Are you thinking about buying your first home or maybe you are thinking about making an upgrade? With home values continuing to rise, waiting could cost you big or even price you out of the area you have been eyeballing for years. Let me explain this the best why I know how. You see in my opinion there are three types or phases of homeownership. You have a Starter Home, Forever Home, and Middle Ground Home. I would like to go over these three phases of homeownership to help you decide where you are and what your next step will be.
The Starter Home
The term starter home always conjures up images in my mind of construction debris falling on Tom Hanks in “The Money Pit.” But starter home and “fixer-upper” don’t have to be synonymous. A starter home may simply be a small home that you can afford now — with or without making some improvements. There are benefits to buying a starter home now rather than waiting for years to buy a forever home. First of all, interest rates are at historic lows. Yes, they may be low next year or the year after that, but then again, they may not be low. A good mortgage rate isn’t everything, but your rate will impact your monthly payment and how much you’ll pay in interest over the life of the loan.
Another consideration is the inventory of houses on the market, which is low right now. This is making Texas homes appreciate at extremely high amount year over year. With more and more people moving to Texas I don’t foresee this appreciation slowing down anytime soon.
The Forever Home
Of course, most of us won’t live in just one or even two homes our entire lives, but a forever home is something that you can see yourself living in for 20 years or more. Perhaps it’s big enough to accommodate a growing family and will be the kind of home that you envision making improvements to not just for resale value but to enjoy yourself over many years.
Here’s the problem: Not many 30-somethings let alone 20-somethings can afford their forever home right now. As home prices rise, your paychecks barely budged. In our grandparents’ day, one income bought a perfectly respectable home. Today, two professional incomes may not be enough to comfortably afford a home in some of the more desirable areas.
So, you may choose to rent something at a lower monthly rent in hopes of saving up a larger down payment on your forever home. The bigger the down payment, the smaller the loan. Right? One disadvantage of waiting for your forever home is that something that is not affordable now will most likely be even more unaffordable in a few years. Sure, you hope to earn more in the next few years, plus you can save a little bit of money every month, but they aren’t making more land. And if you want to see something frightening, just take a look at the projected population growth in Texas over the next few years. Though real estate goes through cyclicals with ups and downs, in the long run it always goes up.
Now to achieve your goal of that forever home let’s talk about the next home.
The Middle Ground
Consider how much of a price difference there is between your starter home and your forever home. If the difference can be saved up in a year, you may want to consider waiting. But if the difference between your starter home and your forever home seems like it would take more than five years, you may want to aim for a middle ground. Let me break this down even more so you can see how much it costs to wait.
I found these numbers using information provided by Zillow looking at the median home values from 2015 to December 31 2020.
Dallas 2015-$141k / 2020 $263k UP $122K
Fort Worth 2015-$138K / 2020 $245K UP $107K
Southlake 2015-$605k / 2020 $877k UP $272K
Grapevine 2015-$277k / 2020 $425k UP $148K
Argyle 2015-$397k / 2020 $585k UP $188K
Euless 2015-$167k / 2020 $290k UP $123K
You may not be able to afford a huge house in the best neighborhood right now, but what about a fairly large house in an area that’s 15 or 20 minutes further from your work or make a few sacrifices like going for that great home with a smaller yard. Instead of having the all-or-nothing mentality, you may be able to find something that suits your needs for the foreseeable future. Keep saving money as your new home rises in value, then when the time comes, sell the middle house and buy your forever home!
Personally, I’ve chosen the starter home route. I bought a starter home (which is now a rental property) then 5 years later bought a “middle ground” home. The home I’m in now will probably suit my family’s needs for around five or so years. Then I’ll work towards that forever home. I have found most people that keep trying to save for that forever home end up living in their starter home forever!