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Should You Skip the Starter Home and Buy a Forever Home?

May 15, 2019

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If you’re out there shopping for your first home, you might swoon over that four-bedroom Colonial and imagine growing old there—but wait a minute! Sure, you might be jonesing to put down permanent roots, but your bank account and life circumstances might beg to differ.

Nonetheless, a trend has emerged, particularly among younger millennial buyers: More and more are forgoing the traditional starter home, typically defined as one or two bedrooms, which most home buyers stay in for about five years before trading up. Instead, they are going right for that dream home, which is usually larger and boasts fancier finishes, an appealing location, and other amenities—with the commensurate higher price tag.

In fact, according to Census Bureau data analyzed by Ralph McLaughlin, chief economist of Veritas Urbis Economics, from 2012 to 2016, nearly a third of buyers aged 33 to 37 bought four-bedroom homes (aka forever homes) compared with about 24% in that age group who bought similar homes in 1980, 1990, and 2000.

But is bypassing starter homes and falling straight into the roomy environs of forever homes a good idea? Consider these questions that can help you determine which type of purchase might make more sense for you.

Can you afford a forever home?

Reality check: The picture of the poor, underemployed millennial is not entirely accurate.

“Many have been in co-living situations for years, whether that’s the childhood basement or living with friends, and they’ve been socking their money away,” says Laura Brodniak of Windermere Real Estate in Kirkland, WA.

In addition, many in this age group have larger down payments since they have waited longer to buy than previous generations, or in many cases their parents are helping them with funds for the down payment.

However, remember that buying at the edge of your budget can cause you to be “house poor,” not only because your monthly payment is so large but also because a larger house can require more upkeep—not to mention more furniture.

It’s important to take an honest look at your maximum buying power and see how stretching yourself could negatively affect other aspects of your lifestyle, from enjoying weekly brunch to an annual getaway.

Is your life adequately settled for a forever home?

If you’re still in your first job and haven’t yet made plans for kids, you might want to consider that you’re still in the “starter” phase of your life, and therefore more suited to a starter home.

While of course no one can predict the future (even if you seem settled), by their very nature your younger years often have more volatile changes, and buying a starter home gives you some wiggle room for those unexpected curveballs.

Take it from Julie Gurner, a real estate analyst at FitSmallBusiness.com, who has already owned three homes due to changing life circumstances.

“I’d advise anyone who would consider moving for an exciting career development to only commit to a starter home,” she says. Not only is it easier to sell, but you’re less likely to become attached to the property, she notes, which could be a mental roadblock to taking an opportunity you might otherwise pursue.

Do you even know what you want in a home?

Someone who has never lived in a house of their own might have unrealistic expectations of what they do and don’t want, cautions Alison Bernstein of the Suburban Jungle Realty Group, in New York.

“You may realize that you definitely need that two-car garage because you are tired of scraping snow and ice off your car before work every morning,” the residential real estate expert explains. “Or you may not know yet that you don’t really need a basement after all, because no one likes being down there away from the action.”

Or, even worse, you might realize that homeownership isn’t for you at all, whether it’s the constant yardwork that’s killing you or the fact that every spare dime goes to property tax. Consider your starter home your opportunity to try out different home amenities and layouts so you get it right when it’s finally time to get that dream home.

Is there a compromise that could be the best of both worlds?

For most of us, life does change, and very few people stay in their home for 30-plus years anymore. However, you might want to remain in the same town.

“Once you pick a town, you become vested in the community, the neighbors, and the schools, and your children become settled,” Bernstein points out. “It is a very high bar to move out of the town and much more practical, if need be, to find a new home there that better suits your lifestyle as you and your family grow.”

That’s why Shawn Kunkler of Paragon Real Estate Group in San Francisco recommends finding a starter home in your forever town.

“Then, when your needs change, you can buy up,” he says. In fact, Kunkler finds that for some clients, this strategy can cycle a couple of times as their lives continue to evolve before they find themselves in their forever home.

“I remind first-time buyers that their taste and needs are likely to change, as will their income and family size,” Kunkler says. “What is important today in a home may not be in the decades to come.”

The post Should You Skip the Starter Home and Buy a Forever Home? appeared first on Real Estate News & Insights | realtor.com®.

We’re Stuck in Our Starter Home—Will It Be Our Forever Home, Too?

October 16, 2018

Right after we got married, my husband and I bought a starter house. At the time, we didn’t have much in savings (or in income), so it wasn’t our dream house. But it was our house, and that was enough. Coming from the tiny apartment where we started out, this three-bedroom, one-bath Cape Cod on a quiet street seemed like a dream. Our plan was to stay five years, tops, then sell it and move on to something bigger and better.

