If you’re a prospective first-time home buyer, you face the first of many tough decisions: Do you buy a starter home now or save up until you can afford your “forever” home?
Everyone has different ideas of what constitutes a starter home. One person’s starter home may be a house another family is happy to own indefinitely. But in general, a starter home is something you’d be happy living in for around five years even if you know you’ll outgrow it. A forever home, on the other hand, is one that you could potentially see yourself living in for the rest of your life, or at least the next 20 or 30 years. This means it meets most, if not all, the criteria of your dream home: the right location, the right size, and all of the extras.What it comes down to, of course, is money.
The starter home
The term starter home usually bears the image of a ‘fixer upper,’ but that isn’t necessarily so. A starter home may simply be a small home or condo that you can afford now — with or without making some improvements.
There are benefits to buying a starter home now rather than waiting for years to buy a forever home. Ideally you want to buy a property that will appreciate (or at least hold its value) so when you sell it a few years down the road you have equity to put into your forever home. Also consider whether you can turn your starter home into a rental property in the future if it isn’t the right time to sell when you want to move. For starters, check the rents in the area and make sure they would be more than your mortgage payment.
Buying a smaller home that you can’t sell or rent out when you want to move is perhaps the biggest disadvantage of buying a starter home. Doing as much research as possible can help minimize this risk. Other downsides to starter homes include the costs and hassle associated with moving twice and the potential money you’ll spend making improvements to your starter home that you may or may not recoup when you sell.
The forever home
A forever home is something that you can see yourself living in for 20 years or more. Perhaps it’s big enough to accommodate a growing family and will be the kind of home that you envision making improvements to not just for resale value but to enjoy yourself over many years. You may choose to rent something more reasonably-priced while you save up for a larger down payment on your forever home. The bigger the down payment, the smaller the loan. If you wait to buy, you also save yourself from the chance that you could be stuck with a smaller home in a bad time to sell, unable to move up.
One disadvantage of waiting for your forever home is that something that’s not affordable now may be even less affordable in the future. Though real estate is cyclical and will always have its ups and downs, in the long run it may be harder to get that dream home of yours if you don’t get your foot in the real estate door, so to speak.
A middle ground
Consider how much of a price difference there is between your starter home and your forever home. If the difference can be saved up in a year, you may want to consider waiting. But if the difference between your starter home and your forever home seems like it would take more than five years, you may want to aim for a middle ground.