Starter homes can be a great choice for first-time homebuyers. They are an affordable way to take on the responsibility of ownership without the higher expenses often associated with forever homes. For those considering a starter home, here are some tips for navigating the process.
Figure out the budget
Calculating a monthly budget will help buyers decide their price range. Buyers should include monthly mortgage payments (principal and interest), homeowners’ insurance, property taxes, HOA fees (if applicable), ongoing maintenance costs, and utility bills.
Once they have this number, buyers should ask themselves if they can comfortably afford the mortgage and associated home costs while still being able to pay other non-house living expenses.
Find the right real estate agent
Finding a good real estate agent is critical when buying a home. Agents can steer buyers in the right direction to help avoid costly mistakes. Not only can they search for homes that meet their clients’ requirements, agents can also guide buyers through the complete homebuying process, from the initial offer to closing. Buyers can speak with multiple agents and ask friends and family for references to find the one who’s a good fit.
Be clear about must-haves
“Buyers should make a list of must-haves, which will help them clarify their goals and figure out whether they can find what they want in their current price range,” says Omaha-based Financial Advisor Nick Onken. “This list is especially important for a starter home, where the options may have more limited amenities. They also might consider priorities beyond the house itself that will enhance their quality of life, such as choosing a house near their office, friends, and family.”
For most buyers, their starter home most likely will not be their dream house. Understanding this limitation will help buyers manage their expectations and find a home that suits their needs and budget. While they may not get every feature on their wish list, they can take great satisfaction that their starter home makes them homeowners and can put them a step closer to their forever house.
Consider life insurance
“Purchasing a first home is an exciting time and offers many rewards, including a sense of financial independence and security,” says Onken. “It’s also a good time to consider other options that can enhance that security.”
Many first-time buyers get term life insurance. It’s possible to choose a policy that roughly matches the term of the mortgage, ensuring that the owner’s heirs can pay that debt should anything happen.
Later on, when the buyer upgrades to their forever house, they might consider getting a permanent life insurance policy like whole life insurance. Whole life comes with lifelong coverage and a cash value component. Homeowners can borrow against the cash value for any reason, providing extra cashflow to make home repairs and upgrades down the line.
The primary purpose of permanent life insurance is to provide a death benefit. Using permanent life insurance accumulated value will reduce the death benefit and may affect other aspects of the policy.
Northwestern Mutual is the marketing name for The Northwestern Mutual Life Insurance Company (NM) and its subsidiaries in Milwaukee, WI.
Source: Northwestern Mutual