Your First Home (or Next Home) Doesn’t Have to Be Where You Live Full-Time

Could a Vacation or Future Retirement Home Be Your First Step Into Homeownership?

If you live in Seattle or another expensive housing market, you may feel like homeownership is simply out of reach.

But there is another possibility that many first-time buyers don’t consider:

Your first home doesn’t necessarily have to be in the expensive city where you currently live and work.

For some buyers, purchasing a more affordable home in a vacation, recreation, or future retirement community could provide an alternative path to homeownership.

You could continue renting where you need to live today while owning a home somewhere you actually want to spend your free time. It could even be somewhere you might eventually retire.

That property could also give you an opportunity to participate in home appreciation rather than remaining completely on the sidelines while you wait for homes in your current market to become more affordable.

Why Look Outside an Expensive Housing Market?

Seattle is a good example.

Someone may have a good income and be financially responsible but still be reluctant to spend a very large amount of money on a starter home in the Seattle area.

The same problem exists in other expensive housing markets around the country.

Instead of asking:

“How can I afford a home here?”

Consider asking:

“Where could I afford to own a home that I would enjoy today and might want to live in someday?”

A smaller city, mountain community, recreational area, college town, or growing community outside a major metropolitan area may offer homes at substantially lower prices.

For the right buyer, that can create an entirely different homeownership opportunity.

More Affordable Markets May Also Offer Appreciation Opportunities

Lower purchase prices aren’t the only reason to consider areas outside expensive metropolitan markets.

Some smaller and more affordable communities can experience periods of faster home-price appreciation than established high-cost markets, especially when they are attracting new residents.

Why?

People frequently move in search of affordability, lifestyle, employment opportunities, recreation, retirement destinations, and a better balance between housing costs and quality of life.

As more households move into an area, demand for housing can increase. If housing construction doesn’t keep pace with that demand, home values may rise.

Research from Freddie Mac has documented migration away from some large, expensive metropolitan areas toward smaller and more affordable markets. It has also found that strong migration into certain markets has contributed to substantial home-price growth.

Of course, appreciation is never guaranteed. Local employment, new construction, affordability, population growth, interest rates, and the overall economy all affect future home values.

That makes where you buy just as important as whether you buy.

Look for Growth Before It Becomes Obvious

If long-term appreciation is part of your goal, don’t simply look for the cheapest home.

Look for communities where the underlying demand for housing may be growing.

Some important factors can include:

• Population and household growth
• Families moving into the area
• Employment and income growth
• New businesses and infrastructure
• Housing affordability compared with nearby metropolitan areas
• Limited housing supply
• New-home construction and building activity
• Schools and community amenities
• Recreation and lifestyle appeal
• Growth in younger families and school enrollment

The objective isn’t to predict exactly what a home’s value will be in five or ten years. It is to identify communities with characteristics that may support housing demand over the long term.

Buy Somewhere You Would Actually Want to Own

Investment potential shouldn’t be the only consideration.

Imagine that you currently rent in Seattle but love spending time in Central or Eastern Washington. Or perhaps you live in another expensive metropolitan area but regularly vacation in a smaller mountain, lake, recreation, or retirement community.

Ask yourself:

Would I enjoy owning a home there for the next 10 or 20 years?

And perhaps more importantly:

• Could I see myself eventually living there? If the answers are yes, the property could potentially serve several purposes during different stages of your life. It might begin as a getaway, become a place where you spend increasingly more time, and eventually become your primary retirement residence. Meanwhile, you have had the opportunity to own real estate for years rather than waiting until retirement to purchase your first home.
• Consider the Long-Term Financial Advantage. Suppose you are deciding between continuing to rent indefinitely in an expensive city and purchasing an affordable property elsewhere. Owning gives you the opportunity to build equity through principal reduction and potential appreciation. Purchasing in a lower-cost market may also require a substantially smaller financial commitment than buying where you currently live. That could potentially allow you to maintain retirement savings and other investments while adding real estate to your long-term financial picture. There is another potential advantage: you may be purchasing your future retirement home years before you actually need it. If the property appreciates over time and your mortgage balance declines, you could enter retirement with significant equity in the home. Depending on your mortgage term and circumstances, you could potentially have it paid off.

Make Sure the Property Fits Your Life Today

The numbers still need to work.

Consider the mortgage payment, property taxes, homeowners insurance, HOA dues, maintenance, utilities, travel expenses, and repairs.

Also think about how frequently you will actually use the property.

If you plan to rent it for part of the year, investigate local rental regulations, HOA restrictions, property management expenses, insurance, and tax considerations before purchasing.

Most importantly, don’t stretch your finances simply because you believe a particular area will appreciate. A home should make sense even if appreciation is slower than expected.

Your First Home Doesn’t Have to Be Your Traditional “Starter Home”

The traditional path to homeownership has usually looked something like this:

Rent → Buy a starter home → Buy a larger home → Eventually buy a vacation or retirement home

But today’s high housing costs mean that path doesn’t work for everyone.

There may be another route:

Rent where you need to live today → Buy somewhere more affordable that you love → Build equity → Potentially turn that property into your future retirement home

For the right person, that can transform the question from “Can I afford to buy a home?” into “Where does buying a home make the most sense for me?”

Could This Strategy Work for You?

Financing requirements depend on how you intend to occupy and use the property. A primary residence, vacation or second home, and investment property can have different mortgage requirements.

That is why it is important to discuss your plans before you start shopping.

Blue Square Mortgage can help you look at your income, current rent, down payment, credit, monthly obligations, and intended use of the property to determine what financing options may be available.

We help borrowers purchase homes throughout Washington and Colorado.

If high home prices in Seattle or another expensive housing market have made you reluctant to buy, don’t assume that means you have to remain completely outside the housing market.

Your first home doesn’t necessarily have to be where you live today. It could be somewhere more affordable, somewhere with long-term growth potential, and perhaps somewhere you eventually want to call home.