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Starter Homes: What Are They and Is One Right for You?

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If you're a first-time buyer looking for a home, you have choices. You could buy a larger property or opt for a starter home instead. Here, we'll discuss the pros and cons of a starter home and help you decide if that's the right choice for you.

What is a starter home?

A starter home is generally defined as a smaller property that a buyer only intends to live in for a few years. There's no set number of bedrooms or square footage. A starter home might have one bedroom, or it might have two or three. It might be 800 square feet or 1,500. But generally, you'll know you're buying a starter house when you can picture yourself outgrowing it in time.

Starter homes also tend to be less updated than forever homes, though this isn't always the case -- you may find a starter home with plenty of upgrades.

First-time home buyers and starter homes

A starter home is generally smaller than a forever home. As such, it's a good choice for a first-time home buyer. A starter home makes for a smoother transition into homeownership. If you're not used to making a mortgage payment, covering property taxes, or maintaining a property, then you may be better off with a smaller home rather than a larger home.

Buying a starter home pros & cons

There are benefits to buying starter homes you should know about:

  • A lower purchase price: You'll generally spend less on a starter house than on a forever home, and that translates into a lower mortgage payment.
  • Lower property taxes: The less your house is worth, the less property tax you'll be charged.
  • Less maintenance: If you've always been a renter and have no idea what it means to have to maintain a home, a starter home may be less overwhelming for you. And it's apt to take up less of your time.
  • Easy resale: Starter homes tend to be high in demand because they're more affordable than forever homes. So if you decide to move after a few years or you need to move because your circumstances change, you may have a fairly easy time finding a buyer.

On the other hand, buying a starter homes has its disadvantages:

  • Less room to grow: If you expand your family after buying a starter home, you may find that you're instantly starved for space.
  • More work to be done: Depending on your local housing market, you may find that the typical starter home isn't in as good shape as the average forever home, which could translate into more work for you and costly repairs.
  • It may not be your dream home: Your picture of the perfect home may not be a smaller condo or townhouse, or standalone home with limited space. And dealing with that disappointment can be challenging, even if you recognize that a starter home is a smarter financial decision.

Tips for buying a starter home

If you're new to buying a home, check out this first-time home buyers guide. It's loaded with general information about homeownership, like how to find a home and how to apply for a mortgage.

Meanwhile, here are some tips for finding a starter home:

  1. Figure out your budget: You can use a mortgage calculator to see how much of a home loan you can afford based on your down payment.
  2. Get pre-approved for a mortgage: This will help you know how much of a home loan you'll have to work with, and you can consult this list of mortgage lenders for first-time home buyers to find a lender for pre-approval.
  3. Find the right real estate agent: Ask friends for recommendations on an agent who knows the area well and can help you find a starter home within your budget.
  4. Write up a list of your must-haves: These are items you refuse to compromise on in your starter home, such as a minimum number of bathrooms.
  5. Be flexible: Your starter home probably won't be the home you live in forever. So if you can find a property that's suitable in the near term, it could pay to move forward, even if it's missing some features you'd like or it needs cosmetic work.
  6. Don't overpay: Part of the whole point of buying a starter home is to spend less money, so don't stretch your budget for a home you're not planning to stay in on a long-term basis.

The bottom line on buying a starter home

Buying a starter home may seem like a compromise, and to a large degree, it is. But remember, while you may not want to stay in your starter home forever, it could be a smart investment. If that home gains value between when you buy it and sell it, you could end up with a nice profit, and that's money you can use for a down payment toward a larger home.

Also, while some people do end up living in a starter home for just a few years, other buyers wind up staying for decades. You might think you'll outgrow your starter home, but you never know when that home might end up suiting your needs for many years.

If you're going to buy a starter home, be sure to shop around with different mortgage lenders for a great deal on a home loan for that property. Each lender sets its own interest rate and closing costs, so gather offers so you can compare your choices.

You'll also want to make sure you're a strong mortgage candidate. This generally means having a good credit score (620 is the minimum for a conventional loan), a low level of existing debt, and a steady job. You can consult this beginner's guide to home loans to learn more about what it takes to qualify for a mortgage and how to find a great deal on one.

Still have questions?

Here are some other questions we've answered:

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FAQs

  • A starter home is a smaller, less expensive home that you don't intend to live in for more than a few years. Starter homes tend to be less updated than forever homes, though this isn't always the case. Many buyers purchase a condo or townhouse as a starter home, though a smaller standalone house can serve as a starter home as well.

  • Starter homes are generally cheaper than forever homes. And due to their size, they're easier and less expensive to maintain. As such, they're a good choice for new buyers who have never owned property before. They also tend to be fairly easy to sell, since there's generally strong demand for starter homes.

  • If you have a limited home-buying budget and aren't sure how much upkeep you can manage, then a starter home could be a better choice than a forever home, which will generally be a much larger home. On the other hand, if you buy a starter home, there's a good chance you'll end up moving within a few years, so you'll need to make sure you're prepared for that potential hassle. It could end up making more sense for you to wait a few years, save more money, and buy a home you know will suit you for decades.

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