If you're a First-time buyer, and are wondering whether or not to buy a house, you are in the right place. Just click one of the following to answer your question.
The big decision
Buying step by step
Rent vs. Buy: Are You Ready to Own Your First Home?
You have a little savings, solid income and a super-irritating landlord, so the time feels right to make your move. Buying a home will bump up your monthly housing costs, use up most of your cash and tie you down. Are you ready for all that? Here’s how to make the rent vs. buy decision.
The Money Side of the Equation
It’s pretty simple: You are ready to buy a home when you’re earning enough money to make the purchase, stash some cash in savings and cover your housing expenses and any other debt.
Ready for a little math? Let’s get it:
The Assets You Need
You can get into a home with as little as 3 percent down with a conventional loan, or even less with down payment assistance programs. If you are a veteran or buying in a rural area, you may even get in with zero percent down. But you still need enough left over for closing costs and some reserves after you close. Figure that you need the down payment, closing costs of 1 to 3 percent of the purchase price and three times your proposed housing payment in the bank.
The Income to Pay
Lenders examine your debt-to-income ratio (DTI), or the ratio of your total monthly housing expense (principal, interest, taxes, insurance and mortgage insurance and HOA dues, plus other monthly payments on credit cards, car loans, etc.) to your gross income. To own, you should be making a gross income of two to four times the amount of the total housing payment. That’s a large spread, so let’s examine.
If you have a full-time job and a solid employer, manage your credit well and will still have decent savings after you close on a home, you can probably comfortably commit half of your gross income to your housing payment. (You may not want to go that high, but you fit the profile of those who rarely default, even with high monthly payments.)
If you work on commission, carry credit card balances every month and have just enough to qualify for the loan and close on a home, a large monthly mortgage payment might crush you if something like a car breakdown, medical emergency or job loss were to happen. You can probably get approved for a loan with a 43 percent debt-to-income ratio, but, man, are you sure? You are better off waiting or shopping for homes that would result in a monthly payment that’s 25 to 33 percent of your gross income.
The Other Half: Your Mindset
Being financially ready to buy a home is not the same as being mentally ready, because buying a home changes your life. Ownership means you can hammer nails wherever you like (just don’t hit a pipe) and X out the grouchy landlord who can kick you out. You control your monthly payment and stand to make some serious money when the time comes to sell. Yeah, big perks. But you have to be willing to give up a bit. Consider carefully before you commit.
The Need for Freedom
If living on the fly excites you and the thought of putting down roots sounds like a big snooze, you might not be emotionally ready to buy a home. Continue to rent and build a nest egg you can use to make a home purchase when the time is right.
Living Like a Boss
Tropical vacas, dinners out, shopping sprees: Can you live low key for a few years or would you shrivel without a few splurges? Consider your current lifestyle and what, if anything, you’re willing to cut out of your budget to own a home.
No Landlord on Speed Dial
When you own a home, it’s all on you. You will be pushing the lawn mower on Saturday mornings, calling the roofer when the ceiling leaks and reviewing estimates when the furnace breaks down. Are you ready for that kind of responsibility? If you’re ready for the work, you’re ready for a home.
Investing in a House: A Smart Move?
What makes a house a good investment? First, you should enjoy your time living in it. And, just as important, make some serious stacks when you eventually sell it for more than your purchase price. The beauty of your winnings? The profit (depending on the amount and time lived in the home) is tax free. Married couples stand to make even more.
There’s always a risk that your home’s value could — real talk — tank. Before the 2008 housing market crash, the concept of depreciating home values was practically absurd. Home values always go up, right? Not these days.
While there’s no way to guarantee your investment will grow in value and pay off in the end, there are some ways to stack the decks in your favor.
First, the Rent vs. Buy Discussion
Buying a house isn’t for everyone. And that’s okay. It’s just as easy to rent a place to live, especially if property taxes, 30-year mortgages, yard maintenance and flood insurance sound like a big snooze. But renters on the fence, listen up: You’re missing out on an interest tax deduction and, more importantly, the very real potential for tax-free appreciation. And every year you choose to rent, you’ll be making money for someone else, whether that’s a property management company or a landlord. Rent for decades? In that same time, you could have bought and paid for a home in full. Ouch.
