buying a starter home allows you to build home equity instead of paying rent. When you’re ready to purchase your forever home, you can turn the equity into cash to spend on a down payment. If you spend the next 5 years paying rent, that money is lost forever.

They Can Make An Excellent Investment Property

Once you’re ready to purchase your forever home, you don’t necessarily have to sell your starter home. You can use the equity you’ve built to make a down payment on your next home. Then you can rent out your starter home to generate supplemental income.

What Are The Disadvantages Of Buying A Starter Home?

There are downsides to any real estate investment, and starter homes are no exception. Here are some downsides you should consider before purchasing a starter home.

They Tend To Be Older

Over the past decade, the trend for most American families has been to purchase increasingly larger single-family homes, so the available stock of smaller single-family homes tends to be older.

Depending on the condition of the property, an older home might mean increased maintenance costs. If you can’t maintain the home repairs yourself, you may want to invest in a home warranty to help keep the cost of repairs down.

They Tend To Be Fixer-Uppers

Lower-cost homes often require significant renovation to make them more comfortable to live in. If buying a fixer-upper doesn’t appeal to you, there are other options you can consider.

For instance, you might consider purchasing a new condo as your starter home. Condo owners aren’t responsible for any exterior maintenance expenses. And buyers in large cities may want to purchase an apartment in a building with a live-in superintendent.

They Tend To Have Fewer Amenities

Because starter homes are often older and smaller, they may lack trendy amenities, like smart home features and devices, that many home buyers are looking for. But if you’re young and just starting your career, ask yourself if you’ll even be home often enough to take advantage of these amenities.

They Tend To Be Located In Less Competitive Neighborhoods

When suburban neighborhoods first became popular in the 1950s, they were usually built closer to the city. Once larger homes became more popular, the suburbs spread farther away from city centers and became more competitive places to find homes and live.

Pros And Cons Of Starter Homes

Here are some quick facts to easily compare the pros and cons of buying a starter home.

Should You Buy A Starter House? 6 Questions To Ask

Still undecided on whether to buy a starter home or skip straight ahead to a forever home? Ask yourself these six questions.

1. How Much Can I Afford?

A preapproval from a mortgage lender can give you a good idea of how much you can afford as a monthly mortgage payment. That will help you narrow your search, which may also remove some forever homes from consideration.

You can also look into programs that offer assistance to home buyers. You’ll find incentives for:

• First-time home buyers
• Down payment assistance
• Teachers who want to purchase a home – even with student debt

Whether you purchase a starter home or forever home, it’s important to consider the additional – and often overlooked – costs to owning a home to ensure you’re ready for the routine expenses of homeownership beyond the initial purchase.

2. How Long Do I Plan To Stay In This Home?

Once you choose a home, it’s best to stay awhile – and not just because moving can be such a hassle. You also want to build enough equity in your home to avoid losing money on all the fees and expenses included in buying and selling a home.

If you move before you’ve lived in your home for 2 years, you may have to deal with capital gains taxes. Ideally, you should spend 5 years in the home you plan to buy.

But circumstances can change, so it’s important to consider how soon you’d need to sell a house after buying it. A new job, a change in marital or relationship status, starting a family or caring for family members can force you to relocate. If you think you may have to deal with similar scenarios in the near future, it may not be the right time to buy a house.

3. Is This A Good Location?

Even if you don’t have children or plan to start a family, a home’s proximity to schools and parks can impact a home’s resale value. If you decide to start a family, a home near these amenities can make your life easier.

Also, consider commuting time, traffic, mass transit options and shopping. Retail stores can be a great indicator of where a neighborhood is headed. If plenty of businesses flock to the area, your home’s value may increase over time.

You should also consider the fees and rules that govern properties connected to a homeowners association (HOA). While an HOA will cover some maintenance, most charge a monthly fee that doesn’t help you build your equity. An HOA may also restrict certain renovations and additions to the home.

4. Is The Property In Good Condition?

It’s worth considering how much work you’ll need to put into a home. Starter homes are often cheaper for a reason. A home inspection and appraisal are musts before buying. The inspection will reveal what needs to be repaired or replaced, and the appraisal will determine what the home is worth by establishing its fair market value.

5. Will Maintenance Or Renovation Make It Cost More Than A Forever Home?

If the home inspection reveals a laundry list of problems, there may be renovations in your future. You may even need to look into home improvement loans for bigger projects. A long list of renovations and minor but urgent repairs can add up. And renovations don’t just require money: they require time.

Building a starter home from scratch may be less expensive than buying and renovating an older property, but it may end up costing as much as a forever home.

6. What’s The Resale Potential?

It’s important to think long term in real estate. How has the market changed over the previous few years? What does your real estate agent say about where the market is heading? You can learn a lot about a home’s potential value by reviewing previous housing market trends and comparable home prices in your area.

Ideally, a starter home will increase in value if you put a little work into it. Of course, this will depend on the extent of your home improvement skills, the real estate market and your location.

Starter Home: FAQs

Buying a house is a big decision – especially your first one. Let’s go over some frequently asked questions about starter versus forever homes.

How much is the average starter house?

The price of an average starter home will vary based on your location. The state, city, neighborhood, street and even side of the street the home is on can make a huge difference.

Consult your lender about how much you should spend on a starter home and recruit the best buyer's agent to represent you. Don’t spend more on a home than you can realistically afford.

How long do you need to own a house before you can sell it?

The specific home, market and current economic climate are all key factors you can use to help determine when you should sell your home. In general, it’s typically a good idea to wait at least 5 years so the home’s value can appreciate and selling it is worthwhile.

Typically, the longer you wait to sell, the more a home will appreciate. This means more cash in your pocket when you finally hand over the keys to a new owner.

How do I find a starter home?

One of the best ways to start looking for a starter home is to work with a trusted real estate agent. They can help you find homes in your desired area(s) and guide you through the entire transaction process.

While it’s important to have an idea of what you’d like in a home, it’s crucial to keep an open mind and be flexible while you’re house hunting. Finding a home that fits your budget and meets your needs can be a short-term reality that one day leads you to your dream home.

The Bottom Line: Starter Homes Are A Solid Option For First-Time Home Buyers

Buying a starter home is a great first step into homeownership. It allows you to start building equity in your home and gives you time to work out what you want and need in a house.

When you’re ready, you can move to your next home or buy your forever home. Most homeowners live in multiple homes between their starter home and their forever home.

Are you ready to start your house hunt? Start the mortgage preapproval process online and see what you qualify for.