Starter home

What is a starter home?

A starter home is a dwelling that is relatively inexpensive and is usually bought as a first home.

Deeper definition

A starter home is typically a small, single-family house with one or two bedrooms. It might be a fixer-upper, although not necessarily. The starter home usually is purchased with a small down payment and a mortgage loan.

In weighing whether to transition from paying rent for an apartment to buying a starter home, there are factors to consider beyond the amount of the down payment and monthly mortgage payment. Homeownership comes with closing costs, property taxes, homeowners insurance, utility bills, yard care and other upkeep expenses.

Another consideration is whether it makes more sense to buy a starter home or wait longer on homeownership and invest in a “dream home.” A small starter home is less expensive, but a couple might want a larger home if they plan to have children or want to live in a better neighborhood. It then might be necessary for the couple to sell their starter home while hunting for their dream home and going through the mortgage process at the same time.

But the availability of low mortgage rates can be an incentive for first-time homeownership. So can the chance to start earning home equity.

Starter home example

Susan and Peter meet in college. After graduation, they get married and move into an apartment. Then they decide to have their first child. They consider staying in the apartment until they can save enough money to buy their dream home. However, they opt to buy a starter home because interest rates are low and they want the chance to start building home equity right away.

Looking at buying a first home? Use Bankrate’s mortgage calculator to determine how much house you can afford to buy.

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