What Should You Know About Buying a Starter Home?

What Should You Know About Buying a Starter Home?  What Should You Know About Buying a Starter Home?

What Should You Know About Buying a Starter Home?

Written By: Ashley Sutphin
Monday, December 27, 2021

You may hear the term starter home pretty frequently, but wonder as a buyer, what does that really mean?

When youre buying a home for the first time, you have to not only understand what a starter home is for you but also whether its best to skip ahead and invest in your forever home.

Whats Considered a Starter Home?

A starter home can be a single-family house, a condo, or a townhome. Starter homes are something the average first-timer buyer can afford but will likely outgrow. A starter home, >

These homes may be older, small, or generally modest. They might also be brand-new but still designed to meet the needs of entry-level buyers.

There arent going to be all the features you maybe hope to have someday, but you can envision that for the near-term future, a starter home will suit your life>

You may find that you stay in your starter home forever, for whatever reason. You might, on the other hand, move up eventually to a home thats in a more desirable neighborhood or is more expensive.

Whats a Forever Home?

A forever home is one that can be not just larger but may be updated or have more outdoor space. A forever home can have some of those features that are highly desirable and make a property competitive when it hits the market. It may have a big, private yard and be in a great school district, for example.

Of course, a forever home is subjective. For some people, that home may be one where they can envision raising a family. For others, a forever home might be a fixer-upper that needs some TLC but is in a great neighborhood.

A forever home doesnt have to be inherently luxurious, but one defining feature is that they tend to be bigger than a starter home.

The Benefits of a Starter Home

If youre at a point where you weigh whether you should buy a starter home or a forever home, both have pros and cons.

A starter home will be less expensive typically so you can save for a down payment faster. Then you can begin to build equity sooner as well. If you wait to afford a forever home, thats more time youre going to sink into rent and less youre investing in equity. When youre ready for your forever home, you can then use the equity youve gained to buy it.

The downside of a starter home is that youll likely outgrow it when you enter another phase in your life. For example, maybe youll get married or have kids, and a starter home will no longer meet your needs.

If you decide its time to move from your starter home, you have to sell or rent it. Youll have to find another home, get approved for another mortgage, and pay closing costs.

The Benefits of a Forever Home

If you think you might like to skip the starter home and go straight to your forever home, there are benefits. Theres a peace of mind that comes with knowing you plan to stay in your home for the long term without having to worry about selling it or moving.

You can take time to settle in and make the home perfect for your needs gradually.

The downside is that a forever home will probably be more expensive, meaning it takes longer to save a down payment and youre delaying building equity.

Which is Right For You?

The most important thing when youre buying a house, whether a starter or forever home, is to spend what you can genuinely afford. The general rule of thumb is to spend no more than 28 of your gross monthly income on anything >

If you shop for a forever home, it can be a good move in terms of taxes. When you sell a home too fast after buying it, you may have to pay a capital gains tax if the value goes up. Theres an exclusion of up to 250,000 if you file taxes individually or 500,000 if youre a married couple filing jointly for capital gains on real estate. You lose that exclusion if you own the home for less than two years.

Along with budget and tax benefits, think about the long-term value of a home before you buy one. You want to look for properties, no matter the price, have an excellent potential resale value. Sometimes you do also have to remember that what you think is forever right now might not really be forever.

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