Starter Home or Forever Home: Which One is Right for You?

starter vs. forever home

Does it seem like you’re always on the move? You might be surprised to learn that the average person moves 11.4 times in his or her lifetime, according to If you’re in your twenties, you’re in the age group that tends to pack up most frequently. By the time you’re ready to buy your first place, perhaps you’re looking to put down permanent roots. Then comes the big question: Should you buy a modest starter home or spring for your forever home? Here’s what to keep in mind when making the decision:

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In Favor of Forever Right Now

Your Dream Home May Soon Be Out of Your Reach

There’s no doubt that the housing market is booming. The big question is how long will the prices continue to increase before they plateau or drop. In this hot market, prices seem to be rising faster than most buyers can save. For that reason, you can make an argument for buying a starter house now and waiting for the next bust to get a deal on your forever home. However, since there’s no telling if and when prices will decrease, it may not be a bad idea to cut to the chase and secure your dream place today. It certainly feels like a game of Russian roulette.

Today’s Killer Mortgage Rates Are Too Good to Pass Up

As home prices continue to climb, low interest rates are the saving grace. No matter what home you’re looking to finance, you will be able to secure a historically low rate. It’s impossible to predict when the next time the mortgage rates will be this favorable. For this reason alone, if you’re in a position to buy your forever home, it may be the right time to splurge.

A career change, wedding and new baby can quickly impact your list of home must haves. The bottom line is that you don’t want to feel stuck in a situation that is not optimal.

You Avoid a Tax Ding by Settling In

Although you might be used to jumping around, you’re going to want to stay put for at least a few years once you buy a home. If you outgrow your starter home too quickly and opt to sell, you may be hit with a tax penalty. You are encouraged to use your home as a main residence during at least two of the five years that lead up to the home’s sale to avoid paying capital gains tax. According to the IRS, individuals are excluded from paying taxes on $250,000 in profit and married couples up to $500,000. Before making any big decisions, you’ll want to speak to a tax professional.

One Down Payment, and One Down Payment ONLY

Another thing to think about is how fast you can save up a down payment for your next purchase. Based on your projected income, how long will it take for you to put yourself in a position to buy again? Could you afford to buy a starter house and then jump to the next tier?

Growing Pains Won’t be a Thing

If you’re a young buyer, you may find that life changes drastically in a short period of time. Take stock of your current lifestyle and get realistic about future life events that will impact your needs. Perhaps a cute condo in the city makes sense for now, but do you have a plan for when kids come along?

Some of the big-picture things to think about include neighborhoods and property type. How long can you stick it out in a certain neighborhood? When will you start to outgrow a small footprint? Your dollars may stretch much further if you move out to the suburbs. A career change, wedding and new baby can quickly impact your list of home must haves.

The bottom line is that you don’t want to feel stuck in a situation that is not optimal.

Why the Starter Could Be the Perfect Stepping Stone

Crazy High Monthly Mortgage Payments — Worth It?

Not everyone can afford to buy their dream home straight out of the gate. The last thing you want is to be house broke and completely strapped for cash. So before you go all-in on that shiny McMansion, carefully budget your down payment and the monthly costs associated with your property of choice. While it’s okay to stretch you budget to get something that you really want, you don’t want to put yourself in a position where you’re struggling to make payments.

Rental Potential May Surprise You

What if the market tanks and you don’t want to sell your starter at a loss? Can you make it work by renting out the house to cover your mortgage and moving on to your next place? Prior to writing up an offer, analyze the neighborhood’s rental market and understand how this strategy can play out.

A Starter Can BE Forever

Here’s a twist. There are plenty of scenarios when starter homes wind up being forever homes. Once you’ve settled down into a great neighborhood you may never want to leave. Finding a situation with some flexibility makes all the difference. Could you put on an addition or do some renovating to make yourself happy if you decide to stay for the long haul? As you’re touring properties, always look for ways to make the place work beyond just the here and now.