Should You Buy a Starter Home or Save Up for a Forever Home?

by c21commonweath_ldowling 14. November 2016 10:16

House hunting can be stressful, feeling like an endless series of choices. Do you want a condominium, townhouse, or single-family home? Where do you want to live? What kind of flooring, fixtures, and appliances do you prefer? These endless preferences can easily overwhelm any buyer, especially a first-time home buyer. When buying a new home, one of the most important things to decide on out of the gate is whether to buy a starter home or save up/pay more for a forever home.

The gap between a less expensive starter home and your dream home can be hundreds of thousands of dollars, with a large difference in down payment. But with interest rates at record lows right now, up to 75% of buyers are bypassing buying a starter home and going straight to a home that will meet their future needs. We’ll go through some of the pros and cons of each decision.

Starter Homes

A starter home can mean everything from a fixer-upper to a smaller home or condo. It’s whatever you can afford now, whether you need to make some improvements or not. If you need to wait to save up for a forever home, interest rates are at historic lows, so there hasn’t been a better time to get in on the housing market. Interest rates could remain low, but they might not.

Depending on the market, there may be more inventory of starter homes than other homes or vice-versa. Do research with a Century 21 Commonwealth Realtor to determine what homes have good inventory available, and which homes are likely to appreciate more. If you do plan on improving a starter home and possibly renting it out in the future, check current rents in the area and make sure it would make a good rental property in the future.

Buying a starter home inevitably means moving in the future. If the moving costs and hassle of moving again within a few years aren’t worth the savings, consider buying a home that you can see yourself living in for longer.

Forever Homes

A forever home is not somewhere you have to live for the rest of your life; it’s just a house you can see yourself living in for 15-20 years, or maybe longer. You may not need all the space right now, but you might grow into it in the future. It’s either large enough to accommodate your growing family or it’s a property you can see yourself making improvements on for many years to come.

The drawback to buying a forever home can be the high cost—both the higher down payment and larger mortgage payment. Waiting and saving up to purchase a more expensive home can be a drain on resources, even in a two-income family. With home prices constantly rising in many markets, it’s possible the dream home you want will only get even more expensive in the future.

Remember that buying a more expensive home, especially if it’s in the standard price range in its neighborhood, may not appreciate as quickly as a starter home. If you can afford it and think you’ll stay in a forever home for a long period, it’s worth looking.

Comparison and Compromise

Luckily, there’s more than just starter homes and forever homes on the market. There are homes in many areas that might fit between a basic starter and your dream house that you can afford without breaking the bank. If saving up for your forever home will take a few years, but you can afford something a little larger, or make some other compromises, the middle ground can be an excellent option.

Ultimately, it’s important to consider what your needs and lifestyle are and will be when purchasing a home. If you’re likely to move in the next 5-10 years, a starter home may be the better decision for you, regardless of whether you can afford something better. If you’re in a neighborhood where you can rent out your home and recoup your mortgage costs, purchasing a starter home can be an investment into getting something better down the line. However, saving up for your forever home allows you to buy something you and your family will enjoy living in and improving for years down the line.