Is a Starter Home or Forever Home Best for You?
Home buying is no small feat – there are many factors you’ll need to consider before you even begin touring potential homes. From location to size, price and many things in between, you’ll want to be sure you think through your wants and needs in order to find the right home for you. A big consideration, especially for younger buyers, is whether they should pursue a starter home or perhaps wait a bit longer to save up for their forever home.
Understanding the differences
You may be wondering about the key distinctions between a starter home and a forever home. It primarily boils down to one factor: the length of time you intend to live there. A starter home is a jumping off point for new homeowners – a place to finally call your own, that may be on the smaller side and is affordable without having to make any significant lifestyle changes. A forever home, on the other hand, is a place where you intend to live for many years, possibly even the rest of your life. It’s a place where you can expand your family and take on home projects purely for your long-term enjoyment (not only to improve resale value). However, a forever home typically comes at a higher price.
Why choose a starter home?
While you might assume a starter home is one that will need a lot of sweat equity, that isn’t always the case. For example, my spouse and I purchased our first home together a year after we were married and were working with a firm budget. After reviewing our options, we ended up choosing a newly constructed townhome with all of the upgrades rather than a larger single-family home that needed some TLC. The only problem, in hindsight, was that it was not very conducive to expanding our family. Here are a few things to think about if you’re considering a starter home.
It could cost less
One of the great things about a starter home rather than a forever home is that it will generally fit into your budget more easily. This is especially helpful for a first-time buyer who may not have a hefty savings account yet. There are some great mortgage options that require a minimal down payment, such as an FHA loan, at 3.5% down. Since starter homes tend to cost less overall, your out of pocket expenses will also typically be less.
Still, keep in mind that all homeowners should be prepared to save anywhere from 1 to 5 percent of the home’s purchase price for routine maintenance each year.
It may be cheaper than renting
You may find that a starter home is an even better option than renting when it comes to how much you’re paying to live there. In some real estate markets, houses may rent at a premium compared to how much it would cost to own a home of similar stature. As a homeowner, you’ll build equity in your home each month that you pay a mortgage payment, whereas you won’t see a return on the money you pay in rent.
There could be room for improvement
One of the perks of buying a home that needs some updates is that there’s a huge opportunity to improve its value when it comes time to sell. And since we’re talking about a starter home here, you’ll probably have plans to sell at some point down the road. Things like kitchen and bathroom remodels generally provide a big return, while smaller improvements like landscaping may lead to a faster sale and possibly a higher profit as well.
Why choose a forever home?
You might think that only older families are buying forever homes, but younger generations are choosing this option, too. Let’s face it, most of us have a dream home in mind – so what happens if you come across a house that has lifetime potential and you can’t imagine passing it up? Here are a few points to consider when deciding if the time is right for a forever home.
You have or plan to have a big family
A common reason for buying a new home is due to a growing family. We were able to accommodate one child fairly comfortably in our starter townhome, but when we discussed the possibility of having another child, we quickly realized we were short on space and needed to find something larger. If you know you want to have a large family within several years, you may realize that a starter home won’t meet your needs and instead may want to look for something that you’ll be able to live in for a longer period of time.
Current market conditions are favorable
As we’ve seen over the past decade, the real estate market can be especially volatile. After a period of high interest rates, we settled on historically low rates; however, they are slowly beginning to creep back up. A big factor in your decision to purchase your forever home likely revolves around cost, and lower interest rates generally mean a smaller monthly mortgage payment.
Buying when the market conditions are good means you should be able to get more house for your money, making it a good time to consider a forever home.
There's a potential income opportunity
Say you fall in love with the perfect home that will take you well into the future and it fits within your budget – but perhaps you don’t need all of that space quite yet. If you’re willing to become a landlord, you could choose to rent out a portion of the home to help cover your monthly mortgage payment. This is especially ideal if the home has a separate apartment or mother-in-law suite, so you can have separate living quarters from those of your renters.
Regardless of whether you decide on a starter or forever home, you’ll want to make sure it comfortably fits into your current budget. Also, if there’s a chance you’ll end up expanding your family or relocating for a job within a few years, take that into consideration when deciding which type of home is best for you. Your mortgage banker is a great resource and can help you make the smartest decision based on your finances and homeownership goals.