Thoughts on 'starter' homes?

[Psychstache]

Just wanted some opinions on the concept. My fiancee and I have been psuedo-seriously looking at houses. I have always been a fan of looking for a forever home (one that we can grow into with a 90%-ish chance of living there for life). Recently, we have been talking about the possibility of getting a smaller home and planning to sell and move in a few years.

I have always been of the idea that starter homes seem like a bad plan (housing market may not appreciate enough to get money back, plus the thought of simultaneously buying and selling a personal residence sounds MISERABLE).

Anyone have a strong opinion one way or the other?

[Undecided]

I think it depends significantly on the price difference between the two in your intended market and the timing delay to purchase the "forever" home directly.

[I Love Cake]

For me, I want to buy the house that suits my current lifestyle/income. Because $#$# happens and even if you thought you would have 8 kids or get that promotion, it may not happen. And sometimes, your 'starter' home ends up being plenty and there is no need to move even if you do have the 8 kids and get that promotion

For me, I would buy into the neighbourhood I loved-that is more important to me than square footage or if it has a Jacuzzi (the old 'location location location' adage)

You can always do things to your home as you grow (finish basement, build out, update, etc)

[Freda]

To me, a "forever" home is one that is a little roomy when you are starting out, a little cramped when you have kids, but not too big to manage as you age.

If I could do it over, I'd buy smaller, maybe 1600 square feet tops.

[James]

Just wanted some opinions on the concept. My fiancee and I have been psuedo-seriously looking at houses. I have always been a fan of looking for a forever home (one that we can grow into with a 90%-ish chance of living there for life). Recently, we have been talking about the possibility of getting a smaller home and planning to sell and move in a few years.

I have always been of the idea that starter homes seem like a bad plan (housing market may not appreciate enough to get money back, plus the thought of simultaneously buying and selling a personal residence sounds MISERABLE).

Anyone have a strong opinion one way or the other?

I think you need to balance renting a buying at any stage of the game. It depends a lot on the cost of renting and the current value of houses in your area.  In some locations it might make a lot of sense to purchase, even if you plan on changing houses in a couple years.  In others it might make financial sense to rent your whole life.  There are a lot of factors that go into play, hard to have any firm opinion without a lot more info.

[AJ]

Just wanted some opinions on the concept. My fiancee and I have been psuedo-seriously looking at houses. I have always been a fan of looking for a forever home (one that we can grow into with a 90%-ish chance of living there for life).

Well, just to be realistic, consider that your odds of staying married to one spouse your whole life are barely 50%. Nobody thinks they'll get divorced, yet almost half of them do. With those numbers for marriage, I'd say your odds of committing to stay in the same house "forever" are quite low - and definitely not 90%.

I've know half a dozen people who wanted their first home purchase to be their "forever" home - and not one of them is still in their first house. It is very unlikely that you will stay in one house forever, even with the best of intentions. And if it causes you to spend more money than you need for now, I don't think it is a good choice.

There is wisdom in I Love Cake's idea of buying for what you need now - because plans and needs always change.

However, I would say if you do plan to move in just a few years, renting may be a better option for you.

[Psychstache]

Hey Guys,

Thanks for all of the thoughts.

James, we have looked at the price comparison and it seems to be pretty much 50/50, hence why we are looking to buy.

We both work for the school system and love our jobs, so that offers quite a bit of predictability (stable employment, not getting transferred across the country).

The local market that we are looking in has been pretty stable. It is a well established neighborhood with good schools and a good reputation. Hasn't changed much since the fiancee lived here as a child so I see no reason that it should change in the near future.

I don't think divorce is in the cards for us. You can call me arrogant, misguided, whatever, but the bottom line is that my fiancee and I have worked our ass off on our relationship. The 50% number is a sweeping generalization that doesn't really represent us (this should make for some fun forum fodder).

I realize that finding that forever home is super-duper rare, but I feel like that is what we should be aiming for rather than planning on leaving a home in 3-8 years and getting eaten alive in selling costs, right?

[Hotstreak]

Just wanted some opinions on the concept. My fiancee and I have been psuedo-seriously looking at houses. I have always been a fan of looking for a forever home (one that we can grow into with a 90%-ish chance of living there for life). Recently, we have been talking about the possibility of getting a smaller home and planning to sell and move in a few years.

I have always been of the idea that starter homes seem like a bad plan (housing market may not appreciate enough to get money back, plus the thought of simultaneously buying and selling a personal residence sounds MISERABLE).

Anyone have a strong opinion one way or the other?

If you're worried about buying and selling at the same time, can you not handle the 2 mortgages at the same time?  Why do you want to buy instead of rent, if it's 50/50?  The buy vs. rent calculators average expenses out over the life of the home, note there's no huge spike for major repairs you may need to complete while you live there.  Something like that could move your break even point quite a bit if it happened in the few years you are there.  Renting leaves that risk to the landlord.  Also regarding the value of the home.. appreciating & as you mention, not appreciating enough to cover the cost: if your home goes up in value, so likely do other homes in the area.  It's a wash, but you're still stuck with the task of buying 2 homes, and selling 1 home, with capital tied up, instead of just buying one home.

