Is it worth getting a starter home?

If you’re buying your first home, the question of if you should buy a starter home or wait for your forever home may come up.

There are some benefits to easing into the housing market with a reasonably-priced starter home. However, you may have to sacrifice a lot of things on your wish list for a home and wind up spending more than you initially wanted to if repairs are extensive.

Either way, homes can be expensive. Head over to Credible to get free mortgage preapproval rates and a sense of what homeownership would cost in terms of monthly mortgage payments.

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What is considered a starter home?

A starter home is often a first home that is smaller or may cost less than the average piece of real estate in the housing market you're exploring. It might mean that you buy a home with just enough space instead of one that you can grow into over time. Or, that you have fewer amenities than you might have wanted in the first place.

Since you're buying your first home and you don’t have another home to sell to help fund your down payment, starter homes are often purchased through a combination of financing and personal savings.

On the other hand, a forever home is a home that can cost a little more but has everything you need in terms of size, location, and amenities. If you’re looking to lay down roots in an area and have enough space for a growing family, a forever home would suit your needs. The only thing is, you may not be ready to buy a forever home just yet given the cost and your current goals.

If you're ready to explore home buying and home loan financing, use Credible's tools to get personalized mortgage rates without affecting your credit score.

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Is it smarter to buy a starter home?

Buying a starter home and homeownership, in general, has its pros and cons. Keep these items in mind as you're house hunting to determine where your personal finance situation puts you on the home affordability scale.

Pros:

• Lower home price: This is common with starter homes since they are smaller and may need some home improvements or renovations. Use this free mortgage calculator from Credible to estimate your mortgage payment.

• Lower property taxes: There’s a good chance your starter home may be in a working-class area with lower property taxes, so you could save money on your taxes, too.
• Less maintenance: If you buy a one-floor ranch home, you’ll likely have less to maintain than if you bought a two-story home with a basement and tons of rooms and extra systems to keep up with.
• Potential real estate investment: If you choose to move on from your starter home in a few years, you could rent it out for extra income. Or, as you build equity and your property’s value increases, you could get a nice return whenever you decide it's time to sell the home.

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Cons:

• Home improvements could cost thousands: If you want to upgrade your home, you’ll need to go through the process of finding reliable contractors – and remodeling costs can add up quickly. Consider using Credible to secure a low-cost personal loan that can help with home improvement costs. Or, you might be better off buying a home that is already upgraded and this could also provide more peace of mind.

• Prone to more repairs: Starter homes may be older and prone to more repairs than a forever home. Serious home repairs can get expensive and eat into your disposable income.
• Less-than-ideal location: While a starter home can be cheaper, it’s important to consider the trade-off especially if it means you have to reside in an area that is further from your job or doesn’t have good schools.
• Less space for your family: Most people choose to sell or move out of their starter home once they realize space is getting super tight. If you’re planning on having kids, getting pets, or just feel you’ll need more space, in general, you may be better off skipping a starter home.

If making home improvements is on your horizon, be sure to have homeowners insurance before starting any project. Use Credible to compare homeowners insurance companies, plans and premiums.

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What Is a good price for a starter home?

The typical starter home can range from $50,000 to $300,000, depending on your real estate market. You can put as little as 5% down depending on what type of loan you get. Mortgage rates are very low right now which could make it a great time to buy a starter home. Other costs like taxes in your area and homeowners insurance will help determine your monthly payment.

Consider using a Credible, an online mortgage broker, to help you compare 15-year and 30-year mortgage rates and get preapproved quickly.

How long should you live in a starter home?

Most people spend anywhere from three to five years in their starter home. This should give you enough time to get settled, implement home improvements, and possibly save money for a move once you’re ready to upgrade.

Be mindful that if you try to move out of your home too soon, you could end up not getting much money from the sale, especially if you made a smaller down payment. If you don’t expect to stay in your home for at least two to three years, you could reconsider buying a home and wait.

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Is owning a home really worth it?

Whether you choose a starter home or forever home, becoming a homeowner can offer a lot of benefits, like having more privacy and freedom to customize your space along with the opportunity to build home equity with the potential to own it outright in the future.

If you think you’re ready to purchase your first starter home or forever home, visit Credible to get personalized rates within three minutes without affecting your credit score.

Have a finance-related question, but don't know who to ask? Email The Credible Money Expert at moneyexpert@credible.com and your question might be answered by Credible in our Money Expert column.