The Facts About Fixer-Uppers
If you’re willing to buy and overhaul a hella ugly house, then you’ll at the very least be living in a house that will appraise for more than its purchase price. And while that doesn’t mean much from day to day, at time of sale, you’ll likely recoup your renovation investment and then some. And if you do some or much of the work yourself, you’ll further improve your chances of breaking the bank at closing. Plus, you’ll walk away with knowledge and skills you need to replicate the process over and over again, if you so choose.
Consider Up-and-Coming Neighborhoods
The real value of a home isn’t as much the home as it is the piece of dirt upon which it sits. Location, location and location are the three most important details when determining the value of property.
If you’re willing to be a trailblazer and buy a home in an area that’s going through the gentrification process, you could score big time if you’re patient. And, if you’re willing to buy a fixer upper in an up-and-coming area, you’re further improving your odds.
Here’s a real-life example: Twenty years ago, you could have easily bought a respectable house in the in-town (although somewhat sketchy at the time) Virginia-Highland neighborhood of Atlanta for less than $200,000. Good luck finding the same house in the area for under $800,000 today, and on some streets, homes are going for well over $1 million. Value has little to do with the bricks or mortar. It has a lot to do with the location.
The Time to Cash Out or, Rather, Cash In
“When” is a tough question. Most of the time you have to consider things like school districts, commutes to work, how much your kids or spouse or dog love the neighborhood, etc. And if you try to time the real estate market and find the absolute top-of-the-value curve, you’re more likely than not to make a mistake. Even real estate professionals can’t say with 100 percent certainly when a piece of property has truly reached maximum value.
If you’re really hoping to make a profit, then you’ll want to keep tabs on your home’s value. Knowing the value puts you in a better position to make the stay-versus-sell decision when the time comes. How often you check value, whether every few years or longer, will largely depend on the local and national economy, which nobody can truly predict.
And keep in mind: The true value of a house isn’t what someone else, even an appraiser, says it is. The true value is the final sale price. If your $500,000 house sells for $400,000, then it wasn’t worth $500,000. Your goal when selling a home is to be happy with the figures when you walk away from the sales transaction. That’s when you know you’ve made a killer investment.
Not Quite Ready to Buy.
Do you think any of these things when the topic of home buying comes up?
- I’ll just hang a bit longer to see how this job goes.
- It’s OK here, but I still may move away next year.
- I can’t buy a home until my student loans are gone.
Unless you’re one of the lucky ones who already has your dream job in your dream city, you’ve probably told yourself one or more of these things along the way. Which is all good — it means you’re being careful. But if you really do want to buy a home one day, here are a few strategies that will help you pull your plan together.
Know Your Rent vs. Buy Basics
Perhaps the best thing about renting is that it keeps all options open. If you’re in any way unsure about your city, job or relationship status, renting is a no-brainer.
Most rental agreements allow you to bail within 30 to 60 days, and you’ll typically get your security deposit cash back as long as you took care of the place. On the flip side, if you’re selling a home, you'll be paying 6 to 8 percent of the sale price to your listing agent, and it can take months before you can access the cash you’ve got tied up in the home.
Because of this selling cost, you could actually lose money if you sell too soon. If you bought a $300,000 home two years ago, and the home’s value grew by 4 percent per year, it would be worth about $325,000 now. Woot! But if you sell now to relocate for a job, it’ll cost about $19,500 to $26,000 in listing agent fees, and eat up those gains.
Know Your Rent vs. Buy Breakeven Math
To know how long you need to live in a home before buying makes more sense than renting, use a city specific rent vs. buy calculator.
For example, this calculator tells us that if you bought that $300,000 home in Austin, Texas, buying becomes cheaper than renting in a little over two years.
This helps you understand the end game if you’re going to stay. It also helps you consider whether rental income could outpace your ownership costs if you decided to move later but keep the home as a rental investment.
Build Your Savings
If the thought of home buying is making you hella tense, then it’s time to go into planning mode.
Start by subtracting your rent and all your bills — including money you spend for fun! — from your take-home pay. Hopefully there should be some left. To help you with the savings discipline, set up this amount to be put in a separate account when your paycheck is auto deposited into your account each week. Savings adds up quickly if you’re super disciplined.
