Homeownership is a dream for most young Americans, yet in many places across the country, a strong real estate market has put housing prices beyond their reach. Buyers face plenty of competition; some may not even have the income to buy a property in the best neighborhoods.
Because of this, more people are choosing to purchase “starter” homes with the intent of upgrading in the future. This is hardly a new trend, but is it really a good idea? This is an important financial decision, and not one that should be made lightly.
When is it a good idea to buy a starter home? Generally, there are three important factors to look for:
- Low interest rates – The choice whether to rent or buy has always been dependent on how good interest rates currently are. If you can get the best mortgage rate, you should be able to buy a nice home with a low monthly payment.
- Strong housing market – Ideally, you want your starter home to appreciate in value over the next few years. This is a reason City Creek Mortgage advises buyers to look in great neighborhoods even if they don’t plan to stay there forever. You may even be able to turn it into a rental property instead of selling it.
- Good stability – The consensus is that you should only buy a home if you will stay at least five years in it. Otherwise, renting is usually the better deal – the closing and moving costs alone are quite heavy. Will life’s circumstances force you to move sooner than you expect?
Today, even a family with two professionals earning a respectable income might not be able to afford a “forever” home in their twenties. There is nothing wrong with buying a good starter home, but make sure that it is in the right location and the math works out.