Buy a starter home or wait for your forever home?

For many considering entering the property market, the question of whether they should purchase a starter home now or wait until they can afford to buy their forever home might be on their minds.

The definition of what constitutes a starter home will differ from one person to the next. When some people think about a starter home they may have a fixer-upper in mind, however, this is not necessarily the case. One person's starter home might be exactly what another person is looking for in a forever home.

Generally speaking, a starter home is a property that will suit your needs for approximately the next five years or until your circumstances change, whereas a forever home is a property that you can see yourself living in indefinitely or at least for the next 20 to 30 years. It is the home that meets all the criteria of your dream home - the right location, the right size, and all the features you would ever want or need.

Essentially the decision to buy a starter home now or wait will be determined by a number of aspects, such as affordability and buyers' individual needs. While all buyers would rather opt to purchase their dream home straight away, the large majority of first-time buyers are not in a financial position to do so.

Another factor is that there are advantages of starting out with a more manageable property and upgrading at a later stage, such as building up equity. Once a buyer is in the property market it is generally easier for them to build from there, as they have an appreciating asset that they can sell to help them upgrade. They also have the option of keeping their starter home as an investment property and renting it out to get a passive income.

While purchasing property should be viewed as a long-term decision, there might be features that buyers want but don't necessarily need at the moment, such as an extra bedroom or a large garden. It would make sense to rather save money and compromise on unnecessary features that can severely impact the price of a home. The lower bond repayment and less expensive upkeep will allow the buyer to save money for their future forever home.

Many first-time buyers are young couples and executives who are in the early stages of their careers, so buying a starter home may give them a chance to build up their income and affordability ratios to be able to afford a higher bond repayment and bigger property when their current home no longer meets their requirements. Living in a starter home will also give the buyer a chance to assess what features they want in their dream home and what they don't, as well as get a handle on the different responsibilities and expenses that accompany homeownership.

If buyers decide to wait for their forever home, ideally they should rent a reasonably priced property so that they can build up to bigger savings to put down a sizeable deposit. The larger deposit they are able to put down the better, as this will reduce the monthly bond repayment. 

First-time buyers who want to fast-track their forever home purchase should follow the tips below:

Start where you can and build up

The first property bought may not be your dream home, but it's a foot in the door.

Have extra money saved for expenses

Buyers should have around 5% of the value of the home saved for other expenses, such as maintenance or renovations.

Pay more to reduce the bond term

An additional payment of just R500 on the monthly bond repayment can reduce a 20 year bond of R1 000 000 by almost three years. This will also reduce the amount of interest paid over the term of the bond.

Prepare for the unexpected

Prepare financially for possible future scenarios such as an interest rate increase or any other scenario that could financially threaten future plans.

Buyers can still enjoy the benefits of owning their own home and having their foot in the door without over-committing themselves financially and compromising their financial well-being in the future. It is always a good idea to get pre-qualified for a home loan as this will not only show you what kind of loan you might qualify for, it will also help you plan for possible monthly payments. This in turn will allow you to build a sensible monthly budget to ensure you will be able to cover repayments and build an emergency fund.