So you've decided that you're ready to buy a home. Now you need to choose whether this property will be the first of several—a starter home—or the only one you'll ever need—a forever home.
There are key differences between the two types of homes and a number of factors to consider before landing on one side or the other. Let's break down the various aspects of a starter home vs. a forever home so you can choose with confidence.
- A starter home gets you out of renting, but eventually to move on to another home, while a forever home is the only one you plan on buying.
- Starter homes typically need work or repairs, so they're often cheaper than newer, larger, or fancier homes in the same area.
- First-time homebuyer programs offer benefits like reduced down payments, down payment assistance, and special interest rates.
- A starter home might be best for homeowners who want to begin building equity as soon as possible.
- A forever home is best for people who have a clearly defined vision of the future and little desire to move around.
What's the Difference Between a Starter Home and a Forever Home?
|Starter home||Forever home|
|Definition||A home you plan to own for a short period before buying another one||The only home you plan to buy|
|Home features||May have drawbacks in size, location, or other features||Must meet both current and future needs|
|Cost||Typically cheaper||Typically more expensive|
|Mortgage||May prefer an ARM||May prefer a fixed rate|
|Incentives||Last the life of the loan, but don't carry over to the next loan||Last the life of the loan|
|Equity||Builds equity||Builds equity|
A starter home gets you out of renting and into ownership, with the expectation that you'll eventually move on to another home. It might not be perfect—maybe it's a little too far from work, only has one bathroom, or is in dire need of upgrades. Since you aren't planning on living in it permanently, those drawbacks might not be deal-breakers.
A forever home, meanwhile, is the only one you plan on buying. That means you'll need to find a home that suits your current needs and all your future needs, too. If you plan to get married, have kids, or work from home, you should consider how these decisions will affect your need for features like outdoor space, more bedrooms, or nearby schools. While you can eventually renovate an outdated kitchen, you can't change your home's location.
The perspective described above plays into perhaps the biggest difference between a starter home and a forever home: the cost. Because starter homes typically need a little TLC, they're often cheaper than newer, larger, or fancier homes in the same area. Homebuyers who only plan to stay for a few years may be more willing to overlook a few flaws or may have a plan to improve them.
Because a forever home needs to meet your future needs, it might be newer or larger than you need right now. For example, a couple might consider buying a four-bedroom forever home because they plan to have kids eventually, but they'll likely spend more than they would on a home big enough for just the two of them.
The cost difference also affects the size of the down payment you'll need to buy a forever home vs. a starter home, as well as the likelihood of having to pay for private mortgage insurance (PMI). After all, it'll be easier to save up 20% of a lower purchase price than 20% of a higher one.
If you plan on moving on from a starter home after a few years, an adjustable-rate mortgage (ARM) could be a good choice. An ARM typically starts with a low interest rate, which becomes variable after a certain period of time. If the length of the introductory rate lines up well with the amount of time you plan to own your starter home, an ARM could be a good choice since you can sell your property before the rate increases.
Those seeking a forever home may prefer to opt for a steady 30-year fixed mortgage, where rates won't ever jump around. While this type of mortgage may come with a higher interest rate than the initial rate of an ARM, it'll stay put over time—whereas the ARM's rate has the potential to increase. If you plan to own your home for decades, you may prefer the predictability of a consistent payment.
First-time homebuyer programs offer benefits like reduced down payments, down payment assistance, and special interest rates. Programs vary by state, and many have specific income and credit score requirements. In addition, many programs specify a maximum purchase price, so you may need to keep that in mind during your home search.
In many cases, the incentives last for the life of the loan. If you're buying a forever home, that's great news—you can continue to enjoy the benefits for years or decades. However, if you buy a starter home, you'll lose the program's advantage when you eventually sell it and move on to another property.
Depending on the terms of your program, you may need to pay back some or all of the assistance if you sell the home within a certain number of years. Before signing up for a homebuyer incentive program, make sure to read all the fine print.
