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Starter homes: What they are and how to find them

A quaint historic home
Onepony/Getty Images
A quaint historic home
Onepony/Getty Images

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Buying a home is a sought-after goal — part of the American dream — for many of us. Wanting to buy a home, however, doesn’t always mean you’ll be able to afford one, especially as a first-time homebuyer. Enter the starter home, typically the first home you’ll buy on what may be a multi-stop journey. However, these kinds of affordable, entry-level homes have become harder to come by in today’s overheated market. While a starter home’s price and amenities will vary based on location and demand, here are some tips to help you find the right one for you.

What is a starter home?

A starter home, sometimes called an entry-level home, is typically the first home a novice homebuyer purchases, and is in the lower price range of homes in the market. Many homeowners live in starter homes for several years before needing more space and “moving up,” but that’s not always the case.

The characteristics of a starter home might include:

  • Smaller than higher-priced homes
  • Fewer amenities than larger or newer homes
  • A potentially less-desirable location

“A starter home, in my opinion, is defined as something affordable to a young professional within the first few years of starting their professional life,” says Mihal Gartenberg, a real estate agent with Coldwell Banker Warburg in New York City. She adds that a starter home is considered such because “the individual’s housing needs will change over time.”

However, “what’s considered a starter home differs [by] state and city,” says Louis Adler, principal and co-founder of REAL New York in New York City. An entry-level property in an urban market will look very different than one in a rural area, for example.

Why they’re hard to find — and getting harder

Finding a starter home can be difficult these days, especially as home values keep rising, demand continues to surge for affordably priced homes and people stay in their homes longer. “There is a lot of competition,” Gartenberg says of today’s market. “Even though the stock market has taken a hit and interest rates are going up, there is still a lot of demand on starter homes.”

Adler agrees: “The number of starter homes within a reasonable price limit is decreasing. Not only are there fewer homes on the market, but they’ve also become more costly.”

Investors are also putting more money and effort into scooping up starter homes that would otherwise be ideal for first-time buyers. According to Redfin data, investors accounted for 20 percent of home purchases in the first quarter of 2022. What’s more, investors have the cash to buy starter homes outright, making it harder for struggling first-time buyers to compete against those all-cash offers.

What you can do

If you can’t find an affordable home in your ideal neighborhood, you might want to expand your search to alternative areas. Wherever you look, though, prepare for a competitive buying process. The market is starting to cool a bit, but you might still encounter bidding wars, so you’ll want to make sure you’re as prepared as possible to make an offer.

You’ll also want to make sure you get preapproved for a mortgage, especially with the rate fluctuations we’ve seen recently. “Time is more of the essence with these rate hikes than ever before,” says Gartenberg. “As rates climb upward, unfortunately, monthly mortgage costs will also go up. Buyers should speak with their banker to find out at what point they can lock their rate.”

If you come up short looking for a starter house, it might be smart to put your search on hold and focus on saving more for a down payment. Meanwhile, find other ways to get familiar with properties you like, Adler says: “Look for rentals in your neighborhood of interest and maybe save some more money, so you can buy your dream house in a few more years.”

Should I buy a starter home or wait?

With so much competition in the market, it’s worth asking, should I even buy a starter home? Or is it better to wait until I can afford more house? There are benefits and drawbacks to delaying your search until you can afford more, so here are some things to consider:

Reasons to wait

  • You’re more likely to wind up in your forever home if you can wait, which will save you the hassle and stress of going through a new home search and moving again in a few years.
  • Mortgage interest rates are climbing, with fears of a recession looming.
  • There may be less competition in higher price ranges. Because so many investors and buyers are focused on starter homes, the market for them is especially tight. With more expensive properties, you may have a little more room to negotiate your offer, and fewer competing offers to worry about.

Reasons to buy now

  • You never know what the market will do. It’s easy to say, with today’s mortgage rates and market conditions, that waiting seems like a good idea. But if the pandemic has taught us anything, it’s that there’s always some uncertainty about the future. The conditions today might not be present once you’ve saved up enough for a bigger home. “​​If buyers were waiting for a cooldown, this is the time to jump into the market,” says Gartenberg.
  • If you wait, it’ll take you longer to start building home equity. Putting off your purchase means you’ll spend more time paying rent, which means you’ll have less home equity to tap for other purposes — like financing home renovations — later.
  • You don’t want to be house poor or burdened by more house than you can afford, so if you wait, you’ll have to budget very carefully. Saving for a larger down payment or a more expensive home could require making financial sacrifices during that time period, like skipping vacations or eating out less.

How to find starter homes for sale

Even with limited inventory, there are still a few ways you can take action to find a starter house.

1. Work with an experienced real estate agent

With entry-level homes in high demand, the guidance of an experienced real estate agent, who knows the local market trends and your desired neighborhoods inside and out, is critical to success.

Agents not only have your best interest in mind, but they also know what the market looks like. Even if you live in a highly competitive area, an agent should be able to help you find something that fits your needs and your budget. He or she can also help you write a strong offer letter that stands out from the crowd.

“Find someone who will guide you toward a purchase that makes sense to you now, and will make sense in the overall market when it comes time to sell,” Gartenberg says. “The best thing a first-time buyer can do is to find an agent with the creativity and market knowledge to help steer them toward choices they may not have considered. I strongly recommend that buyers not run around without a plan — a good agent will be able to guide a buyer through the process.”

2. Widen your prospects

Maybe you’d prefer a larger space to accommodate more people or things — but you might be limiting your choices by doing so. “Look for two-bedroom properties instead of one with three bedrooms,” Adler says, “or choose a one-bedroom property that has a small extra room instead of a true two-bedroom property.”

You might also explore properties with the outdoor space and local permit allowance to eventually build an accessory dwelling unit (ADU), which would add extra square footage.

Also, don’t be afraid to search in neighborhoods that weren’t at the top of your list. “You may need to look a bit farther from the center of town or think more creatively,” Gartenberg says.

3. Adjust your expectations

Buying a home is usually a marathon, not a sprint.

“Be open-minded about location, size and amenities for a starter home,” Adler says. “The fewer priorities you set, the more achievable it becomes.”

Being flexible doesn’t mean you should ignore potential problems, though. Even if you’re open to various locales, layouts and features, you’ll still want to make sure that you can afford the home you’re planning to buy, it meets your needs (e.g., now that we’re all working from home, does it have space for a desk?) and you’ve budgeted for any necessary repairs. If you’re only planning to paint and polish, you’ll want to make sure that major systems like plumbing and electric won’t need a complete overhaul.

Overall, finding a starter home is more achievable if you worry less about finding the perfect home and more about what works within your budget and needs. For example, consider buying a townhouse or condo instead of a single-family home.

In other words, be prepared to make some trade-offs. “First-time buyers should assess where they are willing to compromise,” Gartenberg says.

Bottom line

A starter home is typically on the small side but relatively affordable, making it a good fit for first-time buyers. But finding one that fits your budget — especially in today’s competitive market — might mean settling for less. If you’re willing to do that, working with the right agent can help you find a starter home that delivers what you need. You can then work from there to get what you really want.

Written by
Zach Wichter
Mortgage reporter
Zach Wichter is a former mortgage reporter at Bankrate. He previously worked on the Business desk at The New York Times where he won a Loeb Award for breaking news, and covered aviation for The Points Guy.
Edited by
Senior real estate editor
Reviewed by
Senior mortgage loan originator, American Fidelity Mortgage