[tooqk4u22]

Buy a small house that fits your needs and is well located for you (quality, commute, neighbors, school's, etc.) - the location is more important in the "forever" equation and if you plan on having kids the school part is especially important.  Should circumstances change you can always do a modest addition thereby making the small house not as small.

[AJ]

I don't think divorce is in the cards for us.

I didn't mean the analogy literally. Apologies if that was unclear.

I realize that finding that forever home is super-duper rare, but I feel like that is what we should be aiming for rather than planning on leaving a home in 3-8 years and getting eaten alive in selling costs, right?

Only if your "starter" home and your "forever" home are the same price. I guess I'm assuming your "forever" home will cost more. If that is the case, and it is highly likely that you will not stay in the same place forever, then you will be overspending now on a place that is more than you need.

If you have ruled out renting with your fiancee (which is usually wise until the ink is dry and things have settled down from the wedding), then my best advice would be to find a starter home that can easily be converted into a rental later. That way, you avoid overspending now, you avoid paying costs to sell, and you get a rental income property later at an owner occupied rate that you lock in now.

Out of curiosity - what the the trade-offs between the starter homes and the forever homes you're looking at? Location? Size? Land? Amenities? ...

[Psychstache]

I didn't mean the analogy literally. Apologies if that was unclear.

no worries. It's a weird personal sticking point when people throw out the old '50% divorce rate' stat without digging into important variables that effect whether or not you are on the 95% failure side or the 5% failure side. The point about the future being uncertain is taken. But much like the stock market, while past performance is not a guarantee of future returns, it is the best model we have to go off of. I treat my personal life plan the same way.

Only if your "starter" home and your "forever" home are the same price. I guess I'm assuming your "forever" home will cost more. If that is the case, and it is highly likely that you will not stay in the same place forever, then you will be overspending now on a place that is more than you need.

This is a pretty fair point. I will have to look at some of the price of some potential SHs to look at that price difference.

If you have ruled out renting with your fiancee (which is usually wise until the ink is dry and things have settled down from the wedding)

Been there, done that. We have been dating for 4.5 years and have lived together for the last 1.5, so that ship has sailed.

then my best advice would be to find a starter home that can easily be converted into a rental later. That way, you avoid overspending now, you avoid paying costs to sell, and you get a rental income property later at an owner occupied rate that you lock in now.

This is also intriguing. Do you not have to adjust the loan if the home goes from a personal residence to a rental? All the loan officers we have talked to always asked whether it is personal or rental so I just assumed that we would have to restructure the loan if the purpose of the home changed.

Out of curiosity - what the the trade-offs between the starter homes and the forever homes you're looking at? Location? Size? Land? Amenities?

Mostly the location. We have our eye on a few neighborhoods in part for some of the schools. Unfortunately, the schools are not a secret so the homes zoned there reflect that fact.

We could probably find a nice size starter home in a different neighborhood for much cheaper, but I really haven't looked at those possibilities yet. I'll let you know what I find when I do my homework.

[AJ]

If you have ruled out renting with your fiancee (which is usually wise until the ink is dry and things have settled down from the wedding)

Been there, done that. We have been dating for 4.5 years and have lived together for the last 1.5, so that ship has sailed.

Not sure what you mean by the ship has sailed on renting. Plenty of people rent their whole lives. Again, it has nothing to do with how long you've been together or whether you will stay that way. It has to do with the tumult that weddings cause, and the general changes in life that typically accompany them.

This is also intriguing. Do you not have to adjust the loan if the home goes from a personal residence to a rental? All the loan officers we have talked to always asked whether it is personal or rental so I just assumed that we would have to restructure the loan if the purpose of the home changed.

No, you don't typically have to adjust the loan, though if you get some special or unusual loan product you might. The documents you sign will include a provision that you occupy the house within the first 60 days or so, and agree to stay that way for the first year or two (the specifics will depend on the loan and lender). But it is not at all uncommon to move and rent out after the first few years.

[Psychstache]

Not sure what you mean by the ship has sailed on renting. Plenty of people rent their whole lives. Again, it has nothing to do with how long you've been together or whether you will stay that way. It has to do with the tumult that weddings cause, and the general changes in life that typically accompany them.

Sorry. I was assuming is was one of the 'you should rent until you figure out where you want to live' suggestions. We have been renting for quite some time and could continue to, but the math seems to be 6 of one, 1/2 dozen of the other and there are some personal/emotional reasons that seem to be tipping the scale to owning at this point.

We don;t really anticipate any real change, post wedding. We and our families frequently joke about being '99% married' and 'married except for the paperwork' at this point. Again, maybe naive and arrogant, but I really don't see how a religious ceremony and some signatures followed by a party is gonna change our lives that much.

[RoseRelish]

I'm a fan of the forever house at this point in the market. Housing looks like it's stabilizing/recovering and interest rates are at/near all-time lows (and 0%). That's a major reason to reach a bit to buy a house that fits your long-term needs. Make sure to leave room in the budget for repairs and stuff and don't let the housing payments get above whatever % of income.

My wife and I bought our forever home because the cost differences were modest ($20k more in purchase price, a bit more property tax, a bit higher utilities due to larger house) and the view of the park/golf course was unattainable in smaller homes.