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You’re ready to buy your first home. That’s exciting! But should you opt for a smaller, more affordable starter home or stretch to nab a “forever home” you can stay in for the long haul? With a starter, you can stop paying rent and start building home equity sooner. However, you might be itching to move on in a few years. It will probably take longer to save up enough to afford a forever home — but once you do, you can settle in and put down roots. Which option is best for you? Read on to find out.
Starter home vs. forever home
What makes a home “starter” or “forever” is subjective; it largely depends on each individual buyer’s finances and circumstances. That said, there are general guidelines to help differentiate between them.
Starter homes tend to be small houses, condos or townhomes, with less space than typical single-family homes. They don’t often have many luxury features — which is not to say they’re not nice, just that they lack fancy bells and whistles. Some may require repairs or renovations.
All of this makes starter homes more economical, which is why they’re popular with first-time homebuyers and young families. In fact, according to National Association of Realtors (NAR) data, the average age of first-time buyers in 2021 was just 33, while repeat buyers were typically an older and more financially stable age of 56. Since starter homes are smaller and less amenity-rich, their owners often want to move on to bigger and better spaces as their families grow and they accumulate more wealth (and more stuff).
Forever homes tend to be larger, freestanding single-family houses with more room to spread out and more luxury features. As such, they command a higher price — and their owners stay put for longer. Forever homes are a big commitment (as the name implies). According to NAR’s 2022 Home Buyers and Sellers Generational Trends Report, only 18 percent of buyers indicated they were in their forever home and had no intentions of ever moving.
Starter home pros and cons
- Lower price, so smaller required down payment
- Less waiting time, since it won’t take as long to save up for
- Begin building home equity sooner
- Less expensive upkeep
- Could eventually become a rental or investment property
- Fewer amenities and luxury features
- Might be in a less desirable area or need renovation
- Easy to outgrow
Forever home pros and cons
- More amenities and luxury features
- Less likely to need renovation
- Room to grow into and settle down, no need to move again
- Higher price, so larger required down payment
- May need to keep paying rent while you save up
- More, pricier upkeep
- Can eventually become too much for older owners or empty-nesters
More tips for first-time homebuyers
Every buyer is different. To figure out what kind of home is best for you, talk to friends and family who own their homes, do your research and learn lessons from other rookie homebuyers. Here are more tips:
- Figure out how much house you can afford early on in the process — Bankrate’s new-house calculator can help you crunch the numbers. That information will help guide your home search.
- Start saving for a down payment early, too. According to the 2021 NAR data, 29 percent of first-time homebuyers said saving for this nut was the most difficult step in the homebuying process. In addition, 28 percent used a gift or loan from friends or family to help with the down payment.
- Research the local market, and keep an open mind. You might discover that you can afford more home in a different area, neighborhood or even school district. And you might realize that you’re willing to, for example, sacrifice a short commute for a farther-from-work home that ticks all your other boxes. An experienced local real estate agent can provide invaluable help with this process.
- Reflect on what your life might look like in five or 10 years. If you plan to remain in your area for a while or maybe start a family soon, a forever home might be worth the investment. However, if you’re unsure where life will take you, a starter home might make more sense.
- Shop around for the best mortgage rate available — different lenders will have different offerings. And don’t neglect your credit score, as those with higher scores will typically be eligible for lower rates.
- Don’t skip the home inspection when you’re ready to buy, especially for a starter home. A qualified home inspector will provide an honest and thorough assessment of the property, and if it requires extensive repairs, you’ll want to know about it upfront.