There comes a time when renting starts to lose its luster. Making payments to a landlord month after month can begin to feel like throwing away large sums of money, especially if your rent continues to rise each year.
Suddenly, a starter home starts to look like a really good idea. You'll build equity in an investment you own, even if it isn't where you want to live forever. You'll have an asset to put toward buying the "forever home" of your dreams.
But making the shift from the renter lifestyle to homeownership involves many new concerns. You need to be prepared to consider the financial obligations while looking for a well-built home that's comfortable to live in for at least a few years.
Now more than ever, there's less room for error. According to an analysis by Student Loan Hero, millennials are paying 39% more than baby boomers did to purchase their first homes.
Here's a quick overview of what to look for in your starter home.
Affordable for you
The first step toward purchasing your starter home is figuring out what you can afford. Online tools can help you determine what you're able to afford based on how much you're willing to spend for monthly mortgage payments.
Generally speaking, you should strive to:
- Significantly reduce outstanding debt, like credit cards or student loans.
- Have a steady, reliable income stream with growth potential.
- Save enough money for a large down payment, which will improve your mortgage terms.
- Keep extra savings set aside for your emergency fund or retirement - don't funnel it all into a down payment.
You'll also want to carefully consider if the timing is right for you based on these factors. You're likely interested in taking advantage of the fact that interest rates are at a relative low while real estate markets seem to be getting hotter in your area.
Keep in mind that a starter home you can actually afford might not be in trendiest area, and you may have to make some lifestyle changes compared to what you were able to afford while renting.
If you've got the money saved up, and you're committed to living in your first house for at least a few years, here's what to look for while you're touring a prospective new home.
Focus on the big picture
An article from U.S. News & World Report recommended that prospective homeowners look past the ornamentation of staged homes and pay attention to important details about things that are hard to change. You should also look out for signs of structural damage.
In particular, they recommended that you monitor for any signs of water damage or mold, as these hidden dangers can be major headaches for homeowners if they're caught unaware and the problem has been allowed to fester.
They also suggested homebuyers pay attention to outdated electrical wiring, old or ill-repaired roofing, operational problems for major appliances and signs of foundation damage.
Keep in mind that a home inspection will help you get to the root of some potential issues. The point is to not be suckered in by the the way the home was staged. You can easily repaint or redecorate the interior. Think carefully about things that will be difficult and costly to change, and don't overlook deal breakers just because you're taken in by the ambiance.
If you're going to invest in this home, it needs to be worthy of your time, money and commitment.
Once you've closed on your starter home, be careful not to nick the walls moving in by yourself. Instead, consider reaching out to your local Atlas agent for support!