Buying your first home is an exciting milestone but there is so much to consider. There are a range of options to choose from depending on your budget, your life goals, and the current real estate market. Even if you do your homework, you can be stumped by the sheer number of choices. We compare the different types of property to help you choose your ideal first home.
Starter Home vs. Forever Home
Starter homes are typically more affordable homes that serve the basic needs of new homeowners in the near future. Because you can purchase starter homes with smaller down payments, you can start to build home equity earlier than if you wait and save up for a bigger home. However, you may quickly outgrow a starter home when you need to increase your living space for children or to set up a home office.
In contrast, forever homes are homes that are designed to meet homeowners’ needs for the long term. They are generally larger or come with extra land to allow for home expansions. When you purchase a forever home, you can settle in and focus on other aspects of your life without having to worry about moving again. However, it could take a longer time to accumulate a deposit for a forever home as they tend to be more expensive.
If you are unsure about your plans for the future, it may be more prudent to choose a starter home for now. You always have the option of scaling up to a larger or more luxurious home later. But, if you and your partner have specific life goals involving raising a family or incorporating multiple rooms into your property, a forever home will save you the trouble of buying, selling, and remortgaging.
Older House vs. Newer House
Houses that were constructed over fifty years ago are generally considered older. Older homes may have certain desirable features such as traditional fireplaces and root cellars and may be constructed from more solid building materials like brick. Many older homes cost less than newer homes as they may need renovations or updating with modern features. Some old homes may also contain hazardous materials or have issues with mold.
Newer homes are houses that were constructed in recent decades with modern materials such as concrete. They generally have contemporary features such as open plan living, efficient heating and cooling systems, and modern appliances. Newer homes can cost more than older homes, especially in neighborhoods with attractive amenities. Many people also find that newer homes have less unique charm than older homes.
Whether you choose an older or a newer home depends on how inclined you are to undertake maintenance and renovations. If you love the challenge of a fixer-upper, refurbishing and updating an older home could end up doubling its resale value. That said, you will need to allocate a generous budget or take out a renovation loan to afford the necessary changes. Meanwhile, a newer home is hassle-free and you will save on repairs and upgrades.
New Construction Homes
New construction homes are brand-new houses that have recently been built. When you buy a new construction home, you are the first person to own and live in it. Although most new construction homes are slightly more expensive than resale homes, they come with energy-efficient designs and appliances that help you save on utility bills in the long run. You will also get the benefit of the latest electrical and plumbing systems.
Build qualities can differ though. Before you choose a new construction home, ensure that you select a top home builder. These reputable builders often offer a range of floor plans, structural warranties, and many wish-list items such as a designer kitchen, state-of-the-art appliances, and programmable thermostats. Some homes may even have the option of high ceilings and professional landscaping.
Compared to newer houses, a new construction house has the benefit of being personalized to your preferences before you move in. This means no additional costs to change the carpet, redo the kitchen, or upgrade the appliances. And with a warranty in effect, you will not have to worry about unexpected expenses in the event of any broken pipes or electric faults.
Additional Tips
Regardless of what kind of house you prefer to purchase, you need to have a clear idea of what you can afford. According to the 28/36 rule, your household should spend no more than 28 percent of its gross monthly income on housing expenses and a maximum of 36 percent on debt repayment, including mortgages and credit cards. If the purchase conditions of a house fall outside of these limits, you should consider another property.
You should plan to hold your first home for at least five years before resale. The longer you own a home, the more likely it is that property values would have appreciated enough to surpass the buying and selling costs. Furthermore, you can enjoy a capital gains tax exemption on the sale of your property for up to $250,000 per person once every two years as long as it is your primary residence.