The American Dream: Buying Your First Starter Home

Becoming a homeowner is one of the biggest milestones many Americans will look to accomplish. Regardless of how rewarding the experience might be, for many it is tough to know exactly where to begin. What do you want and need? What can you afford? What should you know about being a homeowner? Welcome to the starter home. This is usually the first stepping stone for many in their homeowner journey. They are affordable and allow you to get your feet wet in one of the biggest investments you will have made up to this point. With rent prices on the rise, homes are becoming harder to come by for many first-time home buyers. However, there are some things to know that may help set you apart from other buyers.

What exactly is a starter home?

Often known as an entry-level home, this will be the first home many of us will buy and is usually priced lower than the market average. This might not be your “forever” home, and many will only stay for a few years. Some characteristics of a starter home may include:

·   Less square footage than market average

·   Less amenities and limited HOA

·   Growing/developing neighborhoods

·   Farther away from the city center

These homes are usually on the more affordable side to many young professionals and allows them to build equity as opposed to renting. Eventually, new homeowners will outgrow these homes as their needs and priorities change. These characteristics will vary by your location and local market. With rising home values, these types of homes are becoming harder and harder to find. With interest rates and the demand for affordable housing rising, people are choosing to stay in their homes longer. This leads to increased competition for all home buyers, especially at the entry level. Furthermore, many savvy investors are choosing to invest in real estate as opposed to other channels.

How can you set yourself up for success?

If you are unable to find something in your desired area, the first step is expanding your search. You may be able to find something in a more up-and-coming neighborhood that will continue to grow in value. As always, plan and prepare to come in with a strong offer and be ready for a bidding war. Although the market has started to cool down from what we have seen recently, a desirable home will still see competing offers.

Getting a strong preapproval from a mortgage lender will be one step to set yourself apart and let sellers know you mean business. In a rising rate environment, it is important to know what your buying power is and what you can afford. Additionally, while you are house hunting, it is vital to continue to save money for your down payment as well as work on your credit profile. This will give you access to more competitive interest rates and allow you to qualify for properties that your peers may not be able to afford.

Is this the right time to buy your first home?

In today’s market, many first-time homebuyers are asking themselves if now is the right time to jump into homeownership. Although this certainly is a question you should ask yourself during your process, there is no right or wrong answer. It is important to weigh your personal pros and cons.

Why you should wait:

·   If you continue to save, you may be able to purchase a first home that meets more of your wants and needs. This allows you to go through the process once, as opposed to buying and selling multiple homes.

·   The market is experiencing lots of volatility with worries of an oncoming recession.

·   As you get into a higher price range, you will see less competition from investors and all cash offers.

Why you should buy now:

·   It is impossible to predict the market. Everyone has an opinion one way or another. However, the long arm of real estate always goes up. Although it may seem like a risky investment now, with patience you will be rewarded.

·   It allows you to start building equity in your home now, which may be used for other purposes later. Renting is often seen as a sunk investment. With rent prices continuing to rise, this is only becoming truer.

·   Saving for a more expensive first home means you might be sacrificing expenses in the short term on things you might enjoy now. With a tighter budget, you might need to skip that dream vacation you have been planning.

How to find the perfect starter home

1. Find a trusted real estate agent

It is very important as a first-time homebuyer to find a reputable agent who is an expert in your local market. They will be knowledgeable in the trends of the market and will know what locations are on the rise. They should be able to guide you in the right direction and act with your best interest at heart. Having a reputable agent will also go a long way in the seller and their agent’s decision.

2. Speak with a reputable lender

Of equal importance to the right agent is finding a lender who will work for you. They will be knowledgeable about the financing process and tell you exactly what you will need to afford the home. It is vital that you know exactly how much you can afford and whether you will qualify for the proper financing once you find that dream property. An ideal lender should be honest and responsive and someone you trust will have your back during the moments prior to closing.

3. Broaden your scope

Although you may have the idea that your dream home must have three beds and two baths or be a certain square footage. It is a wise decision to always take a look at properties that might fall just outside of those specifications. Limiting your search means you might miss that diamond in the rough that checks all your other requirements.

4. Be realistic in the process

You must remain patient and flexible. This will be one of your biggest financial decisions you have made up to this point. Remember it is a marathon, not a sprint. Expect rejection and do not get discouraged if you do not win your first offer. Be prepared for repairs and expenses you did not expect.

5. Be willing to compromise

You may not find the perfect starter home or one that meets every requirement you expect. Although it might be slightly smaller than you hoped, it also is in your dream neighborhood. Or it might be a 10-minute farther commute to work, but the sellers have just replaced the roof and HVAC. When you are looking for a home that is reasonable and affordable for your first purchase, there are tradeoffs that you need to consider.

With the proper due diligence, a little research, and a lot of patience, eventually you will find the home that fits in your budget AND meets your needs and expectations. Although your starter home might not be the last stop on the journey, it is a great way to get you to where you want to be. Working with the right agent and lender will put you on the right track, and before you know it you will be holding the keys to your new home and taking the next step to fulfilling one of your biggest dreams.