Everyone entering the home search process has lofty ideas of their dream house, but for first-time homebuyers, a smaller starter home is often the perfect pathway to building equity and creating stability.

A starter home is usually one that’s more modest in size, typically three bedrooms or less, under 1,800 square feet, and at the lower end of the price range in a local real estate market. Starter homes will often need some repairs or updating but are a great entry point if you are a young buyer and have a limited amount of money for a down payment. You may also have an opportunity to purchase a new home that’s geared toward the design, size, and financing needs of first-time homebuyers. New home builders often offer special in-house financing to make the home more affordable, which can potentially increase your buying power.

Whether you are purchasing a condominium, town house, or single-family home, a starter home is a great stepping stone to building equity. Here are just some of the benefits you can experience as you begin your home-buying journey.

Here in the South Bay, our classic California Beach Bungalows are an excellent option for a detached single family starter home closer to the beach, or for condos under $1M near the beach, my favorite community is Brookside Village in Redondo Beach.

Lower payments

A less expensive home can make it easier to save for a down payment and lower your monthly mortgage amount, both of which may enable you to purchase your home and start building equity sooner. In fact, the US Department of Housing and Urban Development (HUD) offers state programs and federally backed loans, including those from the Federal Housing Administration, which can make it more affordable for many first-time homebuyers since the down payment amount can be as little as 3 percent. Also, the US Department of Veteran Affairs provides loans that require no down payment, mortgage insurance, and closing costs to service members, veterans, and their eligible surviving spouses.

Lower closing costs

Closing costs include fees like title insurance, property taxes, homeowners insurance, appraisals, and attorney fees. They are typically based on a sliding scale—the lower the home and loan amount, the less money you will need to close on your home.

Lower taxes

A lower-priced house will also result in paying lower taxes because taxes are calculated on the assessed and fair market value of a property. Be sure to check with your county when getting ready to purchase your home since each area’s tax rate varies.

Lower expenses

Your overall expenses will be exponentially less in a smaller home compared to a large home. Things like your utility bills, general upkeep of the property, and even having fewer rooms to furnish will help keep your expenses more manageable.

The benefits of buying a starter home are many. It can give you the financial flexibility you want, prevents you from being subject to rising rental costs, and can provide an easier path for making the home your own in the long term. With careful forethought and planning, you can make your dream of being a homeowner a reality.