What is a Starter Home?

Starter home is a colloquial term for a smaller home with fewer amenities, valued below its county’s median home sale price.

A Longer Definition: Starter Home

A starter home is a home that acts as an entry point into homeownership for renters and other first-time home buyers. By definition, starter homes sell for less than the area median home sale price and may lack the features and amenities of other MLS-listed homes.

Starter homes have less space, fewer bedrooms, and fewer upgrades than “forever homes.” This is part of what makes them popular. Starter homes allow aspiring homeowners to stop renting, start building home equity, and begin benefitting from the responsibilities of homeownership.

Homeowners often sell their starter homes and use their accumulated home equity as a down payment toward a larger, more expensive home within 7 years of purchase.

The most common reasons for trading up from a starter home include:

• Getting married
• Expanding a family
• Earning a higher income

Selling a starter home may also come with tax breaks.

In the March 2024 State of the Union Address, President Biden announced a plan to award $10,000 in federal income tax credits to sellers who live in their starter homes and sell to a buyer who plans to make the home their primary residence.

The sale price of a starter home may not exceed the county’s median home sale price to qualify it as a starter home. Property types can include single-family homes, condominiums, multi-family homes, and manufactured homes.

Read more about the Biden $10,000 tax credit and who may qualify.

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Starter Home: A Real World Example

Imagine a recently-married first-time home buyer couple with a desire to start a family and a modest home-buying budget. They know they’ll want a 4-bedroom home in the future, but their current lifestyle can’t support it.

The couple finds and makes an offer in an up-and-coming neighborhood on an older two-bedroom house that can support their family for the next few years. The home is small and requires cosmetic repairs, but the monthly PITI is comfortably within their budget.

After they move in, the couple paints the home, updates its kitchen, improves its curb appeal, and starts a family. Later, they grow their family again.

Eventually, the couple and their growing family outgrow the two-bedroom starter home. They list it for sale and use the equity built up to make a meaningful down payment on their next, larger four-bedroom home, exactly as planned.

Common Questions About Starter Homes

What should I look for in a starter home?

A good starter home meets your immediate needs, is within your monthly budget, and is located in an area that is expected to appreciate.

How long do people typically stay in a starter home?

Life moves at different paces for everyone, but it’s common for first-time buyers to stay in their starter homes for 5-7 years.

Can a starter home be a good investment?

Yes, a starter home can be a good investment. Buying in the right location and making smart improvements can increase the home’s value, and provide substantial home equity when you decide to sell.

Is there an official definition for starter home?

There is no textbook definition for “starter home,” but a recent White House plan to increase home inventory for first-time home buyers classified starter homes as owner-occupied homes that sell for less than the county median sale price.

Do home sellers get tax credits for selling starter homes to first-time buyers?

In the 2024 State of the Union address, President Biden proposed a $10,000 tax credit for sellers who live in their homes and sell them as starter homes to first-time home buyers. The tax credit cannot be claimed by investors or property management companies.