Starter Homes: To Buy or Not To Buy?
Shopping for a first home can be frustrating, especially in a hot market like the one we’re in right now. Homes in the most desirable cities and neighborhoods are selling for thousands more than they were even a year ago. For many young people entering the market for the first time, the process, costs, and commitment can feel overwhelming.
For many people, the idea of purchasing a “starter home”, or an inexpensive, imperfect home, has always been seen as a necessary step to buying their “forever home” later down the road.
But is buying a starter home really a good idea? Or are you better off renting until you can afford the home of your dreams? This article is all about weighing the pros and cons of buying a starter home.
What is a starter home?
For a home to be considered a “starter home”, it really only needs one thing: a below average listing price. Now, there are a lot of different kinds of homes that can fit under that criteria, such as:
A small house isn’t a tiny house. Tiny houses are sub-500 square feet homes built for those wanting to truly live a minimalist lifestyle. Small houses, on the other hand, are standard, stand-alone homes that sell for less money because they are too small for most families.
The average home size in the U.S. was 2,464 in 2019, meaning that a house can be 1,800 square feet and still be considered a “small home”.
You don’t have to be Chip and Joanna Gaines to take on a fixer-upper. Fixer-uppers are homes that sell for far below average due to their being in less than perfect condition. Buying a fixer-upper and renovating it can be a great way to get a good return on your investment, especially if you do the repairs yourself.
An attached home is a home that shares at least one wall with another home. Condos and townhouses are great examples of attached homes that can serve as great options for a starter home.
Pros of buying a starter home
Get your foot in the door
The biggest advantage to buying a starter home is that it introduces you to the real estate market and puts you on a path to building equity with every mortgage payment you make. This means that when you decide to sell your home, you recoup that investment and can put it towards purchasing your dream home.
Low interest rates
Another advantage to buying a starter home in today’s market is to take advantage of lower interest rates. With interest rates as low as 2.7% on a 30-year mortgage, there has never been a better time to become a homeowner.
Resell quickly, when you’re ready
Because starter homes are always in high demand by first-time home buyers, you can be confident that you’ll be able to sell your home quickly when the time comes. And because you own the home, you don’t have to wait for a lease to end to move on.
Cons of buying a starter home
A starter home is cheaper than your dream home, but the costs still add up. Between a down payment, property taxes, and other often overlooked expenses, buying a starter home is significantly more expensive than renting in the short term.
Risk of falling prices
If there’s one thing the 2007/2008 housing market crash taught us, it’s that property values don’t always go up. If you buy a home when the market is hot, and then the market crashes, you might end up living in a home that’s worth less than it was when you bought it. That said, the high-demand for starter homes keeps you somewhat protected from the volatility of the market.
Owning a home means you can sell it anytime you want. However, what many first time buyers don’t know is that selling a home costs money. Between realtor fees, legal fees, and the potential for capital gains taxes, selling your home will cost you thousands of dollars.
This is especially important to consider when looking at buying a starter home. Many buyers outgrow starter homes quickly, whether by getting married, having kids, or just wanting more room. You shouldn’t buy a home if you have any expectation of outgrowing it in a year or two.
Our last word of advice is this: if you’re not sure if buying a starter home is the right move for you right now, don’t do it. Buying a home is a big decision, one that should be made at the right time and not just because it’s what you’re “supposed” to do at this stage of life.
Everyone’s life and circumstances are different, so weigh your options, do your research, and make sure you make the decision that is best for you.