What Is a Starter Home?

A starter home is usually the first home you'll own. As the name implies, it's a starting point for homeownership but not necessarily your forever home. A starter home is usually a more affordable home with fewer desirable features, less square footage or some need for renovation. While real estate investors are buying starter homes at record speeds, homes that need a little work or compromise on space or location can make an ideal starter home. Read on to understand what to look for in a starter home to launch your homeownership journey this year.

Understanding Starter Homes

A starter home is the first home a new professional can afford. Whether that means savings for one year or five depends on your salary, debt and the markets. Starter homes are a starting point for homeownership to let you get your foot in the door. 

A starter home might be smaller, older or in a less desirable neighborhood. Rather than checking all your dream home boxes, a starter home is a place to start building a family and creating your own space while building equity as you launch a career. Maybe it doesn't have new appliances, a designer kitchen or a walk-in closet, but a starter home is a place to call your own and start putting down roots. 

Starter homes might also be new middle-market construction-grade units with fewer upgrades or special features. While some define a starter home as a condo, townhouse, apartment or detached home under 1,500 feet, there's no specific limit. Many homeowners live in starter homes until they see a return on investment, usually after around five years. But some may live in a starter home for decades. 

Even starter homes have exploded in price in recent years, making many first-time homebuyers consider renting long-term or waiting for a forever home.

Starter Home vs. Forever Home: What’s the Difference?

For some people, their starter and forever homes may look the same. These people are content in smaller, simple spaces without a lot of luxury upgrades. The difference between a starter home and a forever home is substantial for most homeowners. 

Financially, you could buy a starter home within a few years of launching a career, while a forever home could take a decade or more to save for. That's why a forever home is a goal many professionals save and plan for over time. 

A forever home is one you can imagine living in for a long time or even forever. A forever home will have all your desired features, from the size of the kitchen to the finishes, location, property size and more. The size is large enough to accommodate a growing family and meet specific lifestyle needs. In general, forever homes are more expensive than starter homes but also have higher resale values.

What qualifies as a starter or a forever home depends on your financial situation, lifestyle and desired features. A starter home might cost $50,000 for one family, while a forever home costs $200,000. For another family, a starter home could be $300,000, and a forever home over $1 million. In either case, a starter home is the first home you can afford, while a forever home meets more or all of your family's needs. 

​​What to Look for in a Starter House

Consider these factors if you're wondering what you should look for in a starter home. 

Affordability

The most important factor of a starter home is affordability. You don't want to take on a mortgage you may struggle to pay monthly. Especially when you're starting your career, buying a home you can comfortably afford to pay off is essential. If you can get a property in a desirable location or with future potential, the affordability will become even more useful while building your financial future. 

Location

The adage "location, location, location" holds for starter homes. While you might not find a starter home in your dream location, you should consider more than only the home's interior or the yard. Consider your commute to work or school. If you cannot find a starter home in your dream location, expand the search to neighboring or growing areas. 

You'll also want to consider other amenities in the area that might help you sell the home down the road. Are good schools, parks, medical facilities, offices, commercial centers or other facilities nearby? This can influence future neighborhood growth and enduring property value as well as your comfort living in the home. 

Size

Starter homes are typically smaller. They might be under 1,500 square feet or have fewer bedrooms and bathrooms. They typically don't have extras like walk-in closets, new kitchens or multiple family rooms. If you can't find a larger home in your starter budget, consider looking at smaller homes. 

Future Potential

When buying a starter home, it's essential to consider your future lifestyle and family needs. You may consider whether you have plans for children or additional pets. Will you need a home office or have plans to accommodate elderly parents? While you can't predict everything, keeping your future self in mind during your starter home search can help you find a home that will accommodate your lifestyle for a longer time. 

In addition to your use, consider your exit strategy and preserving or increasing the home's value. For that, look at the location, amenities and growth potential. 

Maintenance

The property's level of upkeep and necessary maintenance is important, as it will impact your budget and annual expenses. Consider the state of the major home systems, including the roof, foundation, electrical, HVAC and plumbing systems, especially before buying an older starter home. 

Safety

Safety concerns should never be ignored, even when looking for a cost-effective starter home. Carefully research the safety of the area, and have the home tested for possible contaminants, including asbestos, radon or other known carcinogens that could be present on the property. You'll also want to ensure the home's structural integrity regarding any known risks in the area, from flooding to hurricanes or earthquakes. 

Financing Options

Certain starter homes may qualify for Federal Housing Administration (FHA) or U.S. Department of Agriculture (USDA) loans, potentially opening better financing options. Get prequalified and talk to several lenders about financing options to understand the type of home or property location with the most favorable financing opportunities. 

Pros and Cons of Buying a Starter House

Buying a starter home offers many advantages, even in times of high interest rates and higher real estate prices. But it's not without a few major disadvantages. Here's what you'll want to consider. 

Pros

• Low(er) cost: A starter home should be affordable within a few years of starting your career. These homes cost less and require smaller down payments as well as lower maintenance costs.
• Build equity: You can build equity and potentially benefit from property value appreciation.  
• Lower property taxes: A smaller home in a less desirable area can mean significant annual tax savings.
• Less upkeep: A smaller property is less time-intensive and costly to maintain than a larger property, leading to additional savings. 
• Potential for expansion: By saving on monthly mortgage costs, you could renovate or make additions as your disposable income increases without increasing monthly mortgage costs. 

Cons

• Smaller size: Starter homes mean your family may outgrow the home or have to compromise on space.
• More upkeep: If you buy an older home, you may end up with additional costs on repairs and maintenance. 
• No guarantee of retained value: Depending on the area of your starter home, it could even decrease in value. 

How to Buy a Starter Home

If you plan to buy a starter home, you'll need to determine your budget and get a mortgage preapproval. You can shop around with different lenders to find the best options and terms for your financial situation. You can start by comparing the best online mortgage lenders and speaking with your local bank or credit union. Learn how to get FHA loan preapproval or the difference between preapproval and prequalification. 

Then, you can start working with a trusted real estate agent to search for a home. After you find a property you'd like to buy as your starter home, you'll need to prepare an offer with a real estate agent. After the offer is accepted, you'll sign a purchase and sale agreement and need to fulfill all contingencies. Once contingencies are met, you're ready to close the sale and purchase your starter home. 

Get the Best Starter Home Loan from Benzinga’s Top Mortgage Lenders

Interested in more mortgage options? You can find loans for your starter home from some of Benzinga's top mortgage lenders below. 

Should You Buy a Starter Home?

With home prices increasing, many young professionals feel priced out even of starter homes. That, combined with low housing inventory and high interest rates, makes many people question whether homeownership is the right path.

While a starter home today might be more modest than a generation ago, property ownership is one powerful way to build property equity that you can use in the future to buy a forever home. Starter homes are a place to build your family, build your career and put down roots. With time, it could even become your forever home. Ready to get started? Find essential tips for first-time homebuyers here.

Frequently Asked Questions