Deflating the biggest myth about starter homes
Many people are eager to "stop throwing away money on rent" and want to buy a home as soon as possible, even if they can only afford a home that they expect to outgrow in a few years. They hope that they'll later make enough money on the sale of this "starter home" to have a down payment for their next home.
But buying and selling a home incurs thousands of dollars in transaction costs. People also tend to overlook that home ownership comes with expenses that renting doesn’t, such as insurance, taxes and property maintenance. These expenses can run you thousands of dollars a year.
By renting instead of jumping into home ownership prematurely, you might accumulate more savings and be in a better position to buy that long-term family home.
Buying a home could also affect your income and career prospects. Owning a home decreases job flexibility, so upwardly mobile young professionals might be better off renting so they can easily move for a better opportunity. Also, anyone whose job is at risk and who might gain better job prospects by relocating could be in a better financial position by renting and keeping their options open. Those unemployment checks don't make much of a dent in the monthly mortgage payment.
So many variables affect how much you’ll spend on home ownership that it's impossible to state that buying a starter home categorically does or does not make financial sense. But it's often presented as being a good idea no matter what.
Some variables are determined by choices you make, but others depend on market forces that you have no control over and a future you can’t predict. If your timing is right, a starter home can be a winning proposition. But if your timing is wrong, you could end up underwater and unable to move. You could also find yourself paying thousands of dollars to get out of your starter home and into a home that's large enough to start a family.
Find out more about why buying a starter home doesn't make sense for everyone in my Interest.com article,
Deflating the biggest myth about starter homes.
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