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Starter Home Vs Forever Home: Which Is Right For Your Life Now?

Jamie Johnson6-Minute Read
October 07, 2020

Buying your first home can be daunting. Many new homeowners put a lot of pressure on themselves – after all, it’s likely one of the largest purchases you’ve ever made and it’s natural to want to get it right the first time.

However, this is an unrealistic expectation and it’s not even necessary. Your first home is just a starter home. It allows you to begin the homeownership experience and figure out what you actually want in a home.

When your needs change down the road and you’re ready to upgrade, you’ll have a better idea of what you’re looking for in a forever home.

What Is A Starter Home?

In many ways, the term “starter home” is pretty self-explanatory. It’s the first home you buy and one that you’ll likely eventually outgrow.

A starter home is traditionally the first home of a newlywed couple. Today, it refers to the concept of choosing your first home based on affordability instead of aspiration.

Many first-time home buyers have limited budgets, so they choose to invest in homes on the lower end of the price range. This could include entry-level homes, older homes and fixer-uppers.

It’s hard to know what you’re looking for in a home until you’ve owned one. Buying a starter home helps you build experience as a homeowner. Then when you’re financially ready, you can use that experience to help you purchase your forever home.

What Is A Forever Home?

If you’re considering buying a more expensive home that you can see yourself growing old in, this isn’t a starter home. It’s likely your forever home.

But for most people, purchasing a forever home is something that happens a bit further down the road. Most people begin thinking about purchasing their forever home once their family life and career are more stable.

It’s important to understand that your starter home is the one that’s going to lead you to purchase your forever home. It’s something you can live in for a while until you’re ready to begin looking for the next home.

And there may be many homes in between your starter home and forever home. There was a time when a family would stay in one home for 15 – 20 years, but that’s much less common now. Today, the average individual will move 11.7 times during their lifetime.

What Are The Advantages Of Buying A Starter Home?

Depending on your lifestyle and income level, a starter home may or may not be the right choice for you. But there are still many good reasons to consider purchasing a more modest first home.

They’re Less Expensive

The biggest benefit of purchasing a starter home is that it’s less expensive. This is especially beneficial for new buyers who may not realize all the costs that come with homeownership.

They Tend To Be Closer To City Centers

Many starter homes are located near city centers, which can be great for young adults who are just beginning their careers. If you’re young, an easy commute and access to restaurants and nightlife may be more important than a good school district or a big backyard.

They Allow Owners To Build Equity Instead Of Paying Rent

If you’re working with a small budget, buying a starter home allows you to build equity instead of paying rent. That way, when you’re ready to purchase your forever home, you’ll have that money to spend on the down payment. In comparison, if you spend the next 5 years paying rent that money is lost forever.

They Can Make An Excellent Income Producing Property

Once you’re ready to purchase your forever home, you don’t necessarily have to get rid of your starter home. You can use the equity you’ve built to make a down payment on your next home. From there, you can rent out your starter home as a source of supplemental income.

What Are The Disadvantages Of Buying A Starter Home?

There are downsides to any real estate investment, and starter homes are no exception. Here are some of the downsides you should consider before purchasing a starter home.

They Tend To Be Older

Over the past decade, the trend for most American families has been to purchase increasingly large single-family homes. That means most smaller single-family homes tend to be older.

And depending on the condition of the home, this might mean increased maintenance costs. If you’re not able to maintain the home repairs yourself, you may want to invest in a home warranty. This will help you keep the cost of repairs down.

They Tend To Be Fixer-Uppers

Lower-cost homes will often require significant work to make them more comfortable to live in. If buying a fixer-upper doesn’t appeal to you, there are other options you can consider.

For instance, you might consider purchasing a newer condo as your starter home. This will allow you to avoid any exterior maintenance costs. And individuals who live in large cities might want to purchase an apartment in a building with a live-in superintendent.

They Tend To Come With Fewer Amenities

Because starter homes are older and smaller, they often lack the amenities many home buyers are looking for. However, if you’re young and just starting your career, you should seriously consider whether you’ll be home often enough to take advantage of these amenities.

They Tend To Be Located In Less-Prestigious Neighborhoods

When suburban neighborhoods first became popular in the 1950s, they were usually built closer to the city. Then once larger homes became more popular, the suburbs spread further away from city centers and became more prestigious places to live. However, this also means you’ll have a longer commute to work.

Starter Home FAQs

How Much Is The Average Starter House?

The price of an average starter home will vary greatly depending on your location. The state, city, neighborhood, street and even which side of the street can all make a huge difference. Here’s a general state-by-state analysis, but your real estate agent can give you a better idea of what the price range is in your area.

You should always consult with your lender about how much you should spend on a starter home. Don’t spend more on a home than you can realistically afford.

And as with any commodity, your goal should be to buy low and sell high. Talk to a real estate agent about potential deals in your area. These are houses that can be bought for less than market value and have a good chance of appreciating over the years.

How Long Do You Need To Own A House Before You Can Sell It?

The specific home, market and current economic climate are all key factors to help you determine when you should sell your home. But in general, it’s a good idea to wait at least 5 years to allow for the necessary appreciation to occur that makes selling worthwhile.

Remember, when you buy the next home after your starter home, there will be some significant expenses that go along with it. That includes costs related to the starter home, moving costs, and, of course, buying the new place.

In general, the longer you wait to sell the more it will appreciate. This means more cash in your pocket when you do finally sell.

Should You Buy A Starter House?

If buying a forever home isn’t in the cards just yet and you’re ready to stop renting, it’s time to buy a starter home. But there are a few things you should consider before you buy.

How has the market you’re looking at changed over the previous few years? What does your real estate agent say about where the market is heading? Questions like these are the driving factors that will guide when and what you should buy.

Ideally, you should look for a starter home that will increase in value if you put a little work into it. Of course, this will depend on the extent of your home improvement skills.

Summary: Which Is Right For Your Life Now?

Buying a starter home is a great first step to take into homeownership. It allows you to start building equity in your home and gives you time to figure out what you’re looking for in a house.

Then when you’re ready, you can either transition to the next home or buy your forever home. For most people, there may be multiple homes owned between their starter home and their forever home.

If you’re interested in learning more tips and tricks about buying a home, be sure to check out our Home Buyer’s Guide.

Get the right home loan for you.

Jamie Johnson

Jamie Johnson is a Kansas City-based freelance writer who writes about a variety of personal finance topics, including loans, building credit, and paying down debt. She currently writes for clients like the U.S. Chamber of Commerce, Business Insider, and Bankrate.