If you are thinking about becoming a first-time homeowner, there is a lot to consider. For most people, the purchase of a home is likely to be one of the largest expenses in their lifetime. And in recent years, the average price of a home is continuing to rise.
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Your Guide to Your Dream Starter Home
There is a lot of planning and financial preparation that needs to go into this decision, and you want to make sure that you don’t end up straining your budget. While you may find that one property that you feel could be your “forever home”, you must also be truthful about what you can realistically afford. If you find yourself in this situation, like many others before you, a starter home could be the perfect fit for you.
Buying an entry-level starter home can be a fantastic investment for your first home purchase, allowing you to build equity and potentially work towards making a profit when you sell. There is still a lot to consider when finding the right starter home, so let’s get to it.
Okay, But What Even is a “Starter Home”?
A starter home is exactly what it sounds like – a home to start with. These are homes that are a better fit for being the first piece of property for an individual or family. Often times they are smaller homes, condos, or townhouses that a buyer can live in for a few years before moving on. The hope is that, when you sell, you can make more money than you spent when initially buying it… and put that directly into the purchase of a home that is a better fit for your lifestyle.
Starter homes, also called entry-level homes, are more plentiful than larger, newer, or highly customized properties. Because they are always in demand, potential buyers could get caught up in a bidding war, but they still usually go for entry-level price points.
Do Starter Homes Really Cost Less?
The price of a home depends on many things, such as square footage, acreage of the land it sits on, the location, the area’s housing market, and any amenities it may come with. Not all starter homes are necessarily the cheapest option. Some of them may even be more costly than a house with more square feet, but bigger is not always better.
Oftentimes, smaller homes come with a likewise smaller price tag. Because of this, that also means that they usually come with a smaller monthly payment in terms of your mortgage. This also likely indicates that your property taxes will be lower and you can save a lot of money on utility usage as well. Air Conditioning, electricity, gas, heating, etc. typically costs less in a smaller starter home when compared to a larger house.
Making repairs and upgrades to a smaller house also tends to cost less. Just consider the difference in what it might cost to replace a roof or flooring throughout different-sized homes.
How to Find the Right Starter Home
Just because this home may not be forever, it doesn’t mean that you should enter into its purchase lightly. You should still be thorough in your approach and make certain that you consider the possibilities in order to plan for your future. You never know how long you may end up living here. Here are some things to think about as you hunt for your first home.
Where Do You Want to Live?
Do you want a shorter commute to work? Do you prefer to be close to the downtown nightlife? Do you want access to a good school district? Do you want something in the suburbs or perhaps even somewhere more rural?
More densely populated areas tend to reflect this in the average home prices – the supply cannot keep up with the demand, so sellers are able to get more for their properties. Don’t overlook places like condominiums or townhouses in areas that are quickly growing. If you can buy early enough in its economic growth, values may rise significantly by the time you are ready to sell.
How Much Can You Afford?
Many first-time homeowners get their pre-approval from the mortgage lender and look for homes based on the maximum they have been approved to borrow. Just because you have been pre-approved for a pricey home, it doesn’t mean that you can afford it. It may make more financial sense to spend less than you have been approved for and leave room for future budgetary needs.
Most experts say that it is best to stay in a home for at least five years in order to reclaim the costs involved and see a return on the investment. So you want to make sure to purchase a property that won’t strain your expenses. Plus, the more money that you put towards the down payment, instead of the monthly mortgage, the more equity you have already built into the home.
Make sure to also consider the additional payments of closing costs, homeowners association fees, homeowners insurance, and property taxes when you are factoring out how much you can afford to spend.
The Housing Market
When the market is hot like it currently is, you should carefully consider if it is actually a good time to buy a home. When several buyers are all interested in the same property, it can start a bidding war and inflate the price well beyond what it may actually be worth. Keep an eye on trends in the market of the area where you intend to buy and watch interest rate changes for a few months before you decide to purchase.
What Will Future You Want?
A lot of people may be too preoccupied with embarking on the journey of purchasing their starter home to even consider their lives five or ten years in the future. But it is well worth your time to think about what your plans might be. Maybe you eventually want pets or children. You may not always want to share walls with neighbors. Stairs might become an issue later on. Take your future plans and try to lay some of that groundwork now, as you make your decision on what home you will start with.
Even though this starter home may only be yours temporarily, you should be certain that you can envision your life in this new place. Keep in mind that, if things do not work out, you could be living in this house for much longer than you may have first envisioned.
The Condition of the Home
Renovations are costly and time-consuming. Your starter home does not necessarily need to be a fixer-upper in need of a lot of upgrades or repairs. Routine maintenance can be stressful enough, both emotionally and financially, so you need to make sure that you don’t bite off more than your can chew.
Take into account how well the property has been maintained by the previous owners. If there are major issues that need to be addressed, you may be better off passing on that particular property. This can be especially true for foreclosures and distressed properties. Their steeply discounted price may be appealing, but what you will pay to repair them can often be far more than you would pay for a home that doesn’t require that kind of work.
Regardless of a home’s apparent condition, you need to be sure to hire a professional home inspector before signing any paperwork.
The Bottom Line
Buying a home is a daunting process, all the more so for first-time homeowners. But it can also be incredibly rewarding, both financially and emotionally. It is easy to make mistakes along the way, but if you are diligent and thorough in your approach, you can accomplish this next big step in your life. Do your research and keep the things you have learned here in mind.
Starter homes are incredible opportunities for first-time homebuyers. They tend to appreciate faster and, therefore, are a solid investment. Take comfort in knowing that, even if you decide to stay, you are taking steps toward finding yourself a new place to call home.
Your future is here today. It’s time to start your journey to becoming a homeowner today. Click here to get started with The Renter’s Best Friend’s program for 1st Time Home Buyers and start making your dreams a reality.