The housing market is a roller-coaster ride that just won’t quit. The post-pandemic housing boom seems to have eased up a little bit.
In December 2019, the average home price was just under $300,000. Today, it’s above $400,000.
Low interest rates fueled demand, but inventory was low. That drove prices through the roof. Home sales slowed over the last month.
If you’re looking for a home at this time, you don’t have a shortage of options. The question is what type of home should you get?
Interest rates continue to go up, everything costs more, and the American Dream seems more distant. If you know which type of home is right for you and your budget.
What should you look for if you’re ready to buy a house? Read on to learn the different types of homes and the steps you need to take to get into the perfect home.
Single-Family Detached Homes
This is by far the most common type of home on the market. This is a home that is completely separate from neighbors and has some land around the property.
You’re the proud owner of the land and you have complete freedom and control over the property. They’re also the easiest to get financing for.
There are a couple of downsides to buying a single-family home. These properties are less affordable than in the past.
You used to be able to buy a small starter home that was affordable and then upgrade to a larger home. Starter homes exist, but finding one for sale is like finding a unicorn.
When you do find one, you’ll discover that it’s cost prohibitive.
You’re responsible for the maintenance and repairs of the property, so you need to have a maintenance budget set aside.
Condos
Condos offer a more affordable option to buy a house. You own a unit within a building. You don’t have to worry about maintenance or cutting the grass.
The condo association takes care of that for you.
The downside is that you’re sharing space with other people and you don’t have as much freedom as with a single-family home.
Townhomes
Are townhomes and condos the same thing? Not necessarily. The terms get used interchangeably, but there are very significant differences to be aware of.
Think of a condo as an apartment that you own. You own the interior of the space, but not the common areas and exterior of the building.
Those areas get owned and managed by the condo association or homeowner’s association.
A townhouse is like a blend between a condo and a single-family home. The units tend to have several floors and you have neighbors on either side.
In a condo, you have to deal with neighbors next door, above you, and below you.
A townhouse is also managed by a homeowner’s association. They manage maintenance and common areas.
Multi-Family Homes
A multi-family home has 2 or more separate homes within one building.
The advantage to buying a multi-family house is that you can start to build a real estate investment portfolio with it.
You can rent out the other properties while living in one of them. You can use that to generate passive income and save money.
That can give you enough leverage to buy more properties to rent and build a mini-empire.
On the downside, you’re living in the same building as your tenants. That means shared walls, not to mention late-night maintenance calls if something breaks down.
Leasehold Homes
This is rare in the continental United States, but it’s a common form of homeownership in places like Hawaii and across Europe. You may see it in Florida or New York, but not that often.
It may seem like a great deal at first because leasehold properties are much less expensive. That’s because you have to understand how leasehold properties work.
A leasehold property is where you own the building, but someone else owns the land. You’re basically leasing the rights to be on the land.
The leaseholder has to pay property taxes and upkeep. The lease is a long-term agreement, usually 15-30 years.
You may hear leasehold with fee simple. Fee simple means that you own the property and the land.
Steps to Buy the Perfect Type of Home
Now that you know the basic types of homes, let’s look at which one you should buy.
That starts with knowing your wants, needs, and potential dealbreakers. For example, you’ll want to know how much space you need.
If you’re retired, you can do well in a condo because it’s a smaller space and you don’t have to worry about maintenance.
A young family needs more space for kids to run around and play. In that case, you’ll need a single-family home.
What are your financial goals? You don’t want to overspend for a home and not be able to save for retirement. For those who list generating passive income as a top goal, look for multi-family units for sale.
If you are willing to spend less and get a townhouse or a condo, you’ll need to think about the type of community you want to live in.
You’ll need to assess what kind of amenities you want. Townhomes have fewer amenities. A condo might have common areas, a gym, a coffee shop below, and more.
Know What You Can Afford
What type of home should you buy? The easiest answer is the home that you can afford.
It’s not that simple, though. You have to know what you can afford now and years from now. Think about living through a recession and increased inflation.
You want to make your mortgage payments without draining your retirement savings.
A general guideline is to spend about 30% of your gross income on a mortgage payment. You’ll also need to consider other debts before you take on a mortgage.
You might find that you can’t afford a single-family home, but you can afford a condo or leasehold home.
Get a Real Estate Agent
Could you buy a home without a real estate agent? You could, but it’s not wise.
A real estate agent is an expert in the market. They know about real estate laws, how to price a property, and how to negotiate a contract.
These are valuable skills that you’ll need to rely on as you go through the process to buy a house.
What to Look For in Homeowner’s Associations
Some single-family homes fall within developments and communities. These developments get managed by homeowner’s associations, just like condos and townhomes.
With these properties, it’s essential to understand the communities and operations before you make an offer.
Check the rules and regulations of the association. They often state when quiet hours are, if you can have pets, or even hang holiday lights outside.
The bylaws and meeting minutes of the association tell you how the community gets managed. The board is usually made up of volunteers who own condos.
You’ll get an idea as to how condo dues get spent and learn about common complaints of the association.
Make sure that the association is in good standing. For example, you want to make sure the condo association has affordable condo association insurance.
Without adequate insurance coverage, property owners within the association will have to pay for damages if a major situation comes up.
There could be a liability claim that happens in a common area. Should that person decide to file a lawsuit, owners would be responsible without the insurance policy.
While you’re looking at the condo association’s insurance policy, ask how often it gets updated. A liability policy from 10 years ago isn’t likely to cover today’s needs.
Make an Offer
You and your real estate agent will shop for homes until you find the right one. That’s the moment to put down an offer.
Your agent will write up an offer and submit it to the seller’s agent. There may be some negotiations, so be flexible.
If your offer gets accepted, you’ll then go through the closing process. You’ll need to get an appraisal, finalize the mortgage, and sign documents at closing.
You’ll then get the keys to the type of home that’s perfect for you.
Buy a Home That Fits Your Needs
What type of home should you buy? It depends on your needs, budget, and lifestyle.
There are many types of homes to choose from, starting with a single-family home down to a leasehold property.
Be sure to follow the steps in this guide and you’ll get into your dream home before you know it.
Head over to the Home and Real Estate section of this site for more homebuying tips.
