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First-time homebuyers are often faced with a choice: Buy a starter home to live in for a few years before moving on to a larger property with more square footage, or buy a forever home right away -- a home that's move-in ready with enough square feet to grow into. The question is: Which option is best for you?
What is a starter home?
A starter home, as the name implies, is a property that may not be ideal to live in on a long-term basis. Rather, it's a home that's more likely to suit your needs for a limited period of time. Compared to forever homes, starter homes tend to be smaller and less updated.
What does it cost to buy a starter home?
The amount of money you'll need to purchase a starter home will depend on the market you're looking at. In San Francisco, for example, the median price for a starter home was a whopping $895,000 as of 2019. But on a national level, you'll need less money than that to buy a starter home. The National Association of Realtors reports that as of late 2018, the average cost of a starter home was $219,300.
Pros of buying a starter home
First-time buyers can benefit from investing in a starter home before moving on to a larger space. Here are some of the advantages of a starter home:
1. They cost less money
You'll generally pay a lot less for a starter home than you would for a larger space that's more up to date. That's a good way to keep your mortgage payment more affordable.
2. Their property taxes tend to be lower
Property taxes are a function of a home's assessed value multiplied by its local tax rate. A starter home in a given market is apt to come with lower property taxes than a larger home on that same block, or in that same vicinity.
3. Less maintenance
The larger your home, the more time and money it will cost you to maintain it. If you're new to homeownership, a starter home is a great way to ease into the experience without getting overwhelmed. Also, a lot of new buyers find that they get in over their heads financially when they realize just how much upkeep can cost. A smaller home is therefore a safer bet in this regard.
4. Easier resale
There's a limited inventory of starter homes on the real estate market today. That could make finding a starter home a challenge, but once you do, there's a good chance you'll have a relatively easy time selling it once you decide to move on, especially if you buy a house that's in a desirable neighborhood.
5. The potential for rental income
You may outgrow your starter home at some point, but if it's relatively affordable, you may have the option to hang onto it, rent it out, and have someone else pay off its mortgage.
6. Access to your neighborhood of choice
If the average house in your ideal neighborhood costs $500,000, but you're on a budget, a $300,000 starter home could be your ticket into that desirable zip code. And from there, you could get access to a great school system, shopping, and other local perks.
Cons of buying a starter home
There are plenty of good reasons to buy a starter home, but there are some drawbacks to consider as well. Here are some of the disadvantages of settling for a house you don't see yourself living in forever.
1. Limited space
Starter homes tend to be smaller by nature, which could get uncomfortable, especially if you have kids in the mix. And while adding onto a starter home is sometimes feasible, local zoning laws and smaller lot sizes could take that option off the table.
2. Lots of projects
It's not always the case that starter homes are out of date -- but many are. And if you buy a house that needs work, you may find that all of your spare time and money goes into renovations for the first year or two after you move in.
3. Resale difficulty
Earlier, we discussed the fact that buying a starter home could lend to easier resale. But that largely depends on the housing market you buy in. If you purchase your starter home in an area where the bulk of the houses are larger and higher-end, you may have trouble finding a buyer who's looking for a smaller property when you find yourself ready to move on.
4. Not feeling settled
When you buy a forever home, you can generally picture yourself living there for years and years. With a starter home, not so much. That could leave you feeling generally unsettled, and it could also create a scenario where you question every single home improvement project you sink money into.
What's the right move for you?
Deciding whether to buy a starter home versus a forever home isn't easy. Here are some factors to consider as you contemplate your choices:
- Your down payment. If you don't have a lot of money to put down on a house, a starter home could be just the thing that allows you to become a homeowner -- and stop wasting money on rent.
- Your budget. How much can you comfortably afford to spend on housing each month? A starter home could be much less of a strain on your budget than a larger house.
- Your lifestyle. Do you spend a lot of time at home? If so, having less space may not be ideal. On the other hand, if you're the type of person who uses your home just as a place to eat and sleep, it may not bother you to have less space. You could free up more money for other things you enjoy, like leisure and entertainment.
- Your family situation. If you're planning to expand your family, you could outgrow your starter home quickly.
If you do decide that a starter home is your best bet, make that clear to any real estate agent you work with. The last thing you need is someone pressuring you to stretch your budget for a larger home that may be nicer to have but ultimately isn't the right choice for you at this point in life.
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