If you’re buying a home for the first time, are you better off buying a starter home or a forever home?
First, let’s clarify what we mean when we say “starter home.” Economists typically designate starter homes as those belonging to the lower third of the market’s price points. For many people, though, buying a starter home is about more than just price—it’s also about how long you plan on living there.
This is where the dilemma lies when choosing between the two types of homes. Buying and selling a home, as well as moving in and out of it, carry different expenses. Also, since the bulk of your mortgage payment is going toward interest the first few years, it’s unlikely that you’ll build up much equity if you only own the home a short while. In fact, according to one estimate, the break-even point for a starter home is somewhere between five and seven years. In other words, if you plan on living in your home for just a few years, it might not make sense to buy it in the first place.
To be clear, we’re not telling you not to buy a starter home. There are definitely situations in which buying a starter home makes perfect sense. If you plan on staying put for five or more years, a starter home will help save you money on rent and build up your equity.
Buying a starter home also makes sense if it has the potential to become your forever home with the right renovations and/or additions. If you’re open to keeping the home and renting it out later in case your plans change, buying a starter home is a wise choice in this marketplace as well.
If you weigh all of these considerations and decide that you do want to buy a starter home, there’s another important factor you need to be aware of: Winter is the season in which starter home inventory peaks and prices drop. This means you’ll have the most choices for the most affordable prices if you buy now.
If you’d like to talk more about whether buying a starter home is right for you or you have any other real estate questions, don’t hesitate to reach out to us. We’d love to speak to you.