Starter home vs. waiting for better

It’s the question for newbie buyers: Buy a starter home, or wait to buy something better?

There is no “right” answer. But there are factors worth considering.

Here are seven questions to ask when you’re trying to decide whether:

■ To buy a starter home now and upgrade to a better place later.

■ Or wait a few years to buy something more like to your dream home.

1. Are mortgage rates rising?

This factor pushes a lot of homebuyers off the fence. When mortgage rates are rising, potential buyers wonder how long the trend will continue.

“A thousand a month gives you more house at 4 percent than it does at 5 percent,” says Joel Doelger, director of community relations and housing counseling for Credit Counseling of Arkansas.

With rates still at historic lows, “a good reason to move now would be the affordability of these interest rates,” he says.

But the difference between a $100,000 mortgage at 4 percent and one at 6 percent is about $150 a month, says Jill Gianola, author of “The Young Couple’s Guide to Growing Rich Together.”

“That’s not nothing,” she says. “But it’s not enough to push you into a home now if you’re not ready for it.”

2. How long will you remain?

Do you move regularly for work? Or is your job stationary but shaky?

“Buying now and moving in two years might not be realistic from a financial point of view,” says Doelger. While there’s always a cost to moving, you’re now adding the costs of selling and buying homes to the equation, he says.

“Buying has a lot of costs people don’t consider,” says Barry Zigas, housing policy director for the Consumer Federation of America.

On the whole, “the longer you stay in that investment, the more it pays off for you,” he says.

3. Are you financially ready to buy?

“The buyer’s starting point has to figure in,” Doelger says. Do you have good credit, plus a down payment and closing costs saved? If you have a 650 credit score and no money saved, you might be able to get a mortgage “but not at the best rates possible,” he says.

What many people forget about homeownership: You need to put aside extra for home maintenance and repairs. A general rule of thumb: 1 percent to 3 percent of your home’s value annually.

“And that’s just for a normal year,” Gianola says. “You might have an abnormal year.”

4. What makes this a “starter” home?

Look at why you consider this potential home a starter, Zigas says. Is it because:

■ It’s likely to quickly become too small or cramped for your family?

■ Or maybe there’s some other factor (schools, potential area development), that puts a stopwatch on how long you’d want to stay here?

■ Or is it a starter home because, while it’s roomy enough, it’s basic in its form and finishes?

The ideal: A house that will meet your needs over time, Zigas says.

5. Why aren’t you buying now?

“Usually, it’s financial,” Gianola says. So if you are realistically within five years of buying that dream home, you might be smart to wait and keep socking away that money, she says.

“You really can’t rely on appreciation to get you there,” she says. Instead, it’s about how much you can save. And, since “renting is a lot more predictable than homeownership,” consider renting and continuing to put away as much as you can, Gianola says.

If you’re more than five years out — and you want to own a home now — then go ahead and buy, she says.

6. How’s the local market doing?

If your local market is slow, “you may get stuck with that starter property longer than anticipated,” Gianola says.

And, if you’re buying a starter home, “you have to look at how attractive this home would be” to the next buyer, she says. So when you consider your own starter home, look at what’s most in demand and what’s sitting on the market, Gianola says.

And this is definitely not the time to buy the most expensive house on the block, Zigas says.

“That one is not necessarily always the best value,” especially when it comes to resale, he says.

Also. factor in what you want in a home and lifestyle, says Zigas. “You can get more value renting on some markets than buying.”

7. What do you really want to do?

All of the balance sheets can be telling you one thing. But if you love the place — or, conversely, can’t imagine waking up there every day — listen to your gut.

Buying a home is much more than a financial endeavor. Your emotions, hopes and dreams play a huge role, too.

That’s why it’s important to decide what you want to do, regardless of the advice of financial pundits, what your family says and what your friends are doing.

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