Starter Home or Forever Home: Setting Realistic Expectations

If you're weighing your homebuying options, you might be wondering whether to invest in a starter home now or wait until you can afford your forever home. 

The difference between the two is more than square footage. 

• A starter home is typically your entry point into homeownership, chosen with the expectation of living there for a shorter period while building equity. These homes can vary widely in size and style.
• A forever home, on the other hand, is chosen with long-term living in mind, featuring the space and location that will serve your needs for many years to come.

While some starter homes might need updates or renovations, others could be move-in ready. Similarly, forever homes might require work but offer the right location or potential for your long-term plans. Your choice depends more on your current goals, budget, and plans than on any specific set of features.

Let's dive into what matters most when making this decision.

Hidden Benefits of Starting Small

When you choose your first home, you're getting your foot in the door of homeownership and building a foundation for your future financially. Rather than paying rent each month, you're building equity. The Twin Cities market has historically shown steady appreciation, meaning your starter home investment could grow while you're living there.

It’s important to remember that buying a starter home doesn’t mean you have to move again in a couple years. Many people stay in their first home for 5 to 10 years–even more. So, instead of renting for another 5 to 10 years and saving for a down payment, you can purchase a starter home and start building equity right now. Then you can use that equity to purchase your forever home.

When people think of “starter home,” they usually think of less square footage with one to two bedrooms. But that doesn’t have to be a negative thing. Having a slightly smaller home means you need less furniture to fill the space, and smaller homes are less expensive to heat and cool throughout the year, which can help you save big on energy bills. Generally, a starter home gives you the financial flexibility you need if your situation changes.

With down payment assistance programs available for first-time buyers, a starter home can become more financially accessible. These programs help reduce your upfront costs, potentially giving you more breathing room in your monthly budget. Living in your first home helps you learn what you truly value–maybe you'll find that a smaller yard suits you, or perhaps you'll realize a home office is non-negotiable for your next purchase. These insights will be incredibly helpful when you eventually decide to make your next move.

Strategic Advantages of Waiting for Your Forever Home

Waiting patiently for your forever home is not easy. But it comes with powerful long-term benefits. By taking time to save for a larger down payment, you're reducing your monthly mortgage payments, and you can choose a neighborhood that fits your lifestyle now and for years to come.

If you skip the starter home phase, you eliminate the costs of multiple moves and real estate transactions. This single, strategic move into your forever home means you can focus on making it exactly what you want from the start, rather than compromising now and planning to upgrade later.

Critical Financial Factors That Shape Your Homebuying Timeline

Several key financial factors will impact your timeline. Market conditions are constantly shifting and interest rates play a crucial role in affordability. Consider these costs as you weigh your options:

• Initial costs: Down payment, closing costs, and immediate repairs or renovations needed
• Monthly costs: Mortgage payments, insurance, property taxes, and maintenance
• Long-term costs: Potential renovation expenses, future moving costs, and real estate transaction fees
• Investment potential: Property appreciation, equity building, and alternative investment opportunities
• Market timing: Interest rate trends, home price forecasts, and local market conditions

Essential Personal Milestones That Influence Your Housing Decision

Your choice should align with your life plans. Consider these key personal factors that could influence whether to buy now or wait:

• Career and income: Your job stability and income growth expectations can help determine if a starter home makes sense now or if waiting for a forever home aligns better with your career trajectory.
• Family and space needs: Your timeline for marriage, children, or caring for family members will impact how much space you need and when–making this a crucial factor in your housing decision.
• Location priorities: Your preferred school districts, commute times, and community connections might make certain neighborhoods worth waiting for, especially if you're planning to stay long-term.

Your Clear Path Forward: Action Steps for Both Housing Strategies

Whether you're drawn to building immediate equity through a starter home or saving up for your forever home, understand what matters most to you right now. Look at your savings, your monthly budget, and where you see yourself in the next few years. A starter home could be your ticket to immediate homeownership, while waiting for your forever home might better serve your long-term vision.

The truth is, there's no wrong choice. Start by getting pre-approved, exploring neighborhoods you love, and finding a real estate agent who understands you.