Starter smarts WHAT YOU NEED TO KNOW BEFORE BUYING YOUR FIRST HOME
Everybody has to start somewhere. When playing a board game, you begin at square one. When educating kids, preschool is the answer. And when it comes to buying a home, that means a starter home: a property that experts say probably won’t be your forever abode but one that you can use to earn equity and valuable homeowner experience before you leapfrog to a better lily pad.
But while starter homes typically cost less than larger move-up properties, prospective first-time buyers have faced challenges in recent years affording their introductory domicile. Fortunately, things may be getting better; consider that, according to a recent study by the National Association of Home Builders, 61.4 percent of existing and new homes sold from the start of January to the conclusion of March 2019 were affordable to buyers earning a $75,500 median income — that’s up from 56.6 percent of properties sold in the fourth quarter of 2018 that were affordable to median-income earners.
“First-time buyers are enjoying incentives today like recently lowered interest rates and federal, state and local down-payment assistance programs that make it more affordable than ever to buy a home,” says Jodi Moody, an agent with Smoky Mountain Realty in Lenoir City, Tennessee.
Ask Keith Reboletti, broker with RE/MAX Properties Northwest in Park Ridge, Illinois, and he’ll tell you that pursuing a starter home is a smart move nowadays.
“Depending on the market, it can often be cheaper to buy a home than rent one,” he says. “Plus, you can build equity as you pay down your mortgage, the value of your home should appreciate over time, you have the opportunity to increase value by making improvements to your home and you may qualify for homeowner tax deductions that you don’t get with renting.”
Consider, too, that rent payments tend to increase annually, while your fixed-rate mortgage principal and interest payment should stay the same.
Still, this could be the biggest financial transaction of your life to date, so don’t rush to a conclusion. Take your time and perform the necessary due diligence before committing to a starter home.
“First-time buyers should focus on affordability and real estate potential. They should not be searching for their long-term home or overextending themselves,” suggests Kara Stachel, a Fort Lauderdale-based real estate attorney in Florida. “First-timers tend to live in their homes for less than five years. Hence, it’s wise to use the first home purchase as a steppingstone and wealth-building tool that can position you to eventually buy your dream home. That means finding the home with the most potential to get you to this goal.”
Reboletti adds that there are a number of questions to ask yourself before snatching up a starter home.
“How long do you plan to live there? Will the home fit your current and future needs and accommodate family growth? What will your work commute be like? What’s the condition of the neighborhood?” asks Reboletti.
Alison Bernstein, founder and president of real estate and lifestyle advisory firm Suburban Jungle, offers some other valuable advice.
“Don’t bite off more than you can chew — crunch the numbers and learn what you can truly afford. Also, don’t prioritize the house over the town. Selecting the right community — one with coveted neighborhood amenities, low crime rates, good schools and other features — is critical,” Bernstein says. “Finally don’t excessively limit your search area by your commute. Just 10 more minutes on the train or bus could perhaps score you a lot more for your money.”
To help matters, enlist the right experts.
“Work with a knowledgeable agent who can connect you to the right home in the right neighborhood,” Stachel recommends. Also, shop around for mortgage lenders and see who offers the best rates and lowest closing costs. Additionally, explore different options — including an FHA, VA, Freddie Mac, or USDA loan that offer a lowor no-money-down payment loan, if you qualify.