Going back to at least the 1950s, starter homes have been one of the best ways for families to initiate their homeownership journey. While there’s no specific definition, starter homes generally feature one to two bedrooms and are priced under $200,000 according to Trulia.
Due to the crippling effects of the Great Recession, starter homes became even more popular, as they were the first types of homes to emerge from underwater status. This led to a shortage of starter homes for sale, with listings falling by 14% in the first quarter of 2018, according to Trulia. The shortage was met with price increases of 9.6% over the past year, also according to Trulia.
Despite the increasing price and decreasing availability of starter homes, they remain one of the best options for young homeowners. And with Tucson’s relatively affordable housing market, there’s still plenty of opportunity. But you’ll need to act fast and know what you’re looking for.
Benefits of Starter Homes
According to Tucson Rent report on Apartmentlist.com, rent in Tucson increased 4% last year compared to 2.7% nationally, according to Phoenix Association of Realtors, making the prospect of buying a starter home seem more practical in the coming years. Along with rent, homes in Tucson have also risen in price, making it more likely that your starter home’s value will increase by the time you decide to sell and upgrade to a larger home.
Starter homes, compared to a newly constructed home, also come with lower expenses. While many of us dream of a big house, it can become a nightmare when it comes to the costs of utilities and maintenance. Because starter homes are generally more modestly sized, utility bills tend to be lower, as it takes less energy to heat and cool them. And maintenance on a smaller property is also easier to fit into the budget.
Finally, starter homes tend to be older and due for an upgrade. This might sound like a negative, but for some, a fixer-upper offers the perfect opportunity to turn a starter home into a canvas. Plus, when you get ready to sell your starter home, the sweat equity you put into upgrades might even earn you a little profit on the resale.
Tips for Buyers
1. Be flexible
You probably won’t find everything you want in a starter home. List your desired amenities, ordered by priority. Maybe it turns out that you don’t need those marble countertops after all, or maybe a second bathroom is more important than a spare bedroom.
2. Be aware of capital gains
If your starter home appreciates in value, you may be on the hook for paying capital gains taxes, which will depend on your tax bracket. Luckily you won’t have to pay tax on capital gains up to $250,000, according to the IRS, so long as you make your home your primary residence for at least two years. Be sure to consult a tax expert for advice.
3. Consider location
Starter homes tend to be more available in suburban areas than city centers. Sure, it would be great to be in the middle of all the action, but downtown is only a short drive from the Tucson suburbs. And with the addition of the streetcar, you’ll have alternative ways of exploring downtown without a car.
4. Get pre-approved
With limited inventory, starter homes in some areas are getting offers within days of going on the market. Before accepting an offer, most sellers will be looking for a pre-approval letter. If you don’t have one and another buyer does, you might miss out on your perfect starter home.
Vantage West Can Help You Get Started
If you’re ready to purchase a starter home or upgrade from your current home, now is a perfect time to get pre-approved. Vantage West offers competitive rates on home loans. Our lending team works one-on-one with you to determine your financial needs and find a loan that suits you. Get pre-approved now for the best rates available. For more information, visit VantageWest.org or call us at (800) 888-7882.
Loans subject to approval. Mortgage options subject to change without notice. Certain restrictions may apply. NMLS #485751.