That was 12 years ago … and we’re still here.

At first, our long stay in our starter home happened purely by accident. We had two kids in quick succession, and I’d made a career move into an unsteady field. We were just too busy (and to be honest, too scared) to make the leap.

A few years ago, however, we decided we were ready to enter the real estate market once again. Financially, we were comfortable, and we were rapidly outgrowing the house that had once fit us perfectly. Time to move on!

But that’s when it hit us that the real estate market had changed. A lot.

In Lancaster, OH, where we lived, we quickly came to realize that a seller’s market reigned, filled with ambitious sellers and vicious buyers who often pounced before a “For Sale” sign was even planted in the ground. We fell in love with three homes that went into contract before we could even make an offer. When we did manage to make an offer on two other homes, we were outbid each time.

That kind of letdown was heartbreaking. After we had pictured our family in that kitchen or our cars in the driveway, it wasn’t easy to trudge home in defeat to a place where we no longer wanted to live, again and again.

In short, we were stuck in our starter home … and, lacking any other recourse, I decided to change my way of thinking.

As bad as I wanted a new house, I also knew we weren’t willing to overpay. So instead, I decided to take another look at our humble home and, rather than focus on its flaws, wonder we could turn it into the forever home we’d been searching for everywhere but here.

sisters in bedroom
This home is the only one my daughters have ever known.

Whitney Coy

From starter home … to forever home?

There are so many projects we dreamed up for this house when we bought it, and then brushed aside because we didn’t plan on staying. I can’t count how many times we said, “If we were going to stay here, I’d love to…” followed by some totally doable project we’d certainly get to with the next house.

For instance, we wanted to paint, but surely the new owners would have other colors in mind. We wanted a new couch, but figured we should probably wait until we move so we could pick out one that fit in the new house.

Finally, we realized that we are staying here—at least for now. Why should we wait? This old house has been good to us over the years. It’s where we brought home our babies and watched them grow. I learned to cook in this kitchen. I got my career off the ground at my little desk in the corner of the dining room.

I realized this wasn’t our starter home—it was just home.

So this summer, I took the plunge. I took our sad, grungy, enclosed patio, and transformed it into a glorious summer retreat. New paint, new furniture, and good bit of elbow grease gave me a place I actually enjoyed sitting to watch my kids play.

back porch
My first step toward transforming our starter home to home.

Whitney Coy

Something about that first project—even though it was a small one—made me realize that we had been approaching this all wrong. The heartbreak of not getting a house we loved didn’t sting quite so much. The prospect of staying here wasn’t so bad.

I kept up the momentum. I replaced our big, hulking black fridge (I promise, they were somewhat in style in the early aughts) with one made of shiny stainless steel. I hung some new shelves in my kitchen and bought new rugs. Not a big change, but the room felt fresh to me.

I wasn’t sure where to go next, but this old house led the way. An overflowing toilet led to the discovery of a rusted-out pipe under the floor. Rather than try to make the fix with minimal damage, we ripped out the old bathroom and created a whole new one that we love. I still wish we had more than one bathroom, but the one we have is pretty now, so it’ll be just fine.

Next came the couch. I was all too happy to pass that 12-year-old beast off to a happy newlywed couple and buy an overstuffed sectional I’d been eyeing for years. Suddenly, my living room seems like the perfect place to get cozy and relax.

I hung new pictures. I potted succulents. My dad helped me landscape the overgrown front yard. Last weekend, I picked up paint samples.

front yard
It took more than a decade, but the front yard finally has nice landscaping.

Whitney Coy

At first glance, it may seem like we’ve given up on our dream, but that couldn’t be further from the truth. We still pore over real estate listings, and we still go to open houses. We still talk about buying a new house—”someday.” And of course, all these changes will be a major advantage when it’s finally time to list this house.

This probably isn’t our forever home. Nonetheless, taking the time to change the things I didn’t like about it have made it a great place to be right now. Now, when my husband and I check out the newest listings, we don’t complain when nothing seems to fit. We just sit back on our brand- new couch, look around the house we love, and know we’re happy right where we are.

The post We’re Stuck in Our Starter Home—Will It Be Our Forever Home, Too? appeared first on Real Estate News & Insights | realtor.com®.

How to Buy a House in Your 20s—and Why You Really Should

September 29, 2018

Curious about how to buy a house in your 20s? If you’re dubious it can be done, we get it. Between entry-level salaries, college loans, and the desire to just be young and have fun, 20-somethings often think homeownership is beyond their reach.

No so! It is entirely possible to buy a home in your 20s, and it will benefit you big-time down the road. Here’s how you can make your home-buying dreams come true much sooner than you think.

