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What to look for in a starter home

A young family tours a home with their real estate agent
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It’s no secret that home prices today have made owning property out of reach for many would-be homeowners. For some, the solution has been to buy a starter home rather than one they plan to live in forever. A starter home is typically a smaller, less expensive property, allowing the owner to build equity that can go toward a larger, pricier home in the future.

If you’re considering buying a starter home, know your options will be very limited. In most of the 50 biggest cities in the U.S., homes priced $150,000 or lower accounted for just 5 percent of listings as of April 2022, according to an analysis by Point2.

Know you won’t tick every box on your wish list, either. You’ll likely have to make compromises on some aspects of the property, like lot size or finishes.

Still, when looking at starter homes, there are some important considerations to keep in mind — and ones you potentially might not want to budge on. These include:

1. How much does it cost? 

The draw of a starter home is that it’s more affordable than the home you hope to live in longer-term. Of course, the home price is crucial — if you can’t afford to purchase it, it won’t work — but think about the monthly expenses, too. What are the property taxes, homeowners insurance, and typical annual maintenance costs? You’ll want to make sure those costs, in addition to your monthly mortgage payment, are low enough that you can set aside savings for your next home purchase.

2. What’s the condition like? 

A starter home likely won’t be move-in ready, and it doesn’t have to be. In fact, buying a fixer-upper can have some benefits, including a lower barrier of entry. If you can improve the home while you live in it, all the better.

“Buying a renovation project can be a good starter home, particularly if you can live in the home while work is ongoing,” says Paul James, a real estate investor and founder of Property Road, a UK-based real estate website. “This way, you’ll gradually create a home that you want, and you’ll add value, which can help when you want to move up the ladder.”

If you’re considering a fixer, work closely with your mortgage lender, real estate agent, home inspector, and a contractor. Your lender can help guide you to an appropriate loan option if you need to do extensive renovations, and a contractor can help you estimate costs.

3. Where is it?

A starter home in a sought-after neighborhood might not have the starter-home price tag you’re looking for. That’s because regardless of size, the more desirable the location of a home, the more the home will cost.

“An up-and-coming neighborhood, or a neighborhood where prices have been rising consistently for years, is the way to go,” says Tomas Satas of Windy City Homebuyer, a real estate investor in Chicago.

While the area might not be in-demand now, by getting in at a lower price, you could see a bigger return on your investment when you sell than if you had bought a starter in a more desirable location.

4. Does it fit my lifestyle and needs now?

Although it’s an investment in your future, a starter home still needs to work for your life today. For example, if you work downtown in the city, you might need to go a fair distance out of town to find a starter home you can afford. If buying a starter means moving from an apartment with a 15-minute commute to a home with a two-hour commute, consider the trade-off. Likewise, if you absolutely need a certain number of bedrooms or bathrooms, some starter homes might fall short.

5. Will it meet my needs in the future?

While the notion of a starter home is that you’ll move out of it in a relatively short time, plans often change — or you might find you really love where you live and don’t want to move after all. If you can, try to find a starter home that you can future-proof in some ways. For example, if you see yourself having a family, look for a three-bedroom home instead of a two-bedroom home.

How to find starter homes

Finding a starter home in today’s housing market is challenging but not impossible. As a first-time homebuyer, you can work with a real estate agent who can point you to the most affordable opportunities to build equity. Communicate your goals with your agent — let them know you’re looking for a starter home that you hope to trade up someday, and that you’re open to adjusting your expectations.

Be flexible with your own criteria, too, as you search for properties. You might need to widen your search, for example, to include less-desirable neighborhoods or areas farther out from centers of towns. Remember your end goal: to find a home that suits your immediate needs for a price you can afford.

Written by
TJ Porter
Contributing writer
TJ Porter is a contributing writer for Bankrate. TJ writes about a range of subjects, from budgeting tips to bank account reviews.
Edited by
Mortgage editor