One more pro tip: You can maximize savings by contributing up to $18,000 to your 401(k) each year. This money comes out of your paycheck before it is taxed. Also, you can borrow up to 50 percent or $50,000 (whichever is less) against your 401(k) to use for a down payment when buying a home. This lets you tap that savings while still leaving it invested for the long term!
Build Your Credit
The best rates on home loans are given to people with credit scores of 760 or higher. You can still get loans if your credit score is below this amount, but the rates will be higher.
Credit card use is the cause of the biggest monthly credit score fluctuations. To keep your credit score in that sweet spot, pay off your credit cards monthly. If you can’t do this, keep your balances at 30 percent of the credit limit or below.
Debts like student and car loans don’t hurt your credit scores unless you pay them late. And on the subject of student loans: Despite the hype, You DON’T have to pay off all student loan debt before you apply for a home loan. You just have to demonstrate to a lender that you can carry both student loan and home loan payments. Often you can, and if so, then the money you’d otherwise use to pay off the student loan can go toward your down payment.
If you’re light on credit, you can open credit cards, but note two things:
- When you open a card, even if you don’t use it, you will see a temporary drop in credit score. So, open new accounts several months before you apply for a loan.
- Don’t forget to keep the balance of cards at 30 percent of the limit or below. Often, new cards have lower limits, so you can tip over this optimal-scoring threshold more easily.
And for those who haven’t yet established credit: Ask your lender if you qualify for any loans that allow for non-traditional credit such as reliable payment history on your cable, electric or cell phone bills.
Doing the Math: Determine Your Ideal Home Price
An online mortgage calculator can give you a housing payment snapshot in about 10 seconds. Quick, yes, but this method can pass over important details that leave you window shopping in a price range that’s way over your head. Here’s how to more accurately answer the "how much house can I afford" question.
Do the Math Like a Mortgage Boss
Let’s say you earn $80,000 per year and have $16,000 saved up.
First, note that you’ll need cash for closing costs in addition to the down payment. Setting aside $7,000 for closing costs leaves you with $9,000 for a down payment. We know that the lowest down payment you can make today is 3 percent, so if you divide $9,000 by 3 percent, you get a home price target of $300,000.
So far, so good! Now let’s see if your income can afford a $300,000 condo with 3 percent down. Here’s the breakdown:
Purchase price: $300,000
Down payment: $9,000
Loan amount: $291,000
30-year fixed-rate estimate: 4.25 percent
Monthly payment: $1,432
Property taxes: $300
Private mortgage insurance: $238 (required when down payment is less than 20 percent)
Condo HOA dues: $250
TOTAL MONTHLY HOUSING COST: $2,286
On top of this $2,286 housing payment, let’s say you also have car, student loan (so over it) and credit card payments that amount to $575, which brings your total monthly costs to $2,861.
If you divide $2,861 in total bills by a 43 percent back-end debt-to-income ratio (DTI) (the law, even though Fannie Mae and Freddie Mac were given exemptions to accept up to and including 50 percent), you get $6,653, which is the amount you can spend per month on housing. This equates to just under $80,000 per year, so you’re good to go!
If you want to buy less home to save more — or if your results from these calculations put the income above what you earn — lower the purchase price.
What About Tax Benefits of Homeownership?
The numbers above represent your monthly payments. However, you save money when you file taxes each year because you get to deduct mortgage interest and property taxes. Wait. What?
Let’s calculate these tax benefits on your $300,000 purchase price with 3 percent down.
A full year of mortgage interest and property taxes would be about $12,622 and $3,600, respectively. These two deductions reduce your taxable income by about $16,222.
To quickly calculate your estimated tax savings, multiply $16,222 by your estimated tax rate of about 28 percent.
The result is $4,542, meaning you'll pay about this much less in taxes annually because of your homeowner deductions.
If you convert this to a monthly figure of $379 and subtract it from your total housing payment of $2,286, it reduces your housing cost all the way down to $1,907. That’s crazy!
To confirm these calculations based on your specific profile, talk with a tax pro.
