What to Consider Before Buying a Starter Home

starter home

Tired of renting? Whether you’re a young professional looking to take advantage of low interest rates or a young family hoping to put down some roots, you might be thinking about buying a starter home. Not only is a starter home a great option for those on a limited budget, but it’s also a good way to begin building equity – as opposed to throwing away money on rent. It’s also a smart way to ease into the homebuying process, if you’re not quite ready to purchase that forever house. Not sure what to consider when buying a starter home? Here’s the 411 on what you should know before purchasing a starter home. 

What is a starter home?

A starter home is usually the first home that a buyer can reasonably afford to buy. While it may not have all the bells and whistles that a “forever home” would likely have, it meets the immediate needs of the buyer. Starter homes tend to be smaller and cheaper than a forever house. For instance, no one would consider a 6-bedroom, 4,000 square foot home to be a starter home. Starter homes are a good option for young professionals, newlyweds, young families and anyone who is hoping to live in one place for up to five years.

What are the upsides of buying a starter home?

There are several advantages to buying a starter home over a forever home. First, for anyone who is tired of wasting money on rent, buying a starter home gives them a solid place to build equity and savings for the future. If the market appreciates over time, then you should be able to make money when it comes time to sell the home. On the other hand, you could also keep the starter home and earn money renting it out. A second benefit to buying a starter home is that it’s simply more affordable than a forever home. Everything from the initial down payment and monthly mortgage payments to the utility bills and property taxes will cost less than if you were purchasing an expensive forever home. The third benefit to buying a starter home is that you likely won’t be stuck long-term, if and when you need to leave. Starter homes tend to sell quickly. Not only that, but you also won’t feel “underwater” (so to speak) while living there because you can actually afford to own it. 

What are the downsides to buying a starter home?

While purchasing a starter home is a great idea for many, there are still a number of downsides to consider. First, purchasing a home (even a starter home) is an expensive and time-consuming process. You may have to pay for closing costs and Realtor fees – not to mention, moving expenses. In many cases, it’s simply easier to just to rent. This is especially true in pricey housing markets (think: San Francisco, Boston or Washington, DC) where inventory is limited, and starter homes are very expensive. While equity is certainly nice, renting in pricey housing markets is oftentimes still cheaper than purchasing a starter home. A second downside to buying a starter home is that they are just that: starter homes. Given that starter homes tend to be smaller, the buyer may end up outgrowing the home faster than they expect. In many cases, it might make more sense to simply continue renting until you are ready to purchase the forever house. 

The most important factors to consider before buying a starter home

Now that you know the benefits and downsides to buying a starter home, let’s look at other important factors to consider.

  1. Space

    Most starter homes are small in size, which is part of the reason why they tend to be affordable. While you may need to compromise on space when purchasing a starter home, it’s important not to compromise too much when it comes to square footage and the number of bedrooms. Our recommendation is to make sure you have enough space for the next three to five years. While you may eventually outgrow the starter home, the goal is to live there comfortably for at least several years.

  2. Budget

    Just because a starter home is more affordable than a forever home, doesn’t mean it always makes sense to buy one. Important expenses to keep in mind when house hunting include closing costs, property taxes, homeowners insurance, upkeep and maintenance costs, and utility bills. While a starter home may seem affordable, it could end up being a money pit, depending on the age and condition of the house. If a starter home needs renovations or changes, be sure to factor this cost in as well. 

  3. Goals

    Before purchasing a starter home, be sure to consider your future plans. For instance, do you intend to stay in a starter home for at least five years? Do you plan to grow your family? Are you considering a job change in the next few years? What about a location change? Will you rent out the starter home or sell it in the future? While you can’t predict everything, it’s important to hash out your future plans and have some idea of your goals (both financial and personal) before purchasing a home.

  4. Location

    When buying a starter home, resale potential is particularly important. Of course, nothing impacts the resale potential of a home more than its location. As any Realtor will tell you, “location, location, location” is the single most important factor that affects a home’s pricing. If you plan to eventually sell your starter home – or rent it out to tenants – then a home’s location should be top of mind.

  5. The housing market

    Are home prices in your city on the up-and-up? Or are they currently falling? Make sure to consider the state of the market prior to purchasing a starter home (or any home!). For instance, if the housing market is going strong and prices are rising, then this is typically a good reason to purchase a starter home. Buying an affordable starter home in a hot housing market allows homebuyers to get in at the ground level. The hope being that if and when they go to sell their home in a few years, they’ll be able to make a good profit on the home sale. On the other hand, if the housing market isn’t strong, then it’s probably not a great idea to purchase a starter home that’s only going to depreciate in value. Unfortunately, this will likely lead to the homebuyer not being able to recoup their money that they put into the house.

Ready to move to your starter home?

Moving.com has you covered. Our easy-to-use Move Planner includes printable moving checklists for every type of relocation. In addition, you can create a customized moving checklist to organize all of your different tasks by week for a successful move. To find a reliable moving company, you can also check Moving.com’s extensive network of movers. Our website makes it easy to find and book the best moving company for the job. All relocation companies in our network are licensed and insured, so you can rest assured that your move will be in good hands. Best of luck and happy moving!