Perhaps most importantly, the money you pay toward your mortgage builds home equity. Whether you buy a starter or forever home, putting money toward your own property means you're building your own equity instead of paying rent and building your landlord's equity.
Equity isn't just built by paying off your mortgage; it also builds as your home's value increases. For example, 2021 had a historically high year-over-year increase in home prices, with homeowners selling their properties for a median of $85,000 over the price at which they purchased them. That $85,000 is equity, and this type of appreciation is one reason that real estate is often considered a good investment (although there's always the chance that property values could decrease).
The chance to start building equity sooner is one especially compelling reason to opt for a starter home rather than a forever home if it will take you much longer to save for the latter. Every year you wait before buying is a year you're not building equity. And when you sell your first home, you can use your home equity to help finance the purchase of your next property. If you buy a starter home, you'll take advantage of this option sooner than if you choose a forever home.
Starter Home vs. Forever Home: Which Is Right for You?
So how do you choose whether a starter home or a forever home is right for you? In the end, it's a personal decision, and everyone's situation is different. For example, one person might consider buying a downtown condo as a starter home, while another might see that condo as the perfect forever home. It all depends on your perspective and plans.
Let's take a look at some factors that might help you choose one option over the other.
When a Starter Home Is the Best Choice
If you're keen to begin building equity in your own investment as soon as possible, a starter home might be right for you. Since starter homes are typically more affordable, they might appeal to buyers who want to take advantage of low interest rates by buying sooner rather than later.
A starter home can also be a good option if you're not sure what your life will look like in five or 10 years. For example, while you hope to eventually have several kids, you don't have any now—so you don't necessarily need those extra bedrooms right away. Or perhaps you love living in the city in your 20s but see yourself moving to the suburbs by the time you're 40. Buying a starter home means you can focus on your current needs rather than trying to predict what you might want later.
When You Should Choose a Forever Home
Perhaps you don't plan to have kids or your family is already complete, and you love the neighborhood where you plan to buy. Maybe you see yourself hosting gatherings in the same living room for the next 30 years. If you have a clearly defined vision of the future and little desire to move around, a forever home could be a good option.
It'll likely be more expensive than a starter home, which is an important factor to consider, especially if you live in an area with a high cost of living. It may take you longer to save enough money to cover the down payment and closing costs. However, if this is your first purchase, you can take advantage of first-time homebuyer and down payment assistance programs. Plus, many programs last for the life of your home loan, so staying for the long term means you can make the most of them.
No matter which option appeals most to you, start by calculating how much home you can afford. The types of properties you'll be able to buy will depend heavily on the real estate market in your area, and it's better to know what might fit your budget before you start scrolling through listings.
The Bottom Line
In the end, whether you end up buying a starter home or a forever home is your choice. There are plenty of reasons to decide on either option—and you might wind up choosing a combination strategy by purchasing a starter home and then moving to a forever home when you're ready.
Frequently Asked Questions (FAQs)
How much should a starter home cost?
The median sales price for all homes in 2021 was $272,500, though a starter home should be less expensive. Keep in mind that the cost of property will vary widely depending on where you live, especially in a competitive real estate market. A forever home in an affordable region could cost less than a starter home in a high-cost-of-living area.
How do you decide where to live with a forever home?
Deciding where and when to buy your forever home is highly personal. Once you have the funds, you'll want to consider your work, family, and lifestyle when deciding on a forever home location. After all, you can change many aspects of your home, but not its location. Consider the neighborhood, school district, and proximity to amenities like recreation and grocery stores, among other factors.
Consumer Financial Protection Bureau. "Consumer Handbook on Adjustable-Rate Mortgages," Page 2.
National Association of Realtors. "2021 Profile of Home Buyers and Sellers," Page 9.
National Association of Realtors Research Group. "2021 Home Buyers and Sellers Generational Trends Report," Page 40.