Starter home or forever home: Which is right for you?

So, you want to jump into the home buying pool. The first question that comes to mind could be: Should I buy a starter home or a forever home? The answer depends on your situation and goals. We will explain what makes a good starter home and forever home, including their benefits and drawbacks. We will also help you decide whether a starter home or a forever home is right for you with a set of important questions and an interactive flowchart.

Another important question that comes to mind could be, “how long do people live in their homes?” Homeownership varies from area to area. People are staying in their homes longer these days because of the housing supply shortage and low affordability. According to insurance comparison site The Zebra, the average length of homeownership is 8 years, and the median tenure is 13.2 years for Americans.

What’s a starter home?

A starter home is a smaller home or condominium bought as a first home. Properties typically have two or are a three small bedrooms at most. They also don’t usually have all the amenities you might want, or they might be in a less-than-ideal location. This is a popular option with younger home buyers because it’s less expensive and you can get it without waiting years to save up for a down payment.

Buying a starter home can give you the chance to save money and build home equity in a property at the same time – something you can’t do when you rent.

How long should you stay in a starter home?

You should stay in a starter home for at least 2 years but ideally, you’d stay for 3 – 5 years. The reasons include avoiding capital gains taxes and earning money on your investment.

How to find a starter home

The current housing market has some prospective buyers waiting for better conditions, buying now can still be a smart move if your credit score is strong, your employment is stable, and you have enough savings to cover a down payment and closing costs. Starter homes help first-time buyers achieve homeownership, but they have become increasingly hard to find due to high demand and a shortage of smaller, more affordable homes. To find one, buyers may need to collaborate with an experienced agent, broaden their search parameters, and adjust their expectations because starter homes are more expensive in the current real estate market.

What’s a forever home?

A forever home is one that you can imagine living in for a very long time. Unlike a starter home, a forever home has everything (or almost everything) that you might want. For example, it may have a larger kitchen, more bedrooms, a backyard, easy access to public transportation – whatever you envision. Forever homes are more expensive but also have a higher resale value than starter homes.

However, there is no magic age and everyone’s situation is different. It really comes down to whether you can afford a home in your ideal location and what your plans are for the future.

Starter home vs. forever home

Like many important or risky decisions, making a list of pros and cons is a great place to start when you compare starter homes to forever homes. It’s valuable to look at the various factors in your life and use a lot of foresight when creating these lists.

But be prepared for shifts in your viewpoint once you start house hunting and better understand the state of the homebuying market. Maybe you initially thought you should be looking at starter homes, but what if you find what could be your forever home? Sometimes, when you know, you know. Right?

We’ll break down some of the benefits and drawbacks of each to help steer your home buying search in the right direction.

Starter houses pros and cons

Starter homes are best if you’re a younger professional beginning your career or building a family. You might not anticipate how quickly something like a new job, a relationship, or a baby can change your housing needs when you’re young. A starter home gives you the financial flexibility you need if your situation changes, particularly if you’re still in the process of figuring things out.

Buying a starter home gives you many unique benefits, but also has some drawbacks to consider, including:

Pros:

• Lower price point: This is undoubtedly one of the most attractive features of a starter home. They’re more affordable than forever homes, so you can buy one without waiting until you have a large down payment.
• Lower property taxes: Typically, starter homes will have lower property taxes, which should be considered when evaluating your options.
• Less commitment: These homes allow you to see what it’s like to be a homeowner. If you’re used to your landlord handling repairs, a starter home might give you the experience you need to learn how to manage your forever home in the future.
• Less upkeep: They’re typically smaller than forever homes, requiring less upkeep. You’ll also save more money when heating and cooling your home.
• Saving money on furniture: Another benefit of buying a smaller home? You need fewer pieces of furniture to fill it up. This allows you to save on home decor.
• The potential for future investment: A starter home can be a great investment property if you decide to hold onto it after you move. You can rent it out while you live in your forever home, adding another layer of income to your finances.

Cons:

• Smaller size: They’re smaller than forever homes. A starter home might not have enough space for your needs if you plan to have children or live with family members.
• More repairs: They often need a little work. Get an inspection before you buy and be sure you’re ready to deal with any necessary repairs.
• More difficulty selling: Many starter homes are in less-than-ideal locations. You might have more problems selling when you finally decide to upgrade.

Forever houses pros and cons

Are you planning to settle down in a particular area? If you’re thinking about starting a family or if you’re stable in your career, investing in a forever home can be a more comfortable and financially sound option.

There are many reasons to be excited about finding your forever home, as well as some drawbacks:

Pros:

• Customize however you like: You can feel comfortable investing in features and additions that suit your lifestyle without thinking too much about their resale value.
• Put down roots: Your family can build lasting relationships and really become a part of the community. Your children can make friends with neighbors and schoolmates without the damper of an impending move.
• Grow into your space: Forever homes are typically bigger, so you’ll have more room for a potential growing family, or you’ll have bonus spaces.
• Less moving: Moving takes time and money, not to mention the emotional toll it could take on your children if you move far or change schools.
• Collect bespoke pieces of furniture: Since you’re in it for the long haul, you’ll feel better investing in pieces of furniture and decor that work perfectly in your space.

