As of June 25, 2018, we’ve made some changes to the way our mortgage approvals work. You can read more about our Power Buyer ProcessTM.
Interest rates are very low right now and you may be considering buying your first home. There are many good reasons for this. You build home equity with each payment, probably even faster as home values continue to rise across the nation.
Add this to the fact that those stubborn rent payments seem to go up every year and suddenly buying your own home starts to look very attractive.
Rising home values may be good for existing homeowners, but it does create a bit of an affordability challenge if you’re looking to buy a home for the first time on your own. Luckily, home builders may be stepping up to fill the void. We’ll take a look at the rising trend in starter homes as well as their benefits and disadvantages.
Starter Home Trends
The need for starter homes is fairly evident right now. According to the National Association of REALTORS®, 35% of home buyers were buying for the first time. This is up from 32% last year.
Builders are working hard to account for this market segment in their upcoming construction plans. Real estate and housing research firm Zelman & Associates said that starter homes, which they defined as smaller than 2,250 square feet, made up 31% of their speculative home builds. Speculative homes are those built without a specific buyer in mind.
Home builders are moving in to fill the gap just in time. According to data compiled by the Census Bureau and analyzed by Trulia, the number of newly formed home owning households beat the number of rental households being formed at a rate of more than 850,000 compared to 365,000. This is the first time new homeowners have outpaced new renters since 2006.
It’s not surprising that this is the case because a recent study once again shows that for the majority of people buying is cheaper than making monthly rent payments.
Increases in potential first-time home buyers mean their needs to be a corresponding increase in the number of affordable homes available. Smaller starter homes seem to fit that bill.
The Pros and Cons of Starter Homes
Starter homes do have their pluses and minuses. Let’s hit on a few of those now.
The defining feature of a starter home is that they’re smaller than homes you might buy later in life. This can make them attractive to first-time buyers for a number of reasons.
First, a smaller home should generally be more affordable than the larger homes you might buy down the line. Amenities are certainly a big deal, but one of the bigger factors in how much you pay for your home is square footage. For this reason, young couples and others might choose to begin with a starter home and move up as their need for space grows.
Smaller homes also mean you don’t need as much stuff to fill the home. This lets you save on furniture and all sorts of other knickknacks that bring rooms to life.
Smaller homes also mean less upkeep. There’s less to vacuum, a smaller lawn, and certainly a smaller driveway when it comes to winter shoveling. If there’s any remodeling that needs to be done, like new floors or a new roof, the bill will be easier to swallow because the job is more manageable. You also won’t spend as much on heating or cooling.
The obvious con of a starter home is that they’re not very big. You might find one with one or two bedrooms, a small kitchen and living area. This might be great for young couples just getting started, but it won’t necessarily be ideal for a growing family with two or three kids.
As your situation changes, it’s important to continually re-evaluate whether your living space still makes the most sense for you. If you start to feel a little bit cramped in your space, it may be time to look into selling your home and moving up into a bigger one. You can use the proceeds from the sale toward your down payment.
Whether you’re just getting started or moving on up to your next home, it’s important that you be preapproved so you know exactly how much you can afford. If you’re the type of person that likes to get started online, you can get an online preapproval through Rocket Mortgage® by Quicken Loans ®. One of our Home Loan Experts would also be happy to take your call at (800) 785-4788. If you still have questions, we would be more than happy to answer them in the comments below.
If so, subscribe now for tips on home, money, and life delivered straight to your inbox.