If you are a first-time homebuyer, you likely have a lot at stake. Buying a home is one of the most expensive purchases you might make in your lifetime, and home prices are up (continuing the trend of a seller's market) as of February 2022 in most parts of the country.
Buying your first home takes careful planning and preparation, from saving up for a down payment to understanding your mortgage options as a first-time homebuyer. Besides the financial challenges, potential buyers' vision of the perfect abode may not translate into what they can realistically afford or their overall lifestyle.
First-time homebuyers willing to approach the buying process from a practical rather than a primarily emotional standpoint can avoid these mistakes. Sure, high-end appliances may be nice, but so is having mortgage payments that don't strain your budget.
Here are five questions to ask yourself when you are shopping for a starter home.
- Buying your first home can be daunting from an emotional and financial perspective.
- Experts suggest you remain in your first home for at least five years for a better return on investment.
- FHA and VA mortgage loans can be beneficial for first-time homebuyers.
- A starter home isn't necessarily a house; it could be a condominium or townhouse.
- Try to purchase a home you can easily maintain in order to increase resale value.
Can You Afford This House?
When shopping for a starter house, some first-time buyers will get preapproved for a mortgage and then shop based on the maximum they can borrow. FHA or VA mortgages are often good choices for first-time homebuyers if you can't afford a conventional mortgage. These national mortgage programs can help first-time buyers afford a starter home, but there are caps not only on the buyer's income but how much house they are allowed to purchase.
However, if you are taking out a conventional mortgage and preapproved for a large purchase price, don't automatically assume you can afford it. Just because you are preapproved for an expensive home doesn't mean you should take it. If you buy a starter home, you may want to spend less than you are approved for. If you take on a larger mortgage only because you qualified for it, it may cause financial difficulties down the road. Instead of going all in with your first home, it's wiser to look for a more affordable starter home that won't break your budget and leaves room for future expenses.
And since most experts say it's best to stay in the home, you purchase for at least five years to recoup the costs and see some return on your investment. You want to purchase a property you can afford. In addition, the more of a down payment you can afford, the more built-in equity you have out of the gate.
Mortgage lending discrimination is illegal. If you think you've been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps you can take. One such step is to file a report to the Consumer Financial Protection Bureau or with the U.S. Department of Housing and Urban Development (HUD).
Does It Fit Your Lifestyle?
First-time buyers may mistake thinking about what they want inside the home instead of other factors, such as the distance from work, schools, and other necessities. As a result, you may be lured into purchasing a property because it is move-in ready, or it has a pool in the backyard, or it meets all the buying requirements on your list.
But as a first-time buyer, consider more than the floor plan and amenities, like commuting time and how close your home is to friends and family. Not only could it increase your expenses if you spend more money and time commuting, but it can cost you emotionally if you are stressed out from sitting in traffic each day or don't see your friends and family as much as you'd like. Make a list of these lifestyle priorities and factor them into your buying decision.
Beware of ending up “house poor,” taking on such a large mortgage that after making your monthly mortgage payment, you have limited funds left for other costs, such as utilities, vacations, entertainment, or even food.
What Will Your Future Self Want?
Most people purchasing a starter home aren't giving too much thought to their lives five or ten years down the road. But not peeking into the future can result in a costly mistake. Consider your plans for having children or pets, for example. You and your spouse or partner may not be gearing up to become parents or own dogs in the next couple of years, but that may be a consideration down the road.
You may also enjoy the convenience of a condominium, but as you grow older, you might want more privacy. Taking your longer-range plans and incorporating them into your buying decision can benefit your overall well-being.
Has the Property Been Maintained?
Home improvement television shows make it look easy to do a variety of renovations, but the reality couldn't be farther from the truth. Just because you are purchasing a starter home doesn't mean you should choose one that's a fixer-upper with a lot of needed upgrades and renovations.
First-time buyers are better off purchasing a home that has been maintained and doesn't require a lot of repairs or upkeep. Just routine maintenance for a home is costly, not to mention repairs and remodeling. If major repairs or replacements are needed, it might be best to move onto better-maintained properties.
Do You Have an Exit Strategy?
Starter homes aren't usually meant to be owned forever, which means you want to purchase a home that has the potential to make you money when you move.
You may want to have an exit strategy for the property you are purchasing, whether that means choosing a home that will be easy to rent in the future or that can be quickly sold. Homes with access to popular school districts, local parks, or other amenities, like grocery stores, may help entice renters or buyers when you are ready to move to a new home.
What Is a Starter Home?
A starter home is usually the first home a family or individual can afford to purchase. They are often small properties that a buyer lives in for a few years and then sells for a larger or more upscale home.
Are Starter Homes Cheap?
Contrary to assumptions, not all starter homes are cheap. They may be less affordable than houses with more square feet or acreage, but starter home prices depend on numerous factors besides size, such as location, type of property, and the area's housing market.
Should I Buy a Starter Home?
Starter homes (aka small houses or condominiums) are usually more affordable than large houses in upscale neighborhoods. If you are planning to grow your family or move in a few years, but you no longer want to rent, purchasing a starter home may be a good investment, provided you can afford it and you stay long enough to build some home equity.
The Bottom Line
Homeownership can be empowering, but it can be a daunting process, especially for first-time buyers. Mistakes are all around on the path to homeownership, but many can be avoided. Start by choosing a starter home well within your means that meets your current and future wants and needs, but also have an exit strategy in place. And don't discount turning your starter home into your forever home, if you decide to stay.