The Happy Truth About Down Payments
Coming up with a significant down payment may seem like the absolute worst, and may be the reason why, according to Zillow.com's first-time home buyers survey, the median down payment is only 10 percent.
What down payment is right for you? Only you know how many payments (mortgage, other bills, added expenses of homeownership) you can handle per month. The bottom line: Put down whatever you can afford and makes you feel … well … less like having a panic attack.
The Benefits of 20 Percent Down
Why do folks rave about 20 percent down? For starters, you own 20 percent of your home (aka equity) right off the bat. Plus, it’s a real money saver. When you put down 20 percent, you lower your loan balance, which reduces the monthly principal as well as the interest payment of the loan. And you eliminate private mortgage insurance (PMI), a steep little fee attached to home loans when buyers put down less than 20 percent.
Loans That Require Less
We get it. Who can put down 20 percent when there’s student loan debt to be paid? But here’s a bomb idea: There are quality loan options out there — designed with first-time home buyers in mind.
- FHA requires a 3.5 percent down payment. But borrower beware: There is an upfront funding fee, plus mortgage insurance that extends the life of the loan. (This may be tax deductible — check with your CPA for details.)
- The Conventional 97 requires only a 3 percent down payment. The pros include no funding fee and elimination of PMI once you reach 20 percent equity.
- The VA loan requires no down payment and no private mortgage insurance (PMI), although a funding fee is due at time of closing.
Concerned about PMI? If you’re going to borrow via a conventional loan, you may be able to buy out the mortgage insurance at the time of home purchase. To weigh this option, ask your licensed loan originator for details.
Assistance Is No Joke
Down payment assistance programs can be a real win for buyers. Take, for example, Florida’s Hardest Hit Fund (HHF) Down Payment Assistance (DPA) Program, which offers $15,000 to qualifying home buyers. It’s a silent, second lien, forgivable 20 percent a year for five years. Which means: Stay in the home for five years and you don’t have to pay back a cent. There are concessions, including a slightly higher interest rate, PMI (unless you chip in money to eliminate it) and some financial risk should you have to relocate and sell before the $15,000 is forgiven.
If you feel that an assistance program is worth the time and effort, begin your search at your state’s housing finance agency, which can provide information on both state and local home ownership programs. You can also search programs and evaluate your eligibility via downpaymentresource.com. If you find something that looks appealing, do your research and make sure you understand the terms before you proceed.
Strategies to Stash Away Cash
Whether the plan is to put down 20 or only 3 percent, you’re still faced with the same challenge: How to set aside enough money to cover the down payment, plus closing costs and an emergency fund for home maintenance and other unexpected expenses.
Start your down payment fund by directing 10 to 15 percent of take-home pay into a savings account on the regular. Money can be directly deposited into the account by your employer or automatically transferred from checking to savings by your bank. And don’t forget to give your account some fun, funky name to keep you motivated.
Also consider leveraging saving and investment apps like Acorns, Digit and Qapital to help you stash away spare change.
And while you’re putting in the work, place a call to the financial institution that manages your employer’s retirement benefits. As a first-time home buyer, you may be eligible to borrow money from your 401K (or Roth 401K) to help with down payment expenses.
How to Find the Right Real Estate Agent
If you’re like most first-time home buyers, you probably grind on the daily. The hustle is real, so why would you expect any less from your real estate agent? Finding someone who understands your needs and also knows her way around the block will make shopping for a home a little less taxing.
Get Recommendations, But Then Research
Start by asking friends and fam for names of agents they particularly like. It helps to start with a list of agents who worked for buyers, BTW. Also, pay a visit to the neighborhood you like: Ask neighbors for recommendations, jot down contact info you see on for-sale signs posted about and chat up agents at open house events. Now that you have a pretty solid list of contenders, do some serious undercover work. First, look at online profiles and reviews. Next, verify with your state’s real estate commission that each agent’s license is active and no complaints have been logged against him or her. (You should also check the Better Business Bureau for complaints).
Choose Your Faves and Interview
Chances are, two or three agents really stand out from the pack. Now’s the time to speak with each agent and get a feel for his or her experience, style and drive. Questions you should drop into the conversation:
- How many years have you been in the marketplace?
