My Perfect Mortgage
Choosing Between Starter and Dream Homes
5 minute read
January 22, 2018

A generation or so ago, first-time homebuyers typically started the homebuying process by purchasing a starter home. This was a less-expensive home, and often one that needed a strong dose of elbow grease to bring it up to standard. Once they lived in that home long enough to build up some equity, they traded up to something larger. Similarly, they might stay in that home long enough to build up more equity, before finally purchasing their dream home.

  • available in AL, CA, CO, CT, FL, GA, IL, MA, MD, MI, MN, NC, NJ, NY, OH, PA, SC, TX, VA, WA
  • Simple application
  • Quick decisions
  • Common sense underwriting
  • Fast closing period
  • Lend in all 50 states
  • Veteran lending specialist available to you, no matter where you are
  • In-house processing and underwriting
  • Express Loan Approval program, which allows you to be done with the whole process (minus the contract and appraisal), so you can focus on finding your home.
  • Rate Protect (Lock & Shop) lock in your rate before you even find a home!

Today, with many young people earning very high salaries and perhaps benefiting from a bull market stocks, they often bypass the starter home route, and go straight for the dream home.

Is there a better way to move up the “housing ladder”? Let’s look at both paths.

Starting with a Starter Home

Even if you have a relatively high income, there are definite benefits to buying a starter home. Since there’s no one definition of exactly what a starter home is, let’s make the assumption it’s a home that’s generally below what you can qualify for, and go from there.

Less Money Upfront

This comes down to numbers. Assuming that you’re going to make a 5% down payment on your first home, a $200,000 starter home will require a $10,000 down payment. A $400,000 dream home will require at least $20,000. It may require even more, if you exceed certain mortgage limits.

The fact that you need less money up front will reduce the need to get a gift from family members. Or if you do have to get a gift, it will be much smaller. That will leave you less beholden to family members going forward.

Less Income Going into Housing

The more expensive a home is, the higher the house payment will be. This is important because when you purchase your first home, you’re usually early in life and have other obligations. The lower you can keep your house payment, the more money you’ll have to devote to those other obligations.

Those obligations can include child bearing and rearing, paying off student loan debt, buying a new car or two, or building up savings. The lower your house payment, the easier it will be to do all of these.

A Chance to “Cut Your Teeth” on Homeownership Before Going Permanent

Have you ever watched HGTV? Do you ever get inspired to do your own repairs or home renovations? If you do, a starter home is the perfect place to try your hand at it. Unless you’ve been doing it for a while already, it really is a learn-by-doing experience. It’s better to do that on an inexpensive starter home – where you might not feel so bad about making a mistake or two – than doing it on your dream home.

Not Locking in at a Time When You Probably Shouldn’t be Locking In

Today’s economic and career landscapes are wrought with change. That’s even more likely early in life. If you’re in your 20s or 30s, either your career or your job may not be permanent. It’s possible that you will need to make a move for employment purposes in the near future.

That will be easier to do if you are living in a starter home, than in a dream home that you might not want to leave. It’s even possible that being in a dream home might prevent you from following a dream job.

Going Straight for Your Dream Home

Going straight for your dream home has its own merits, and that’s why so many people do it today. Once again, let’s try to define a dream home, as one that has all of the features that you want in a home (no compromises), and is at or above your maximum level of affordability.

Having the Home You Always Wanted

One of the disadvantages of having a starter home is that you’re in a place that’s never quite right. Even if you learn to love it, it’s always short some square feet, or an extra bedroom, or an extra bathroom, or a “TV kitchen”. You always know that sooner or later you’ll have to move on to something else.

If you buy your dream home now, you’ll have it all up front. There will be no need to wait until “someday” to get the home with the features you want.

Not Needing to Make Major Repairs or Renovations

A starter home can be a certified nightmare if the home is in need of serious renovations and repairs. You can find all of your spare time and extra money being soaked up fixing what’s broken. But if you’re in your dream home, all you need to do is live in it. Even if you need to stretch to meet the monthly payment, you don’t have those extra costs that come with repairs and renovations.

No Need to Make Another Move

Some people make moves for employment purposes. But others move because the property they’re living in is insufficient. If you’re already in your dream home, there’s no concern about another move in your future. You’re where you’re going.

There is one caveat here though. Your idea of what a dream home is could change while you’re living in your current version of a dream home. After 10 or 15 years, you may be dreaming in a different direction, and looking to make another move anyway.

A Chance to Build Your Life in a Single Permanent Residence

Many people do purchase a dream home, and then stay there throughout their lives – or at least until retirement. That’s your opportunity to put down serious roots, and build memories. The raising of your children, and all of life’s triumphs and tragedies take place in the same home. The house isn’t just a place for you to live, but also hold memories of the lives you’ve lived within it.

Which is better for you, starter home or dream home? Much depends on your finances and what you can afford. But your long-term intentions should also figure into the equation.

Our advise is based on experience in the mortgage industry and we are dedicated to helping you achieve your goal of owning a home. We may receive compensation from partner banks when you view mortgage rates listed on our website.