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What Is a Starter Home?

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Updated · 3 min read
Barbara Marquand
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Johanna Arnone
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A starter home is a home that's priced relatively affordably for its location. Properties that are considered starter homes tend to be smaller, hence the lower price. Because of the association with cost, some people think 'starter home' is a taboo term. But price isn't the only reason you might consider a property that could be described as a starter home. And given that very few people buy and then live in one home for life, any first home might be considered a starter home. Let's set judgment aside and look at all the options.

What is a starter home?

A starter home is a property that can serve the basic needs of many homeowners and is on the lower end of the price range in its market. You might picture a modest suburban house, but starter homes aren't always detached single-family homes. Condos and townhouses can also be starter homes. The term doesn't specify the home's condition, either: Starter homes can be older homes, fixer-uppers or brand-new houses.
» MORE: Buy, build or fix: What's best for you?

Starter home vs. forever home

Part of what makes any given property a starter home is the idea that you won't live in it for long. That could be the only difference between a starter home and a 'forever' home — if you never move, your starter home becomes your forever home. Here are the pros and cons of choosing a home for the short term versus a property that could meet your needs for years to come.

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Starter homes

Pros

Saving for a down payment on a less expensive home takes less time.

The sooner you own a home, the sooner you start building home equity.

When you're ready to move up, you can sell and use your equity toward the next purchase.

Alternately, you might decide to keep the starter home as a rental, continuing to grow your equity and potentially creating a source of revenue.

Cons

You could find yourself stuck in a space that doesn't fit your needs or a location that isn't really where you want to be.

Planning to move in a few years can limit the changes you'd make to the home, because you'll want to keep future buyers in mind.

Trading up will likely involve buying and selling at the same time, which can be stressful.

Becoming a landlord isn't for everyone. You might decide that maintaining the home as a rental wouldn't be worth the costs.

Forever homes

Pros

With more space, the home can more comfortably accommodate changes to your household, whether that's new family members, pets or guests.

You can invest in upgrades and modify the home and yard to suit your taste.

Unless something unforeseeable happens, you won't have to think about moving for a long time.

Knowing you intend to stay could deepen the connections you make in the community.

Cons

Finding a home that fits all your criteria could be a lengthy  — and frustrating — search.

A pricier home means a larger down payment, which could take more time to save up, delaying homeownership.

It's possible that your wants or needs will evolve, and your forever home will wind up being a starter home.

Is a starter home right for you?

Here are some things to keep in mind when weighing whether to buy a starter home or wait for a property that's just right.

Know what you can afford

Your homebuying budget could decide whether a potential forever home is on the table. A common rule of thumb is to spend no more than 28% of your gross monthly income on home-related costs and no more than 36% on all debts. That debt number includes your future mortgage, revolving payments like credit cards, and payments on other loans, like car payments or student loans. But in pricier markets, that can be a tough target to hit.
To determine how much you can afford, consider your monthly income and expenses, your credit score and what you might be able to save for a down payment and closing costs. NerdWallet's home affordability calculator can help you get started.
» MORE: Would it cost more to rent or buy?

Make plans to stay

Even if you fully intend to upgrade from your starter home, you'll probably want to stay put for at least a few years. The longer you own the home, the better the chance that rising home values and the equity you've built will exceed the costs to buy and sell, including the mortgage closing costs and real estate commissions.
Selling too soon could make you subject to a capital gains tax if the home appreciates in value. Usually you can exclude up to $250,000 ($500,000 if you're married and filing jointly) of capital gains on real estate. But typically the exclusion disappears if you owned the home for less than two years or didn't live there for at least two years in the five-year period before the sale.
» MORE: Are you ready to buy a home?

Consider resale potential

It's a good idea to think about long-term value anytime you buy a home, but it should be front-of-mind if you're purchasing with a plan to resell. Work with your real estate agent to identify homes with good resale potential.
You may also want to think about the value you can add to a home. Buying a fixer-upper can be a way to score a bargain, but you'll want to make sure you understand the extent and cost of renovations before making an offer.
» MORE: What to know about buying a fixer-upper

Put 'forever' in perspective

Finding a home that will satisfy your needs for the long haul could take a long time, especially if you're in a real estate market with limited inventory. You might need to scale back your wish list and really weigh what's a want versus a need.
And bear in mind that forever isn't really forever when it comes to real estate. Jobs change, families grow and shrink, tastes change. Think "long-term" instead of "forever," and you'll be that much closer to finding your way home.
» MORE: How long does it take to buy a house?

Mortgage loans from our partners

NBKC

on NBKC

NBKC

4.5

NerdWallet rating
Min. credit score

620

Min. down payment

3%

New American Funding

on New American Funding

New American Funding

4.0

NerdWallet rating
Min. credit score

N/A

Min. down payment

0%

GO Mortgage

on GO Mortgage

GO Mortgage

4.0

NerdWallet rating
Min. credit score

620

Min. down payment

3%

COMPARE MORE LENDERS
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