- Do you work as a real estate agent full time?
- How many buyers like me have you helped?
- How many homes in this neighborhood have you helped clients buy?
- What strategies do you employ to help your buyer in a bidding war situation or, better yet, to get the best deal?
- How often do you send clients listings? How do you share that information?
- How many homes do you show a client?
- How many clients do you work with at any given time? Do you work solo or as part of a team?
- What’s the easiest way to get and stay in touch with you?
- Do you require a signed contract? If so, can I review it? Is it negotiable?
- Do you work with a preferred lender or have suggestions on lenders, home inspectors and other real estate professionals?
- What fees do you charge? Who pays those fees?
- Could you share contact information of at least three clients you’ve helped?
At the end of the conversation, review answers. You’re looking for an experienced professional who knows your preferred neighborhood, has successfully helped buyers in your preferred neighborhood and will provide personalized service, listen to your needs and wants and go to bat for you when the time comes to make an offer. And it’s super important that you chill with this person. Think about it: Your agent will be driving you around town for hours at a time as you tour houses.
A contract should spell out the type of property you seek, the responsibilities of the agent, how much and when the agent will be paid (usually commission, from the seller’s pocket) and how long the contract lasts. If an agent does request a signed agreement (and in some states, it’s required), be sure you understand the terms — and don’t be afraid to negotiate. Not a fan of exclusive contracts? Ask for a short-term agreement or a non-exclusive contract that allows you to work with other agents. And be sure there is some language that offers you an out, should the agent not meet your needs.
Breaking up with Your Agent
Ish happens. Your agent is slacking or pushy and not working in your best interests. This is where those terms you negotiated with the agent come in real handy. Dropping an agent in this case may require a simple phone call or email. If you did not negotiate terms or did not sign a contract, first have a conversation with your agent in which you express your concerns and request that the agent release you as a client. If you are met with resistance, reach out to the agent’s broker. He or she may be willing to assign you a new agent or agree to terminate the relationship. If you’ve completely had it, be sure to meet with a real estate attorney, who can walk you through the proper steps to take and what fees, commission, etc., if any, you may owe. Once you’re in the clear, start interviewing new agents, this time paying closer attention to your needs and wants.
Buying Your First Home:
Bring Friends and Family
Buying a home can be stressful, whether you’re buying with a partner or solo. Seeking the guidance and second opinions of friends and family (hopefully homeowners themselves) is a great way to ease your mind — and make a more informed decision. You’ll learn from their experience and, more importantly, avoid their mistakes!
Here are a few ways to involve friends and family in what will likely be one of the biggest investments you make in your lifetime.
A Helping Hand with House Hunting
There is nothing more fun that searching for a house … unless you’re slogging from place to place without a trusted sidekick. One way to make shopping more engaging and informative is to involve others in the process. Don’t be bashful about bringing Mom, Dad or a friend along while you house hunt. If they live hundreds or thousands of miles away, pull out your phone, call them on Skype and carry your friends or family along as you tour each home. Follow up by sending participants real estate listings or videos of the properties you love. You can even create a Google Doc or RealEstate.com favorites list to keep track of the properties you love and share it with others.
Or go one step further and crowd-source the house-hunting process. Ask a handful of close friends and/or family members to search online for you. Make sure each person shares his or her top picks with the group, winnow down the list of your faves and, when you’re ready to view homes in person, bring your squad along, even if that means via Google hangout.
An Extra Set of Eyes During the Home Inspection
So you've found the perfect home, you’ve put in an offer, the seller has accepted and the home inspection is about to go down. If you’re new to home inspections, you may find that bringing love ones along eases jitters. Be sure to choose an inspector who’s okay with you Skyping in Mom, Dad or a friend and fielding their questions during or shortly after the inspection. At the very least, gather a list of their questions and be sure to ask them during the inspection. Pay attention: Small issues can turn into costly home improvements, so write down everything you and your friends/family see during the inspection and bring issues up when you go back to the seller to negotiate price.
