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Pros & Cons of Buying a Starter Home

By Kim Franke-Folstad · November 05, 2021 · 6 minute read

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Pros & Cons of Buying a Starter Home

Young people and professionals who are just starting out often opt to first buy a modest home at an affordable price. Sounds like a good move, but it helps to look at buying a starter house from all angles.

The decision to buy a starter home is about more than just money.

What Is a Starter Home?

A starter home is loosely defined as a smaller property that a first-time buyer expects to live in for just a few years.

The home could be a condo, townhouse, or single-family home. But generally, when you purchase a starter home, you anticipate outgrowing it — maybe when you get married or have a couple of kids, or because you want more amenities.

A starter house could be brand-new, a fixer-upper, or somewhere in between, but it’s usually priced right for a buyer with a relatively modest budget.

In July 2021, the median listing price for a “starter” home, one with up to two bedrooms, was $297,000, according to Realtor.com.

That still might sound a little scary, but remember, that’s the median price. Depending on where you live, there may be entry-level homes selling at manageable price points.

Even if you live in a larger city, the site found that buying a starter home was more affordable than renting in 24 of the 50 largest metro areas.

Recommended: How to Buy Your First Condo

How Long Should You Stay in a Starter Home?

Unless you’re a big fan of packing and moving — not to mention the often-stressful process of selling one home and then buying another, or buying and selling a house at the same time — you may want to stay in your starter home for at least two to five years.

There can be significant financial reasons to stick around for a while.

Home sellers are typically responsible for paying real estate agents’ commissions and many other costs. If you haven’t had some time to build equity in the home, you might only break even or even lose money on the sale.

And you will owe capital gains taxes if you’ve owned the home for less than two years and you sell it for more than you paid.

Of course, if there’s a major change in your personal or professional life — you’re asked to relocate for work, you grow your family, or you win the lottery (whoo-hoo!) — you may need or want to sell sooner.

What Is a Forever Home?

A forever home is one that you expect to tick all the boxes for many years — maybe even the rest of your life.

A forever home can come in any size or style and at any cost you can manage. It might be new, with all the bells and whistles, or it could be a 100-year-old wreck that you plan to renovate to fit your unique style and vision.

Your forever home might be in your preferred school district. It might be close to friends and family — or the golf club you want to join. It’s all about getting the items on your home-buying wish list that you’ve daydreamed about and worked hard for.

At What Age Should You Buy Your Forever Home?

There’s no predetermined age for finding and moving into a forever home. Some buyers plan to settle in for life when they’re 25 or 30, and some never really put down roots.

But according to data from the 2021 Home Buyers and Sellers Generational Trends Report from the National Association of Realtors® Research Group, buyers in the 56 to 74 age range said they expected to live in their newly purchased home longer than buyers from other age groups.

Younger buyers (ages 22 to 30) and older buyers (75 to 90) said they expected to stay put for 10 years.

The median expectation for buyers of all ages was 15 years.

Recommended: Learn more with the SoFi First Time Homebuyer’s Guide

Benefits of Buying a Starter Home

Becoming a homeowner can bring stability to life. A starter home comes with a feeling of “good enough for now” that, for some buyers, is just the right amount of commitment without feeling stuck in the long term.

It’s also a great way to try on aspects of homeownership that renters take for granted, like making your own repairs and mowing your own yard. The larger the house, the more work it usually brings. With a starter home, you can start small.

Buying a starter home is also an investment that could see good returns down the road. While you live in the home, you’ll be putting monthly payments toward your own investment instead of your landlord’s. Depending on market conditions, you could make some money when you decide to trade up, either through the equity you’ve gained when you sell or recurring income if you choose to turn it into a rental property.

Homeowners who itemize deductions on their taxes may take the mortgage interest deduction. Most people take the standard deduction, which for tax year 2021 is:

•   $25,100 for married couples filing jointly

•   $12,550 for single taxpayers and married individuals filing separately

•   $18,800 for heads of households

But some homeowners who itemize may be able to do better than the standard deduction.

Finally, in some states, a homestead exemption gives homeowners a fixed discount on property taxes. In Florida, for example, the exemption lowers the assessed value of a property by $50,000 for tax purposes.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.


Downsides of Starter Homes

While the idea of buying a home just big enough for one or two is a romantic one, the reality of finding a starter home that’s affordable has gotten tougher.

The outlook has been so bleak, especially in some larger cities, that some millennials are opting out of the starter-home market altogether, choosing instead to rent longer or live with their parents and save money.

Who can blame millennials for taking a different approach to homeownership than their parents? The older members of this generation came of age during the financial crisis of 2008-09, which included a bursting housing bubble that put many of their parents — and even some of them — underwater on a mortgage they may not have been able to afford in the first place.

Another con of buying a starter home is the prospect of having to go through the entire home-buying process again, possibly while trying to sell your starter home, too.

Keeping your house show-ready, paying closing costs, going through the underwriting process, packing, moving, and trying to time it all so you avoid living in temporary lodging is a big undertaking that, when compared with the relative ease of moving between apartments, can be seen as not worth the effort.

If you aren’t ready to jump into a starter home, an alternative could be a rent-to-own home.

Should You Buy a Starter Home?

If you’re tired of renting or living with your parents but don’t have the cash flow necessary for anything more than a humble abode, a starter home could be a great way to get into real estate without breaking the bank.

Before you buy any home — starter or otherwise — it’s important to sit down and crunch the numbers to see how much home you can realistically afford. Lenders look at your debt, but they aren’t privy to other regular monthly expenses, such as child care or kids’ activity fees.

You also may want to look at how much you can afford for a down payment. While a 20% down payment isn’t required to purchase a home, most nongovernment home loan programs do require some down payment.

In addition, putting down less than 20% means you may have to pay private mortgage insurance (PMI).

The decision to purchase a starter home is about more than just money, though. You may also want to consider your future plans and how quickly you might grow out of the house, whether you’re willing to live where the affordable houses are, and if you’ll be happy living without the amenities you’ll find in a larger house.

Other factors to consider are your current state of financial health and your mental readiness for a DIY lifestyle (which includes your willingness to fix your own leaky toilet or pay a plumber.)

If you’re ready to make the leap, there are plenty of home ownership resources available to help you get started on the path to buying your starter home. Your first step might be to check out a few open houses and to research mortgages online.

The Takeaway

Buying a starter home can be a good way to get your foot in the door of homeownership, but it’s important to consider your plans for the next two to five years or more before buying a starter house.

Are you house hunting and mortgage shopping? SoFi offers fixed-rate home loans with as little as 5% down and competitive rates.

Learn more about SoFi Home Loans and view your rate.


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