Are You Ready For A Starter Home Or A Forever Home?

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The decision to buy a home is a big one and it gets even more complicated when you factor in the decision between choosing a starter home or investing in a forever home. Luckily, that’s where we come in. We laid out three big considerations to keep in mind when you’re choosing between the two. Read on below to make the decision between a starter home and a forever home clearer than ever before.

Financial considerations

Obviously, some of the biggest differences between a starter home and a forever home will show up financially. Since starter homes are often smaller and more affordable while forever homes are more of an investment, but give you more room to spread out. Here are some financial considerations to keep in mind when deciding between the two:

The down payment

While it’s true that you don’t need to put 20% down anymore, you will have to put a certain percentage of the sale price towards the down payment. Typically, this amount ranges between 3%-5% of the sale price. As the sale price increases, so will the amount you have to put down. Evaluate how much money you have in savings and are willing to spend on a down payment and let those figures determine your budget.

Your interest rates

On paper, it may not seem like much, but a fraction of a percentage point can make a big difference in your monthly payment. For instance, a $250,000 mortgage at a rate of 4.125% would run you $1,231 per month. The same mortgage amount at 5% will cost $1,492. As your sale price goes up, so will the impact of the interest rates. Talk to you lender to see what effect the rates you qualify for will have on your budget.

Location considerations

The next thing you’ll want to consider is your ideal location for your new home. Are you more of a center-of-the-action person, who loves to be near trendy bars and restaurants? Or, do you prefer the peace and quiet afforded to you by living a little further away from the hustle and bustle?

Traditionally, starter homes tend to resonate more with the former option. If you’re looking for one of these homes you may want to focus your search on hot neighborhoods and up-and-coming areas, where you’ll have more reassurance that your home will get scooped up when it comes time for you to sell.  Typically, these areas are in a central location and are close to amenities like public transportation.

Forever homes, on the other hand, tend to benefit from being a bit further out. When a home is in the suburbs, you can get more space for your money and potentially a more upgraded property. Since resale value and rental potential is less of a concern, in this case, your main focus should be on finding a home in an area where you feel comfortable putting down roots.

Lifestyle considerations

When buying a home, your current – and future – lifestyle are also cause for consideration. Conventional wisdom states that, in order to get the most out of your investment, you’ll want to own your new home for at least the next five years. With that in mind, it’s important to take stock of where you are now in life and where you see yourself ending up a few years down the road.

If you’re not quite settled in your lifestyle, it may make more sense to go with a starter home. Job changes and lifestyle changes like a marriage or a growing family can happen quickly. If you can see one or more of those things happening to you within the next few years, you may want the flexibility to rent out a starter home, in the event that you need to move quickly.

If, however, you’ve already experienced most of those big life moments, you may want to go with the stability of a forever home. In the event that you see yourself staying put in the same area for the next few years, it may make more sense to put down roots and to start building equity in your home sooner rather than later.

Article by Tara Mastroeni for Forbes.com

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