Growing tired of renting? You might be thinking about buying a starter home if you’re a young professional looking to take advantage of low-interest rates or a young family wanting to set down some roots. For those on a tight budget, not only is a starter home a great option, but it is also a good way to start building equity, as opposed to throwing away rental cash. If you’re not quite prepared to buy the home forever, it’s also a smart way to ease into the homebuying process. Not sure what? Not sure what?
Usually, a starter home is the first home a buyer can realistically afford to purchase. While it does not have all the bells and whistles that a “forever home” would ideally have, it meets the purchaser’s immediate needs. Starter homes tend to be smaller and cheaper than a house for eternity. Nobody would consider a 6-bedroom, 4,000 square foot house to be a starter home, for example. For young adults, newlyweds, young families, and everyone hoping to live in one place for up to five years, starter homes are a good choice.
Before purchasing a starter home, the most important variables to remember are: Now that you understand the advantages and drawbacks of buying, let’s look at other essential considerations to consider.
Just because it is more affordable than a home that is forever, it doesn’t always make sense to buy one. When house hunting, significant expenses to bear in mind include closing costs, property taxes, homeowners’ insurance, repair, and repair costs, and utility bills. While a starter home can seem inexpensive, depending on the age and condition of the property, it may end up being a cash pit. If a starter home needs repairs or modifications, be sure to also take this expense into account.
The resale potential is particularly relevant when purchasing. Of course, nothing more affects a home’s resale potential than its venue. As any realtor would tell you, “place, place, location” is the single most important factor affecting the price of a house. If you plan to sell your starter home eventually or rent it out to tenants, then the location of a home should be top of mind.
Are home prices going up-and-up in your city? Or are they dropping at present? Prior to buying a starter home (or any home!), make sure to understand the state of the market. If the housing market, for example, is going high and prices are rising, then this is generally a good reason to buy a starter home. In a hot housing market, buying an affordable starter home enables homebuyers to get in at ground level.
Also Read: How to Buy Your First Rental Property
The hope is that in a few years, if and when they go to sell their house, they will be able to make a decent profit on the selling of the house. On the other hand, if the housing market isn’t good, then buying a starter home that’s just going to depreciate in value is probably not a smart idea. Unfortunately, this is likely to result in the home buyer not being able to recover the money they put into the property.
Many starter homes, which is part of why they appear to be affordable, are limited in scale. Although you can need to compromise on space when buying a starter home, when it comes to square footage and the number of bedrooms, it’s crucial not to compromise too much. Our advice is to make sure that for the next three to five years you have enough space. Although this will inevitably be outgrown, the intention is to live there comfortably for at least many years.
Be sure to consider your future plans before buying a starter home. Do you plan to stay in for at least five years, for example? Are you planning to extend your family? In the next few years, are you considering a career change? What about a change of location? Can you rent or sell a starter home in the future? While you can’t predict it all, before buying a home, it’s crucial to hammer out your future plans and have some idea of your objectives (both financial and personal).
Although it is a brilliant idea for many to buy a starter home, there are still a range of downsides to consider. Second, it is an costly and time-consuming method to purchase a house (even a starter house). You can have to pay for closing costs and, not to mention, moving costs, Realtor fees. It’s simply easier, in many instances, to only rent. This is particularly true in expensive housing markets where inventory is low (think: San Francisco, Boston or Washington , DC), and starter homes are very expensive. Although equity is obviously healthy, leasing is often still cheaper in expensive housing markets than buying a starter home.
A second downside to buying a starter home is that they are just that: homes for starts. The buyer can end up outgrowing the home more quickly than they intend, considering that starter homes tend to be smaller. It will make more sense, in certain situations, to simply continue renting until you are prepared to buy the house forever.
Buying a starter home over an everlasting home has many benefits. Second, for someone who is tired of spending money on rent, buying a home gives them a solid place to develop equity and savings for the future. If the market appreciates over time, so when it comes time to sell the home, you should be able to make money. You might also hold the starter home, on the other hand, and earn money renting it out.
A second advantage of buying a home is that it is simply more economical than a home that will last forever. Anything from the initial down payment and annual interest payments to energy bills and property taxes would cost less than if you purchased an eternally costly home. The third advantage of buying a home is that if and when you need to leave, you certainly won’t be trapped for the long term. Starter homes have a propensity to sell early. Not only that but when living there, you would also not feel “underwater” (so to speak) because you can actually afford to own it.
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