A starter home represents the opportunity to enter into the real estate market, beginning to build generational wealth and stability. Choosing the right timing to buy your starter home is complex, but with the support of friendly, experienced professionals and the right information, you might be ready this year.
Here’s what you need to know about buying a starter home in 2023.
What is a starter home?
There is no set definition of a starter home, and it might mean different things to different people. The idea is a home that may not be your ultimate real estate goal or the place you can see yourself living for the rest of your adult life, but it meets your budget and your current lifestyle to allow you to buy a home more quickly than you could afford your dream home.
It may mean buying a smaller house or a condo, or maybe it means buying a property further outside the city in a more affordable community. The bottom line is a starter home is more accessible earlier on in your journey toward homeownership.
When am I financially ready to buy a home?
Becoming a homeowner is a big step, and you should always take the time to be confident you are ready to take it on. The first step you should take is talking to local lenders to find out if you will be pre-approved for a mortgage. In general, these are some of the things lenders will look for to see that you are ready to take on a mortgage:
- Credit score about 680
- 2 years of employment history
- A debt to income ratio (the ratio of your monthly debt payments to your monthly income) of less than 43%
- Cash to cover down payment and closing costs
Greg Dallaire of Green Bay WI homes for sale offers this information for home buyers: “In addition to getting approved for the mortgage, you will want to look at your own budget and decide how much you are confident you can afford to spend on a home. Remember to factor in furniture, lawn care, maintenance, and an emergency fund now that repairs are your responsibility instead of a landlords.”
Why buy a starter home instead of my dream home?
You may be wondering why you shouldn’t just wait until you can afford to buy the home you ultimately want to own. Why buy a home that isn’t exactly what you are looking for?
The answer is that buying a starter home first allows you to work smarter, not harder. When you buy a starter home, you begin to build equity as the property appreciates. At the same time, that dream home you want is becoming more expensive over time. By purchasing your starter home, you can continue working toward your goal of upgrading your home while allowing your home to appreciate and build up equity. Rather than paying rent for another 5 years while you save for your dream home, you can be paying into your own home and have an asset to sell and fund the dream home purchase.
A starter home is a stepping stone. It allows you to begin investing before you are ready to buy that larger home, making your money work passively for you.
What should I look for in my first house?
You likely will not be able to afford your perfect home the first time around, but that doesn’t mean you can’t love your starter home. To make sure you buy something you will enjoy, keep these things in mind as you do your house hunting:
- How long do I want my commute to be?
- Do we expect to add any members to the family while we live here?
- How much maintenance am I prepared to take on?
- Do I want to buy a move-in ready property or something that needs some updating?
Ready to learn more about buying your starter home? Talk to a local real estate agent in your area today.