These days, the term “starter home” is a little misleading. It implies a highly temporary home soon to be traded in for a bigger, fancier model. But because of a troubled real estate market with no end in sight, moving up to a new home won’t be easy or quick, says Ken Shuman, spokesman for real estate website Trulia.com.
“We tell people right now that they should plan on staying in a home seven to 10 years,” Shuman says.
What constitutes a good first home is more important now because first-time homebuyers have become an increasingly larger share of the market. In 2010, first-time buyers made up about 50 percent of the total homebuyers in the U.S. market, says Paul Bishop, vice president of research for the National Association of Realtors.
“Just on a dollars-and-cents basis, a lot of first-time buyers made the decision to stop renting and buy a home because it seemed to be the better financial decision,” he says.
If you decide the time is right, here are some key things to look for in your starter home to make it the right decision for your family and to maximize your resale value when it comes time to sell.
An affordable price on a first home is one of the biggest priorities for first-time homebuyers, and with good reason, Bishop says.
“Unlike a trade-up buyer, they don’t have any equity to roll into the purchase of their next home, so coming up with a down payment and the financial aspects of buying a home is the first concern,” he says.
Coming up with a firm price target for a first home and sticking to it is the key for first-time buyers, says Scott MacDonald, president of RE/Max Gateway in Chantilly, Va.
“Make sure the house is within your budget. A lot of people try to push it and go for the maximum dollar amount they qualify for, trying to keep up with the Joneses. Stay within a reasonable budget so that you don’t overextend yourself and get yourself into trouble,” MacDonald says.
To be sure, Bishop says, high home affordability is making things easier on first-time buyers because so many markets have stagnated or declined in price in recent years. Also helping first-time homebuyers stay within their budget is the wide selection of housing options. The U.S. housing inventory is still larger than normal. As of January 2012, it would take more than six months to work through.
Because you’ll probably be there longer than you think, Shuman says it pays to buy a first home that accommodates not only the family you have now but the one you plan to have over 10 years.
“Have that conversation. If you’re just getting married, ask, ‘Do we plan to have kids? How many kids do we plan to have? How many bedrooms are we going to need?'” he says. “The biggest bit of advice I can give for a starter home is to really think about what your future looks like.”
Shuman says because many first-time homebuyers do have growing families, space is probably a higher priority than fancy features such as granite countertops.
“Because a starter home is usually a smaller home, in today’s market especially you don’t want to overpay for features and amenities, or remodels, that you’re not going to be able to recoup later on,” he says.
Quality of space is also important, MacDonald says. While you want to have at least two bedrooms, a lot of bedrooms aren’t going to be much help if they’re too small to be useful.
Everyone’s heard the old cliche “location, location, location,” but what does it really mean for first-time homebuyers? Three years after the implosion of the housing market, the keyword is “stability,” MacDonald says.
“Find a neighborhood that’s stable — where yards are maintained, where there’s not a lot of ‘for sale’ signs, where there’s not a lot of ‘for rent’ signs, where you have longer-term people living in that neighborhood — because those are the ones that are going to get you the best return later,” McDonald says.
If you’re looking at potential first homes in a housing development governed by a homeowners association, or HOA, one way to assess a neighborhood’s stability is to learn the number of delinquencies for HOA dues. A high rate of delinquencies can mean a neighborhood is headed for hard times, MacDonald says.
Beyond that, Bishop says first-time homebuyers should seek the same characteristics of a prime location that all homebuyers seek.
Whether a first home has been properly maintained can have a huge effect on your housing costs in the future, MacDonald says.
MacDonald says there are a few key areas of the home that can give you a general idea of whether the previous homeowner was diligent about home maintenance. If you see these issues, consider looking elsewhere.
But while a spot check of these features can be a useful guide for narrowing down prospective first homes, a thorough inspection is essential before closing, Shuman says.
“It’s pretty important that you have (an inspector) who you really trust — who you know is going to do a thorough job, who’s going to get up on the roof, who’s going to run all the water, who’s going to look at the electricity,” Shuman says. “Do a very in-depth walk-through with them and understand exactly what you’re buying.”
First-time homebuyers on a limited budget may not get a home that’s a totally finished product in terms of recent updates and features. If you have to choose, Shuman says, make sure you prioritize updates to the following.
“When a lot of folks go into a starter home, they don’t want to have to put a lot of money into it because they know it’s not their home for life,” Shuman says. “If you look at what the big budget items are that may come up during the next seven to 10 years and know that you’re in good shape on some of those, that’s definitely part of the checklist.”
MacDonald says there also are some rooms in a prospective first home where recent renovations are more valuable in terms of resale value.
“Bathrooms and kitchens are the most important pieces of the puzzle when buying a house,” MacDonald says. “If they have those renovated, or if the house is new or been updated by the previous owner, those are things that give it the most attraction when you go to sell your house later.”