You should decide whether to buy a starter home or a long-term home before you buy your first home. Depending on your circumstances, there are advantages and disadvantages to both. A starter home is a modest, affordable and smaller property that may suit a smaller family. First-time homebuyers often want a starter home to keep their expenses low while building up home equity.
There are several things to consider when determining whether a starter home is the right choice. Look at prevailing market conditions, the neighborhood you want to live in, the type of home you want and how much you can currently afford.

Pro: Creates Stability
There is a sense of stability you get when you own a home that you would never get from renting a home. There is no risk that someone will cancel your contact and kick you out of your home unlike living in a rental. Your feelings of stability will be heightened if you settle for a smaller home if you cannot afford a larger home. By purchasing a less expensive home, you are more likely to keep up with payments rather than fall behind. You create financial stability through owning a home by acquiring home equity and increasing your credit score through regular, responsible payments on your mortgage.

Con: Moving Twice
It is physically strenuous, costly and time consuming when it comes to moving. It means you are accepting in advance you are going to be moving again in the future when you buy a starter home with the understanding you may be up scaling in to a larger or more expensive long-term home. Furthermore, the process of buying and closing on a house and a home loan is not any easier for a starter home than a larger home. Buying a starter home means knowing in advance you may be going through this whole ordeal a second time as well.

Pro: Financial Perks
You earn more and more equity as you pay down your mortgage and make improvements when you own a home. This equity can be used to take out home equity loans or lines of credit to further improve your finances or property. Homeowners receive other benefits such as tax benefits such as the mortgage interest deduction, a tax deduction on the interest you pay toward your mortgage.
There is a more general financial perk stemming from buying a starter home even if you can afford a larger, more expensive home: you keep more cash in your pocket. If you want to plan for a family or pay for other, more immediate expenses, like an education or medical costs, keeping that cash around can help you out. It is always a good idea to look at houses that come in under budget rather than houses that stretch your finances.

Con: Lack of Flexibility
Unless you rent the property out to tenants or you sell it, owning a home ties you down. There is eminent flexibility when you are living in a rental. You can move to another spot on a whim if the need or desire arises if you live in a rental. Additionally, in a rental, your landlord is typically responsible for much of the home’s upkeep. That means you do not have to worry about painting rooms or replacing appliances. However, in a property you own, you must take care of everything.
Buying any sort of home right away may not be a wise decision if you are just starting out in life and do not know what the future holds. If is advisable to keep living in a rental. When you are more certain that you can settle down and you know where you want to do it, you can begin house hunting.

Pro: Bargains
Interest rates are always changing. If you can buy a home at a low interest rate, even if it is just a starter home, you will save money. However, if you purchase a home when interest rates are high, you could end up paying several thousands of dollars more over the course of the loan. Even if it means waiting longer than intended for interest rates to drop back down again, looking for those low interest rates makes a big difference.
Home’s market fluctuates periodically; prices generally tend to rise rather than fall. What this means is that if you do not buy a home on time, the price would have increased by the time you think you are ready. You will have access to reap the benefits of homeownership when you buy a home while interest rates and process are low. You can then wait until your income and market conditions allow you to purchase a larger home.

Con: Capital Gains Tax
Beware of buying a starter home in the meantime if you know you may be able to afford your long-term home sooner than later. You could also be subject to a capital gains tax on the profits from the sale if you sell any home too soon after buying it. Up to 15% on the first $250,000 of profits from the sale of your home is charged as the capital gains tax if you are single. Up to 15% from the first $500,000 in profits is collected if you are married.
To avoid the capital gains tax, your home must be your main residence for at least two of the five years preceding its sale. Therefore, if you think you may be ready to move out of your starter home within two years after buying it, you may want to seriously reconsider this plan.

Pros: Less Upkeep
Since starter homes generally tend to be smaller homes, they are much easier to clean and maintain. Not only does it cost you less to buy a starter home than a long-term home, but it can cost you less in time and money to live in a starter home than living in a larger home, whether as an owner or renter. Cleaning takes less time. Utilities additionally cost less when you are living in a smaller starter home, since you do not have to heat or cool as much space.