Buying Your First House: Starter Home or Forever Home?

Buying Your First House: Starter Home or Forever Home?

If you’re a first-time homebuyer, you may be wondering: Should you purchase a small starter home to get into the market now, knowing you may grow out of it in a few years? Or, should you stretch your budget — or spend more time saving — to get a “forever home” that will take care of your long-term needs?

Here are some factors to consider as you weigh whether to get a home best suited for the short term or the long haul.

First-time homebuyer factors

Market conditions: Mortgage rates are historically low, but there’s no telling how long that will last. Also, many real estate markets nationwide are booming; consider whether to jump in before home prices get even higher, or whether they may weaken.

Where you want to live: Consider if you’d be OK living for a few years in the suburbs, where you might be able to find something more affordable, or if you’d rather try to snag a home in a different area where you want to live long-term.

How much house you can afford: It ultimately comes down to how much money you have saved and how much you can afford to spend on a monthly mortgage payment.

Homebuyer programs to help with financing: Find out if you may qualify for a homeownership program that could help you save on your home loan. There are about 2,500 programs available across the country that could help you save on your down payment or closing costs, or provide tax credits.

What kind of house you want: For a starter home, you might go for an apartment, condo or townhouse in an up-and-coming area. If you’re thinking forever home, a single-family detached or a house with land to build an addition later could be a better fit — but it’ll be more expensive.

The costs of getting out early: If you do spring for a starter house now, and you end up getting married or having kids or needing to move quickly, you may face penalties, such as capital gains tax.

Those are some of the big-picture considerations. If you’re interested in exploring even more first-time homebyer issues, check out the latest edition of the book 100 Questions Every First-Time Home Buyer Should Ask by consumer finance expert Ilyce Glink.

Now, let’s dive into the details on what else you need to think about.

Starter home considerations

Your lifestyle: Do you want to be in the middle of a big city, or are you fine with the ’burbs if that means you can own a home? If you want to live centrally, where real estate is most expensive, you’ll probably have to start small. Dana Bull, a real estate agent in Boston with Harborside Sotheby’s International Realty, remembers when she bought her first condo at 22, she could afford only one well outside of Boston, and she had some regret as she missed being in the city near her friends. Consider what you’re willing to sacrifice, both in terms of location and size.

Your future needs: Bull says many first-time home buyers assume they’ll be in a home much longer than they actually are. She says young, single people sometimes don’t realize how quickly life can change. A job switch, new relationship or new baby can alter what you need in a home.

Zachary Conway, a financial advisor with Conway Wealth Group LLC in Parsippany, New Jersey, adds that selling a house can be stressful — especially if you’re in the midst of major life changes such as having a baby.

So, if your life is full of flux and you think you would stay in your starter home for only 1 1/2 to three years, it may be less stressful to keep renting until you’re ready for something large enough to meet longer-term needs.

Capital gains taxes: If you set out to buy a starter home for the short term, be careful, Bull says. If you sell soon after moving in, you may owe capital gains tax on your profit from selling the home. That means you may want to think carefully about buying a home you’ll grow out of in less than two years. Consult a tax professional to see how this could affect you.

Consider an exit strategy: If you’re considering going the starter home route, you should think through from the start how you’ll offload it when the time comes to move, Bull says. For instance you might buy a property that you could rent out to cover your mortgage, especially during times of economic uncertainty, she says. This helps ensure you can cover your mortgage payment if you need to move ASAP, or if the market is weak when you hope to sell but you don’t want to take a loss.

You should also carefully research the area in which you’re looking to buy, Conway says, and confirm “there’s enough resale potential to make sure that even in a market that’s heading downward, you still have a likelihood of being able to get out of where you are.”

Forever home considerations

Interest rates: Conway says that if you decide to wait so you can afford a forever home, there’s a chance interest rates could increase from their current historic lows. “You might be able to scrape together some additional funds in the next few years, but maybe at that point, we may be closer back to historical norms of interest rates, and your mortgage is more expensive,” Conway says. Nobody can predict what will happen, but it’s important to keep a pulse check on mortgage rates.

Hot markets: In many major cities such as Boston, property values are rising rapidly, Bull says. There’s also a lot of uncertainty as to whether home values will plateau or keep going up, leaving first-time home buyers wondering if they should give in to the “feeding frenzy,” she says. If you wait in hopes of saving for a larger home, it’s possible prices will rise faster than you can save, she says.

Your cash flow: Considering your lifestyle and life events is certainly important, “but really at the end of the day, it comes down to the math of do we have the cash flow,” Conway says.

If you want a forever home, you have to ask yourself whether you can afford the larger down payment, and whether your salary supports a higher monthly mortgage payment. Conway says it’s key to create a budget and to carefully track what you save and spend, and to be sure you can afford a more expensive home. Don’t assume your salary will be higher in a few years and go for a bigger mortgage, he says. And don’t forget to factor in higher ongoing expenses like property taxes and homeowners insurance.

Don’t stress too much

While making the decision between a starter home and forever home is a major move, Bull says don’t fret too much about making the wrong decision. Remember, she says, “there are always options — you can sell, you can rent, you can put yourself in a position where you can go out and buy another house.”

Emily Starbuck Crone is a staff writer at NerdWallet, a personal finance website. Email: emily.crone@nerdwallet.com.

The article Buying Your First House: Starter Home or Forever Home? originally appeared on NerdWallet.

I read this article at:  https://downpaymentresource.com/buying-first-house-starter-home-forever-home/

Remember to follow our Blog for the local real estate beat, a pulse on the San Francisco Peninsula at: https://therealestatebeat.wordpress.com

Got Questions? – The Caton Team is here to help.  