How to buy a house in your 20s: Save for a down payment

To buy a house at your age, you’d better have some cash saved up for a down payment on your mortgage—a lot of cash, actually.

Most financial planners recommend that home buyers make a down payment amounting to 20% of the price of the home. So on your typical $250,000 house, that would amount to $50,000. Ouch!

Granted, you don’t have to put down 20%, but doing so enables you to avoid paying private mortgage insurance, a premium that can increase your monthly payment by up to 1.15%.

If you don’t have a ton of money in savings, one way to afford the down payment is to ask Mom and Dad for financial help. Another option to foot the down payment bill is to apply for down payment assistance. Depending on your income and other factors, you could qualify for one of over 2,200 down payment assistance programs nationwide, which help out home buyers with low-interest loans, grants, and tax credits.

So, how much money are we talking about? Well, one study found that buyers who use down payment assistance programs save an average of $17,766. Sadly, most consumers aren’t aware of these programs, or assume they’re too difficult to qualify for. Don’t be one of them!

Shore up student loan debt

Student debt has surged to an average of $28,950 per borrower, reports the Institute for College Access & Success. But college debt doesn’t automatically prevent you from being able buy a house.

Most mortgage lenders require a borrower’s debt-to-income ratio—how much money you owe divided by your income—to be no more than 36%. So, someone making $6,000 a month and paying $500 a month in student debt would be able to afford a maximum monthly mortgage payment of $1,680—in many markets, that’s plenty to buy a house. But, if you’re shouldering too much student loan debt to qualify for a mortgage, you may still have a few options.

One way to make room for a mortgage is to refinance and extend the life of your college loan. This results in smaller monthly payments over a longer period of time, so you’ll have more you can put toward a mortgage. The caveat is you’ll end up paying more in interest over the life of your college loan, but it means you can buy a home now and, in turn, take advantage of today’s low mortgage interest rates, says Heather McRae, a senior loan officer at Chicago Financial Services.

Moreover, nearly half of states today offer housing assistance to college grads carrying student loan debt. For instance, New York’s new Graduate to Homeownership program provides assistance to first-time buyers/college grads in the form of low-interest-rate mortgages or up to $15,000 in down payment assistance. You can meet with a mortgage lender to find out if you qualify for one of these programs.

Check your credit score

Unlike older generations, home buyers in their 20s tend to have shorter credit histories. That can be a problem, since if you have limited credit history, the odds are greater that you have a mediocre credit score—the numerical representation of how well you’ve paid off past loans (like credit cards).

Mortgage lenders usually require borrowers to have a minimum credit score of 660; they also look at your credit utilization ratio—your current debts, divided by the credit limit on the sum of your accounts. For example, if you’re carrying a $400 debt on your credit card and have a $1,000 credit limit, your credit utilization ratio is 40%. Unfortunately, relatively new credit users tend to have higher credit utilization ratio.

You’ll want to get a free copy of your credit report at AnnualCreditReport.com. Check for errors—1 in 4 Americans spots mistakes on their credit report, according to a Federal Trade Commission survey. And, if your credit isn’t up to par, you may have to take a few months to raise your score. Or you can get someone with good credit (like your parents) to co-sign the loan for you.

Purchase a starter home

As a young home buyer, you don’t have to find your “forever home” right now.

“I tell young buyers all the time, ‘This is your first home—it’s not your last,’” says Linda Sanderfoot, a real estate agent at Coldwell Banker in Neenah, WI.

In fact, there are a couple of big financial benefits to buying a starter home while you’re in your 20s. First, your mortgage payments will probably be more affordable, since you’ll likely be buying a cheaper house. Second, you may be able to get a 5- or 7-year adjustable-rate mortgage and qualify for a lower interest rate than you would with a 30-year fixed loan—a good decision as long as you plan on moving before the loan’s interest rate lock expires.

Plan for unexpected home expenses

All home buyers should have a rainy day fund to pay for emergency home repairs such as roof damage or a gas leak. And this is especially important for young buyers. Why? Research shows many millennials are less financially responsible than older generations. A study by TD Ameritrade found that more than 9 in 10 millennials overspend, fall short on savings, or take on additional debt at least once a month per year. Furthermore, a recent GoBankingRates.com survey found 52% of millennials said they feel pressure to keep up with their friends due to always going out.

Consequently, “Don’t buy at the top of your budget,” says Sanderfoot. “Unless you’re buying new construction, you need an emergency fund for big repairs.”

She adds that home buyers may also want to get a home warranty, which is a policy that would cover the cost of repairing certain home appliances if they break down. (Plans start at about $300.)

The post How to Buy a House in Your 20s—and Why You Really Should appeared first on Real Estate News & Insights | realtor.com®.