Feedback When You’re Formulating Your Final Offer
Alright, now it's time to get down to business. You've done this before, right? If not, ask someone who’s already purchased a home to help you. While you are filling out the paperwork, for instance, Skype in one of your parents so you can talk through the offer. It's so easy to pay too much for the "perfect house" when you’re under pressure. Accountability is really helpful and the best way to keep you from over spending.
One piece of advice: Never buy a home you can't afford. Owning a home costs more than the numbers presented by an agent. Appliances break down, repairs are a given and assessments and taxes only go in one direction — up! Friends and family who know the difference between cost on paper and real-world expenses can help you estimate how much extra cash you will need to stash away per month — and encourage you to save it!
Getting your friends and family involved in the home buying process is a great way to learn, find a place you’ll love and buy it for a reasonable price. Seriously, who doesn't love house hunting? Most folks are happy to help.
End the Arguing:
How a Couple Can Compromise
You and your SO have made the decision to buy your first home. And that’s where agreement ends. Your thoughts on home style and location are at opposite ends of the spectrum, and the bridge loosely connecting the two? Way wide.
Don’t let bickering get the better of you. Follow these steps to establish some common ground:
1. Start Writing on the Wall
Making lists of needs and wants is very important in the home buying process, whether you are buying solo or with a co-buyer. Try this sticky notes exercise, being sure that your SO also takes time to write, paste and re-arrange. Then come together to compare notes. Any similarities? These will form your initial list of search criteria.
2. Lean on Your Real Estate Agent
Once you’ve retained the services of a real estate agent, open up to that person about your differences. And don’t be embarrassed. Most likely, he or she has counseled plenty of couples who can’t see eye to eye. Share the writing exercise with your agent and let him or her provide feedback and guide further conversations. An expert agent will listen carefully to each party and, from that info, suggest neighborhoods and homes therein that meet your needs as a couple.
3. Give a Little
An all-or-nothing attitude, paired with spells of the silent treatment after disagreements, won’t get you anywhere fast.
Be open to your SO’s suggestions. Perhaps seeing your partner’s preferred home in person will give you a different perspective. And work together as you compare/contrast neighborhoods and homes. The ultimate goal is to find a home that you both will enjoy living in and proves a good investment. You may love that battered, time-worn Victorian cottage, but when you add up renovation costs and start tracking comps, do the numbers add up? Your partner may love a home that is located in the middle of nowhere. It’s gorgeous, but the daily commute would crush you. Is a dope home worth wear and tear on your car and complete exhaustion by week’s end?
4. Know When to Walk
There’s a time to negotiate and make a case for a certain home and then there’s a time to move on to the next. Don’t try to convince a partner to love a home as much as you do, when he or she simply can’t stand it. You’re most likely wasting your time.
5. Don’t Be Afraid to Dig Deeper
Your partner won’t budge on one specific need or want, an outstanding issue that is making the home shopping experience a real beast.
Time to do some probing: Why is this or that thing so important? What will happen if he or she must live without it? By letting the person vent a bit, you may find that the real need has nothing to do with home style or location. Something more emotional is going on. Once you’ve pinpointed the issue, work together to find a solution that makes you both happy.
Educate Yourself About
Preparing to buy your first home? Research should be a top priority at this time. An educated buyer is a successful buyer and, fortunately, there are many resources that help home buyers learn about credit, budgeting, financing, selecting a home, homeowners insurance, closing, taxes and agency.
Once you’ve reviewed realestate.com’s first-time buyers guide, dig into these resources:
US Department of Housing and Urban Development
The US Department of Housing and Urban Development (HUD) oversees federal programs designed to create quality affordable homes for all. HUD’s website offers a wealth of information for home buyers, including:
HUD also offers counseling for potential homeowners and can help connect you with FHA lenders in your area.
Consumer Financial Protection Bureau
The Consumer Financial Protection Bureau is a federal agency that works to protect the consumer in the financial sector. The agency helps buyers understand their loan options and avoid costly surprises at the closing table. Visit consumerfinance.gov to learn about the “Know Before You Owe” initiative, which makes lender prices more transparent and easier to compare. And be sure to review the Loan Estimate and Closing Disclosures Explainers, which will help you understand the closing process and language in paperwork you will be required to sign.