Cons:

• Higher cost: A forever home will likely cost more than a starter home and could make finances feel a little tighter.
• Greater upkeep: With a larger floor plan comes more upkeep. Along with maintenance, it will also cost more to heat and cool your home.
• Slower return on investment: If a home is move-in ready, you won’t be able to gain faster equity through remodels. Over time, it will likely gain value, just not as fast as with sweat equity.

How to choose the best option: 8 questions to ask

There are many factors to consider when evaluating your home buying options, including affordability, your future plans and timeline, your home location, and condition. We’ve included some crucial questions to ask yourself below – for tailored advice, speak to your financial advisor or one of our Home Loan Experts.

1. How much home can I afford?

When determining how much home you can afford, a good place to start is with a mortgage preapproval. A preapproval is a preliminary approval from a mortgage lender that tells you how much of a loan you’ll qualify for. Mortgage preapproval allows you to narrow your home search and gives you a more realistic expectation on what you can afford.

If you’re still in the early stages of your home search and looking for a quick estimate, a home affordability calculator can be a helpful tool.

2. How much home do I need?

To determine how much home you need, think about your lifestyle and goals. Are you planning on growing your family in the near future? Have family members that will be moving out soon? Do you need a pet-friendly home? These are just some of the factors that could influence your decision.

If your current lifestyle doesn’t require a larger home, a starter home could save you money now and help you move into the home of your dreams in the future.

3. How long do I plan on staying in this home?

When deciding between buying a starter home or the house you’ll live in forever, it’s important to consider your future plans. Are you planning on moving in a few years or do you want to stay in this home long term?

Keep in mind, if you move before you’ve lived there for 2 years, you could also be subject to capital gains taxes. If you can’t guarantee that you’ll want to live in the property for more than 2 years (ideally, at least 5 years), then you may want to reconsider purchasing a home at this time.

4. Does this location suit my needs and future?

Consider the location of a home before you buy. Consider factors like school districts, local parks, and distance from common commutes like your job, family and friends, gyms, clubs, etc. A lengthy commute might be a major drawback, even if a property has the right price.

Map out your commute or do a “test drive” to estimate how much time you’ll spend on the road every day. You might need to start over and look for a home that’s a little closer but has fewer amenities.

Will this location suit you in the long run?

5. What is the condition of this property?

Whether it’s a starter home or your dream home, make sure you get both a home inspection and an appraisal before you sign on your mortgage. An appraiser assesses the fair market value of a home, or in other words, tells you how much the home is worth. What an appraiser won’t do is tell you which outlets aren’t working or if your stair railing needs to be replaced. That only happens during an inspection.

This will give you a better understanding of how much work you may need to put into the house.

6. Do I have the means to take on renovations?

Once you have an idea of the scope of the renovations a property will require, think about if you have the means to complete them. This includes the time in your day-to-day schedule, the funds needed, and the overall timeline by which you’d like to complete them.

There are financial options if you want to upgrade your home down the road, like refinancing for renovations. But some renovations can’t wait, like structural issues or things that could affect your health, like asbestos or mold. This should all be considered when evaluating your options.

7. How much will the home actually cost?

Aside from the cost of necessary renovations you should also consider the additional costs, including:

• Renovations. Are you prepared if they exceed budget or take longer than expected?
• Mortgage rate. Your mortgage rate will impact your costs over the years.
• Home insurance. Notably more expensive than renters insurance – depending on your situation, you might also need private mortgage insurance.
• Interior upkeep. Without a landlord to call for fixes, you’ll have to pay for things like appliance repairs, replacing flooring, furnishing a larger or different space, and keeping up with utility fees.
• Exterior upkeep. This could include landscaping, paint, siding, leaf, and snow removal, etc.
• Moving costs. Will you have to hire moving assistance, take time off work or hire a babysitter?
• Home buying fees. Special taxes, real estate fees, closing costs, etc.

8. Is the home value going to appreciate?

In the same way a home should be affordable, it should also be seen as an investment that will build value over time. Good indicators of potential home value growth include:

• Increasing job market
• Decreasing or low unemployment
• Good school districts
• Opening of businesses in the area
• Development projects

Most importantly, you should look at historical home buying data. Rocket provides housing market reports based on your location. These can show you the current market condition and compare it to the year prior, insights unique to your area, the median home sale price year over year, and an overview of what supply looks like in your area.

The bottom line: When to buy a starter home

A starter home is an affordable piece of property that’s meant to be an entry-level home. They’re typically smaller than other homes and have fewer amenities. They often need more TLC than forever homes.

Forever homes are best for adults who know they want to stay in a particular area for a long time, who are stable in their career or who would like to start a family. Remember that later in life many seniors choose to downsize, so your “forever home” doesn’t have to mean “forever” if that’s not what you’re looking for in the long run.

Whatever you decide to buy, you'll need a mortgage preapproval to get the most realistic picture of your loan prospects. Get preapproved now so you can weigh your options.