Smart Moves by Ellen James Martin

STARTING OUT WITH A STARTER HOME

She's a 28-year-old health care administrator with a steady job, and she's eager to move out of her parents' house. Her dream? To buy a modest yet well-kept first home with a fenced yard where her terrier can romp.

Despite the young woman's yearning for a home of her own, Jacqueline Hoff, the real estate broker working with her, says that her client is very cautious about the selection process and is determined to avoid overspending.

"She expects to spend at least $10,000 less than the bank says she can afford," says Hoff, who's affiliated with the Council of Residential Specialists (www.crs.com).

"Right now mortgage rates are just insanely low and you can get an unbelievably great house for very little," Hoff says.

Indeed, she says the administrator -- who holds a mid-level position at a mental health center -- can now afford to buy a well-built 2,000-square-foot house located in a nice suburb that has three bedrooms, two bathrooms and a one-car garage.

"It's unbelievable how great a starter house you can get for your money in this current market -- especially if your timing is flexible enough to hold out for the perfect deal," Hoff says.

What's a starter home? It's usually defined as one valued at or below the median price for a particular market. There are several variations on the theme. But in many regions, first-timers can select among several housing styles.

Do you have a solid job and are you excited at the idea of buying a home in the near future? If so, these few pointers could prove helpful:

-- Buy ahead for your future needs.

"Most starter-home buyers, who are typically in their late 20s or early 30s, are shortsighted and buy only for their current housing needs. But if you can afford it, look for a home that will meet both your wants and needs for at least five years. That way you maximize your investment dollars," says Sid Davis, a real estate broker and author of "A Survival Guide for Buying a Home."

"Shop neighborhoods. Generally speaking, you want to buy into the most desirable area you can possibly afford," and be mindful of any future additions to your household, Davis says.

When choosing a first home, he says you should proceed on the assumption that you will trade up to a better property one day.

"Buy with an exit strategy in mind. And remember that people who buy in a top-notch neighborhood can usually sell faster and for more money than those who go to a lesser neighborhood where they can get more square footage for the money," Davis says.

-- Consider a starter home that would appeal to a family.

Many aging baby boomers are starting to downsize. Yet behind them are millions of younger families, including many immigrants who still long for a house large enough to raise small children.

"I don't care if you ever plan to have kids. Even if you don't, it's smart to invest in a house with at least three and, ideally, four bedrooms. If you pick a quality neighborhood, this kind of property will usually gain value faster than a one- or two-bedroom place," Davis says.

To improve your future resale prospects, also look for multiple bathrooms, which are popular with every generation.

-- Hold out for a neighborhood with great schools, if you can afford it.

Just as value-minded starter-home shoppers should search for multiple bedrooms and bathrooms, they should also look for a neighborhood served by well-rated public schools.

These days it's easy for anyone with Internet access to compare one set of schools with another on the basis of student test scores. Most school systems freely disseminate test results, and other organizations also publish them online.

You can also gain more elaboration on the pluses and minuses of various schools in your area by paying a relatively small fee for a report from an educational research service such as SchoolMatch (www.schoolmatch.com).

Still, Davis insists the best information on school quality comes through word-of-mouth sources.

"Just ask a few open-ended questions and many people will tell you a vast amount -- both positives and negatives -- about the schools in their neighborhood. A small amount of due diligence like this pays big dividends for buyers," Davis says.

-- Don't rule out a government-backed loan for your starter-home purchase.

These days, many lenders are insisting on large down payments for their conventional mortgage programs. Unfortunately, that represents a tall hurdle for many young buyers, particularly for those paying off hefty student loans.

However, as Davis notes, many first-time homebuyers are eligible for a low down payment mortgage through the Federal Housing Administration of the U.S. Department of Housing and Urban Development. To locate lenders near you that make FHA loans, go to this website: www.hud.gov.

"The only drawback of an FHA loan is you have to pay premiums for government insurance to protect against your possible default. Otherwise, an FHA mortgage could be extremely well suited for buyers with very little cash to spare," Davis says.

(To contact Ellen James Martin, email her at ellenjamesmartin@gmail.com.)