National Association of Exclusive Buyer Agents (NAEBA)
The National Association of Exclusive Buyer Agents (NAEBA) is a non-profit professional organization of real estate buyer agents and buyer brokers who only represent home buyers. Visit naeba.org to learn about mortgages, real estate agents, foreclosures and much more.
Real Estate Commissions
Every state has a department, bureau or commission that regulates its real estate brokerages. Your state’s site should feature a consumer section that offers videos or articles with state-specific information about the home buying process, as well as downloadable sales contracts that help you understand your legal obligations related to home buying.
First-Time Home Buyer Seminars
Real estate brokerages, mortgage companies and title companies combine forces to offer free home buyer seminars on the regular. The information you receive will be specific to your area, and the groups are usually small enough to facilitate Q&A. To find an upcoming event, Google “home buyer seminars [in your area]” or visit Eventbrite.com and search for “first-time home buyer seminar.”
Real Estate Agents
For hyperlocal market statistics and trends, links to school stats and more, there is no better resource than the website of your local real estate agent. Most sites offer home buying guides that outline state-specific procedures as well as demographic and tax information and more.
Search “first-time home buyer” and YouTube will serve up a wide variety of home buying tutorials. Skip the goofy stuff and focus your time and attention on videos created by real estate professionals and search for topics specific to your state and local laws and procedures.
At best, buying a home is a complicated process. At worst, it can be an emotional and financial rollercoaster. Not only do you have to find the right house, you have to make sure it’s not a complete wreck, negotiate a good price and favorable terms, pay for it, take title and move in, all the while ensuring you are buying a home that’s a good investment. Being a prepared, well-educated consumer will help ensure a successful home buying experience.
A Condo, House or Townhouse. Making the Right Choice
Condo, house or townhouse: What home type is best for you? A single-family home gives you more independence, but also comes with greater responsibility. A condo or townhouse offers amenities and frees you from snow removal, lawn care and outside maintenance.
To make a smart decision, weigh the following factors before you go home shopping.
A Condo: What to Consider
In one word: convenience. Your monthly mortgage payment will include an HOA fee that typically covers building insurance, grounds and common area maintenance as well as amenities that come with ownership (think pool, spa, jacuzzi, playground and/or a gym). Use of common areas, like courtyards or events rooms, are also offered as a courtesy to residents.
Peace of mind is definitely a bonus. Living in a unit within a larger building that features a doorman, security cameras and locked entryways ensures safety. And a financial plus: Your homeowners insurance rate may be lower than that for a townhouse or home, as you are only insuring the interior of your unit.
Some things you may have to sacrifice? Privacy, for one. And some control, as you only own the condo interior (not the land), you’re subject to the rules of a board and management company and you can’t easily budget for HOA fee hikes and special assessments.
A Townhouse: Weighing Pros and Cons
Similar to a condo, a townhouse comes with amenities and conveniences covered by an HOA fee. A townhouse offers two advantages over a condo: More space, as you will have two+ stories, and ownership of the unit’s exterior, including the roof, lawn and driveway. Ownership of a small patch of land may give you some flexibility with regard to outdoor decor and landscape elements.
But again, privacy will be an issue, as homes are attached on one or both sides. And board rules will govern what you can and can’t do with your property: Townhouse exteriors, for example, are typically uniform throughout a complex; the ability to make material changes may be limited.
Financially speaking, your homeowners insurance rate will be higher than that for a condo, as you’re insuring both exterior and interior spaces, and you’ll bump up against the same HOA fee/assessment issues you would face as a condo owner.
Detached Homes: Do or Don’t?
Along with more privacy and tons of space, a single-family home gives the buyer a greater sense of ownership. You call the shots (as long as you abide by local laws and ordinances) when it comes to home improvements, paint colors and additions, if more room is needed.
And then the financial boons: Generally speaking, a single-family home has the highest resale value of all three options, and owners pay little to no property management fees.
The trade-off for all this freedom and financial security? Maintenance and upkeep. You will be covering the cost of landscaping, lawn upkeep and snow removal – or doing it all yourself. And you may be living further away from an urban area, which may or may not suit your needs.
Need a bit more help visualizing your first home? Try these helpful exercises to determine location, amenities and price that are right for you.