Starter homes aren't meant to be permanent -- but is it a good idea to move on from yours?
Many people aren't able to buy their dream home at first. They normally begin with something called a starter home. It's a small house designed to get you out of renting and into the real estate market so you can start building equity.
Starter homes can be a great investment and make it easier to eventually buy a home you plan to stay in long term (often called a forever home). But it can be tricky to figure out when you're ready to move up the real estate ladder.
If you aren't sure if moving on is the right choice, watch for these three signs it's time to be done with your starter home.
1. You've got the money to make higher monthly payments
Chances are good that your forever home will be more expensive. If you're buying a bigger or costlier home, it will obviously come with higher mortgage payments. But there will likely be other extra costs as well, such as higher property taxes, more maintenance expenses, and higher utility costs.
You need to make sure you're financially ready to take on all these extra obligations.
A test run is the best way to do that. If your forever home will cost $500 more per month, deposit an extra $500 into savings every month as a practice. If you can comfortably live on what you have left over, that's a great sign you're ready to move into a costlier space.
2. You're outgrowing your space
You may not intend to stay in your starter home forever, but there's no reason to move up to a bigger or costlier property if your current home is working for you.
If there's plenty of room and you like where you are, you don't have to move into a "better" home just because you feel that's what you're supposed to do.
On the other hand, perhaps your family is expanding or you need more room for your hobbies. In that case, it may be worth spending the extra money on a new space that's a better fit.
3. You can sell your home
Most people don't want to keep their starter home once they've bought their forever home. As a result, try not to make plans to buy your new house unless or until you're confident you can sell the old one.
It's a seller's market, so many people won't have trouble finding a buyer once they list their house. However, your home's condition and location will play a role in how quickly you can find a buyer and what price your property will fetch.
It's also a good idea to sell your starter home for enough to pay off your current loan and ideally make a 20% down payment on your new home. If you can't, you may want to wait until you can do both of those things.
If you wait until you tick these three boxes, you'll maximize the chances that moving up into your new property is the best financial move for you.
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