Email Sabrina & Susan at:  Info@TheCatonTeam.com

Call us at: 650-568-5522  Office: 650-365-9200

Want Real Estate Info on the Go?  Download our FREE Real Estate App:  http://thecatonteam.com/mobileapp

HomeSnaphttp://www.homesnap.com/Sabrina-Caton

Visit our Website at:   http://thecatonteam.com/

Visit our INSTAGRAM page:  http://instagram.com/thecatonteam

PINTREST: https://www.pinterest.com/thecatonteam/

Visit us on FACEBOOK:   http://www.facebook.com/pages/Sabrina-Susan-The-Caton-Team-Realtors/294970377834

YELP us at: http://www.yelp.com/biz/the-caton-team-realtors-sabrina-caton-and-susan-caton-redwood-city

Or YELP me:  http://www.yelp.com/user_details_thanx?userid=gpbsls-_RLpPiE9bv3Zygw

Twitterhttps://twitter.com/TheCatonTeam

Connect with us professionally at LinkedInhttps://www.linkedin.com/in/sabrinawendtcaton

https://www.linkedin.com/in/susancatonrealtor

Please enjoy my personal journey through homeownership at:

http://ajourneythroughhomeownership.wordpress.com

Thanks for reading – Sabrina

The Caton Team – Susan & Sabrina – A Family of Realtors

Effective. Efficient. Responsive.  What Can The Caton Team Do For You?

Berkshire Hathaway HomeServices – Drysdale Properties

Sabrina BRE# 01413526 / Susan BRE #01238225 / Team BRE# 70000218/ Office BRE #01499008

Down Payment Assistance Programs…

The California Association of Realtors has a wealth of information for buyers and sellers – not just us Realtors.  I thought I would pass along the Consumer Page – for the most important link in any buyers life – DOWN PAYMENT ASSISTANCE PROGRAMS!  Yes, you read the correctly – down payment assistance.  Not every area has programs, and of course you must qualify.  However, I posted the online search to my Facebook page – so please feel free to click on:

https://www.facebook.com/TheCatonTeam

And of course, when you need a Realtor – please call the Caton Team!

Buying or selling a home is one of the most important transactions a person will ever make in his or her lifetime.  Nothing less than a qualified, trained professional should be entrusted to assist in that process.  This site is dedicated to educating consumers about the intricacies of buying and selling a home, and how a REALTOR® can help:

First-Time Home Buyer? Here’s What You Should Know About Your Appraisal


Home ownership is the ultimate dream for many in the United States, but going through it for the first time can be a daunting process. First-time home buyers often misunderstand one of the key components of the home buying process: the appraisal. It is one of the most important tools to ensure buyers pay a fair and equitable price for the property they purchase.

To learn more, read this financial education article in the Huffinton Post, by David S. Bunton, President of the Appraisal Foundation.

 

The California Down Payment Resource Directory

The California Down Payment Resource Directory is a powerful search tool that identifies current down payment assistance programs in communities throughout California. Buyers can search by city or address for public- and private-funded assistance programs including FHA/VA, HUD, affordable fixed-rate mortgages, rehab loans, and more. Start your search for down payment assistance now!

http://www.car.org/aboutus/forconsumers/downpaymentresource/

 

Homeowner Legislative Facts
REALTORS® don’t just help you navigate the home buying and selling process.  They also are tireless advocates for homeowners, buyers and sellers in the legislative process.  Please see our newly presented website, Homeowner Legislative Facts, to learn about some of the many policy issues now being considered in Washington D.C. and Sacramento, which we monitor on your behalf.

 

Residential Energy Audit Program

The California REALTOR®’S Energy Audit Program (R.E.A.P.) provides up to a $250 rebate on a Home Energy Rating System (HERS) home energy audit conducted by a certified HERS rater. To qualify for the R.E.A.P., applicants must purchase a home between Oct. 1, 2013 and Dec. 31, 2014, conduct a HERS home energy audit of the home before the close of escrow (as part of the Energy Efficient Mortgage) or no later than 60 days after the close of escrow, and they must use a California REALTOR® in the transaction (referrals do not qualify). The program applies only to primary single family residences purchased in California. Learn more about R.E.A.P..

 

I read this article at: http://www.car.org/aboutus/forconsumers/#

Remember to follow our Blog at: https://therealestatebeat.wordpress.com/

Got Questions? – The Caton Team is here to help.  

Email Sabrina & Susan at: Info@TheCatonTeam.com

Call us at: 650-568-5522

Want Real Estate Info on the Go? Download our FREE Real Estate App:  http://thecatonteam.com/mobileapp

Visit our Website at:   http://thecatonteam.com/

VISIT OUR INSTAGRAM PAGE: http://instagram.com/thecatonteam

Visit us on Facebook:   http://www.facebook.com/pages/Sabrina-Susan-The-Caton-Team-Realtors/294970377834

Yelp us at: http://www.yelp.com/biz/the-caton-team-realtors-sabrina-caton-and-susan-caton-redwood-city

Or Yelp me: http://www.yelp.com/user_details_thanx?userid=gpbsls-_RLpPiE9bv3Zygw

Connect with us professionally at LinkedIn: http://www.linkedin.com/profile/view?id=6588013&trk=tab_pro

Please enjoy my personal journey through homeownership at:

http://ajourneythroughhomeownership.wordpress.com

Thanks for reading – Sabrina

The Caton Team – Susan & Sabrina – A Family of Realtors

Berkshire Hathaway HomeServices – Drysdale Properties

Sabrina BRE# 01413526 / Susan BRE #01238225 / Team BRE# 70000218/ Office BRE #01499008