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Sun. Jul 14th, 2024

How to Find a Starter Home: Tips for Buyers

By Vaseline May31,2024

Key learning points

  • A starter home is usually the first, most affordable home that a first-time home buyer purchases.

  • Due to the high demand and shortage of affordable housing, typical starter homes are becoming increasingly difficult to find.

  • To find one, buyers may need to work with an experienced real estate agent and broaden their search parameters.

Buying a home is a common goal for many of us – an important part of the American dream. However, wanting to buy a house doesn’t necessarily mean you can afford one, especially if you’re buying for the first time.

Enter the starter home, usually the first home you buy on a multi-stop trip. However, these types of affordable, entry-level homes are much harder to come by in today’s expensive housing market. While the price and amenities of a starter home vary depending on location and demand, here are some tips to help you find the right home for you.

What is a starter home?

A starter home, also called an entry-level home, is usually the first home that a first-time home buyer purchases and is in the lower price range of homes on the market. Many homeowners live in starter homes for a number of years before needing more space and “moving up,” but that’s not always the case.

Features of a starter home can include:

  • Smaller than more expensive homes
  • Fewer amenities than larger or newer homes
  • A potentially less desirable location

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

But “what is considered a starter home varies by state and city,” says Louis Adler, director and co-founder of REAL New York. A starter home in an urban market will look very different from, for example, a home in a rural area.

Why they’re hard to find – and getting harder

Finding an affordable starter home can be difficult these days. Demand for housing is high, and a persistent housing shortage means there is not enough supply to keep up. Add in high prices and high mortgage rates – not to mention homeowners with low fixed interest rates who are staying put longer – and the affordability challenge continues to grow.

“There is a lot of competition,” Gartenberg says of the current market.

“The number of starter homes within a reasonable price limit is decreasing,” says Adler. “Not only are there fewer homes on the market, but they have also become more expensive.”

What makes matters worse is that real estate investors are putting more money and effort into buying up starter homes that would otherwise be ideal for first-time buyers. According to Redfin data, investors accounted for 19 percent of home purchases in the first quarter of 2024, the highest share in more than two years. And investors have the money to buy starter homes outright, making it harder for buyers who need financing to compete with those all-cash offers.

Should I buy a starter home or wait?

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

Reasons to buy now

  • You never know what the market will do. With current mortgage rates and market conditions, it’s easy to say that waiting seems like a good idea. But if the pandemic has taught us anything, it’s that there is always some uncertainty about the future. The market can be completely different once you save enough for a bigger house.
  • If you delay your purchase, you will spend more time paying the rent, which also means it will take longer to start building equity.
  • Home prices are skyrocketing: The average price of an existing home has risen for 10 months in a row, according to April 2024 data from the National Association of Realtors. They may continue to rise while you wait, and you don’t want to be burdened with more homes than you can afford, or simply priced out of the market.

Reasons to wait

  • Mortgage interest rates are still high. Locking in lower rates increases your purchasing power. You’ll also qualify for better rates with a higher credit score, so giving yourself time to increase that number can save you money.
  • You’re more likely to end up in your forever home if you can wait, saving you the hassle and stress of looking for a new home and moving again in a few years.
  • In higher price ranges there may be less competition. Because so many investors and buyers are focusing on cheaper starter homes, the market for them is extremely tight. For more expensive properties, you may have a little more room to negotiate your offer and less worry about competing offers.

How to find a starter home: 5 tips for hopeful buyers

1. Work with an experienced real estate agent

The guidance of a seasoned local real estate agent, who knows the market trends in your region and your desired neighborhoods inside and out, is critical to success. Even if you live in a highly competitive area, a real estate agent should be able to help you find something that suits your needs and budget.

“Find someone to guide you to a purchase that makes sense for you now, and that will make sense in the overall market when the time comes to sell,” says Gartenberg.

2. Get pre-approved

You also want to make sure you get pre-approved for a mortgage. This can help you make a strong offer that stands out from the crowd because it shows sellers that you are a serious, qualified buyer. It will also give you a good idea of ​​exactly how much you can expect to be approved, and at what rate.

“As interest rates rise, unfortunately, monthly mortgage costs also rise,” says Gartenberg. “Buyers should talk to their banker to find out at what point they can lock in their rate.”

3. Broaden your search

If you can’t find an affordable home in your ideal neighborhood, you may want to expand your search to alternative areas. Don’t be afraid to search neighborhoods or even cities that weren’t at the top of your list; maybe you’ll find something you love.

“Maybe you need to look a little further from the center of the city or think more creatively,” says Gartenberg. “The best thing a first-time buyer can do is find an agent with the creativity and market knowledge to show them choices they might not have considered.”

4. Adjust your expectations

Buying a home is usually a marathon, not a sprint – and finding a starter home is more achievable when you worry less about perfection and more about what fits 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 compromises: “First-time buyers need to assess where they are willing to make compromises,” says Gartenberg.

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

5. Give yourself time

The market is tough right now and there’s no need to rush into something you’re not ready for or aren’t happy with. If you’re coming up short when looking for a starter home, it may be smart to put your search on hold and focus on saving more for a down payment and boosting your credit score in the meantime. “Search for rental properties in the area that interest you and maybe save a little more money so you can buy your dream home in a few years,” says Adler.

In short

A starter home is usually on the small side and relatively affordable, making it well suited for starters. But finding one that fits your budget, especially in today’s expensive market, is a challenge. By working with the right real estate agent, you can find a starter home that delivers what you need right now. From there you can work on an upgrade.

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