Starter homes: What they are and how to find them

Buying a home is a very common goal — a major part of the American dream — for many of us. Wanting to buy a home, however, doesn’t necessarily mean you’ll be able to afford one, especially if you’re buying for the first time.

Enter the starter home, typically the first one you’ll buy on what may be a multi-stop journey. However, these kinds of affordable, entry-level homes have become much harder to come by in today’s high-priced housing market. While a starter home’s price and amenities will vary based on location and demand, here are some tips to help you find the right one for you.

What is a starter home?

A starter home, sometimes called an entry-level home, is typically the first property a novice homebuyer purchases, and is in the lower price range of homes in the market. Many homeowners live in starter homes for several years before needing more space and “moving up,” but that’s not always the case.

The characteristics of a starter home might include:

• Smaller than higher-priced homes
• Fewer amenities than larger or newer homes
• A potentially less-desirable location

“A starter home, in my opinion, is defined as something affordable to a young professional within the first few years of starting their professional life,” says Mihal Gartenberg, a real estate agent with Christie’s in New York City. She adds that a starter home is considered such because “the individual’s housing needs will change over time.”

However, “what’s considered a starter home differs [by] state and city,” says Louis Adler, principal and co-founder of REAL New York. An entry-level property in an urban market will look very different than one in a rural area, for example.

Why they’re hard to find — and getting harder

Finding an affordably priced starter home can be difficult these days. Housing demand is high, and an ongoing housing shortage means that there’s not enough supply to keep up. Add high prices and high mortgage rates to that equation — not to mention homeowners with low locked-in rates staying put for longer — and the affordability challenge keeps getting tougher.”

“There is a lot of competition,” Gartenberg says of today’s market.

“The number of starter homes within a reasonable price limit is decreasing,” Adler says. “Not only are there fewer homes on the market, but they’ve also become more costly.”

Making matters worse, real estate investors are putting more money and effort into scooping up starter homes that would otherwise be ideal for first-time buyers. According to Redfin data, investors accounted for 19 percent of home purchases in the first quarter of 2024, the highest share in more than two years. And investors have the cash to buy starter homes outright, making it harder for buyers who need financing to compete against those all-cash offers.

Should I buy a starter home or wait?

With so much competition in the market, it’s worth asking, should I even try to buy a starter home? Or is it better to wait until I can afford more house? There are benefits and drawbacks to delaying your search until you can afford more, so here are some things to consider:

Reasons to buy now

• You never know what the market will do. It’s easy to say, with today’s mortgage rates and market conditions, that waiting seems like a good idea. But if the pandemic taught us anything, it’s that there’s always some uncertainty about the future. The market might be completely different once you’ve saved up enough for a bigger home.
• Putting off your purchase means you’ll spend more time paying rent — which also means it’ll take you longer to start building home equity.
• Home prices are skyrocketing: The median price of an existing home has risen for 10 months in a row, according to April 2024 data from the National Association of Realtors. They may well keep increasing while you wait, and you don’t want to be burdened by more house than you can afford, or just straight-up priced out of the market.

Reasons to wait

• Mortgage interest rates are still high. If you hold out for lower rates, your buying power will increase. You’ll also be eligible for better rates with a higher credit score, so giving yourself time to up that number can save you money.
• You’re more likely to wind up in your forever home if you can wait, which will save you the hassle and stress of going through a new home search and moving again in a few years.
• There may be less competition in higher price ranges. Because so many investors and buyers are focused on lower-priced starter homes, the market for them is especially tight. With more expensive properties, you may have a little more room to negotiate your offer, and fewer competing offers to worry about.

How to find a starter home: 5 tips for hopeful buyers

1. Work with an experienced agent

The guidance of a seasoned local real estate agent, who knows your area’s market trends and your desired neighborhoods inside and out, is critical to success. Even if you live in a highly competitive area, an agent should be able to help you pinpoint something that fits your needs and your budget.

“Find someone who will guide you toward a purchase that makes sense to you now, and will make sense in the overall market when it comes time to sell,” Gartenberg says.

2. Get preapproved

You’ll also want to make sure you get preapproved for a mortgage. This can help you make a strong offer that stands out from the crowd, as it shows sellers that you’re a serious, qualified buyer. It also gives you a solid sense of exactly how much you can expect to be approved for, and at what kind of rate.

“As rates climb upward, unfortunately, monthly mortgage costs also go up,” Gartenberg says. “Buyers should speak with their banker to find out at what point they can lock their rate.”

3. Broaden your search

If you can’t find an affordable home in your ideal neighborhood, you might want to expand your search to alternative areas. Don’t be afraid to search in neighborhoods, or even cities, that weren’t at the top of your list — you could find something you love.

“You may need to look a bit farther from the center of town or think more creatively,” Gartenberg says. “The best thing a first-time buyer can do is to find an agent with the creativity and market knowledge to [show] them choices they may not have considered.”

4. Adjust your expectations

Buying a home is usually a marathon, not a sprint — and finding a starter home is more achievable if you worry less about perfection and more about what works within your budget and needs. For example, consider buying a townhouse or condo instead of a single-family home.

In other words, be prepared to make some trade-offs: “First-time buyers should assess where they are willing to compromise,” Gartenberg says.

“Be open-minded about location, size and amenities for a starter home,” Adler says. “The fewer priorities you set, the more achievable it becomes.”

5. Give yourself time

The market is tough right now, and there’s no need to rush into something you’re not ready for or not happy with. If you come up short looking for a starter house, it might be smart to put your search on hold and focus on saving more for a down payment and increasing your credit score in the meantime. “Look for rentals in your neighborhood of interest and maybe save some more money, so you can buy your dream house in a few more years,” Adler says.

Bottom line

A starter home is typically on the small side and relatively affordable, making it a good fit for first-time buyers. But finding one that fits your budget — especially in today’s high-priced market — is challenging. Working with the right agent can help you find a starter home that delivers what you need for right now. From there, you can work toward affording an upgrade.