A starter home can mean something different for everyone, so while it’s a term that’s often used to describe a smaller and less expensive home, there’s a lot of variation overall. Whether you’re looking for Franklin, TN homes for sale, or you’re looking elsewhere in the state or country, buying a starter home is exciting, but it can also be stressful.
This is your first home, and while you may not be planning for it to be your forever home, it’s still a major investment.
Below, we talk about some of the things important to know about buying a starter home.
What is a Starter Home?
As mentioned above, a starter home can mean something different to everyone, but generally, they’re the buyer’s first home. They build equity in that home as they’re working towards buying another.
Starter homes tend to be more accessible to a first-time buyer since they are less expensive and smaller.
Some organizations have an exact definition of a starter home. Freddie Mac, for example, defines it as a home that’s 1,400 square feet or less.
If a home is listed for less than whatever the median home price is in a specific market, then it could be considered a good starter home.
A fixer-upper can be some people’s idea of a good starter home. These are affordable homes that need work. If you’re willing to make renovations, then even though it is a starter home, you can still make it your own.
Building equity is one of the big advantages of buying a starter home, even if you don’t know how long you’ll end up living in it. Equity is the value you build in your home that’s yours, with no lender interest.
Is a Starter Home Right For You?
Along with building equity, a starter home can be a good way to begin to create a sense of financial stability. Your home may go up in value, and that, combined with your equity, will be beneficial when you want to buy a larger home that you might plan to live in over the long term.
With that being said, maybe you’re in a position where you don’t need to buy a starter home, and you can go straight to your forever home. If so, there’s no reason not to do that. For some people, it may make sense to continue renting rather than getting a starter home, especially if you don’t plan on living in it for at least three to five years.
They Aren’t Easy to Find
You might think there’d be a lot of starter homes available since they could have features that make them less desirable than more expensive properties, but in reality, they’re extremely hard to find right now. Even though interest rates have gone up, there’s still a shortage of housing inventory and especially lower-priced properties that might count as starter homes.
Even when there are starter homes available, they’re more expensive than you might think.
One of the reasons for the shortage is that investors are buying starter homes. Investors accounted for 20% of home purchases in the first quarter of 2022, according to data from Redfin. An investor will have cash on-hand to buy a starter home outright, and that’s tough for a first-time homebuyer to compete against.
If you’re having a tough time finding a starter home, you might have to consider alternative neighborhoods and areas. The market is slowing, and you’re a lot less likely to deal with bidding wars than you were at the year’s start, but still, try to get pre-approved for a mortgage before you begin home shopping.
What to Look For
Some of the things to consider if you’re in the market for a starter home include the following:
- Can you afford the house? When you’re shopping for a starter home, first-time buyers might get preapproved and then shop based on the max they’re told they can borrow. This doesn’t mean it’s what you can comfortably afford. Just because you’re preapproved for something expensive doesn’t mean it’s a good financial choice. You want to think a lot about the monthly payment and how comfortable you are going to be with whatever it is as you consider affordability.
- Will it suit your current lifestyle? Think about the floor plan, commute time, distance to amenities, and all those things that can make your life easier or harder. You might be better off with a starter home that’s close to things like school and work but needs some work because you can’t change the location, but you can make the updates as your time and budget allow.
- What do you think your life might look like in the future? Do you plan to have children or get a pet? Do you think that maybe right now, a condo would be fine, but in the near-term future, would you want a yard or more privacy? No, you aren’t buying a forever home, but still, you do need to think about how your needs could change.
- Would an exit strategy be feasible with the home? For example, if you did find you were ready to buy your forever home, would you be able to sell this one or rent it out fairly easily?
- You need to break down your needs and wants. Focus primarily, if not almost entirely, on your needs when shopping for a starter home, rather than your wants.
- Know what you can change somewhat easily and what you can’t. There are certain things that can be cheap and easy DIY projects that can make a big impact, but then there are things that maybe seem simple and are anything but. If you’re working with a real estate agent, they can give you with some insight on these renovation topics if it’s new to you.
Finally, you should make sure you get a good inspection before you buy a starter home. This will help you know how long the components of the house are going to last and help prevent you from getting into a situation where you’re spending more money than you have right away after buying a starter house.