Housing choices are abundant, especially in urban areas, leaving many first-time homebuyers wondering which type of residence to buy. Each style of dwelling—condominium, townhouse, and detached home—has its pros and cons. Buyers should consider their lifestyles and budgets, as well as their level of desired involvement in home maintenance when deciding which style of home works best for them.
First-time homebuyers have a lot riding on their home-purchasing prowess. After all, it’s probably one of the most expensive purchases they’ll make in their lifetime. Potential buyers often have dreamed of key design elements, such as granite countertops and open floor plans, but the reality of what they can afford might be a lot different.
Similarly, there can be a gap between what the buyer wants today as opposed to what they will want or need a few years down the road—say, when they start or expand their family and don’t have adequate room. These discrepancies may lead many first-time homebuyers to make the wrong choice. They opt for the layout over the affordability or make a buying decision based more on their gut than on an analysis of their lifestyle and budget.
First-time homebuyers who are willing to approach the buying process from a practical rather than a mostly emotional standpoint can avoid these mistakes. Sure, granite countertops may be important, but so are having mortgage payments that aren’t too much of a stretch and a commute to work that isn’t onerous. As part of considering how much home you can afford, consider these five questions to ask yourself when you are shopping for a starter home.
What Is A Townhouse?
Home shoppers often want to know what makes a residence a townhouse. The physical description alone—a narrow, multilevel residence attached to other residences on the street—is not always a clear giveaway, as some areas have condominium communities featuring two- and three-story attached residences.
The defining feature of a townhouse is ownership. Townhouse owners usually own the land on which the house is situated, including any front- and backyard area that goes with the residence, no matter how small. They also own the home’s exterior.
Additionally, townhouse communities generally have homeowners’ associations (HOAs). Owners pay monthly dues covering insurance and maintenance of the community’s common areas, as well as trash pickup and snow removal. Some HOAs enforce community aesthetics rules, such as the colours of exterior paint permitted and the types of fencing owners can install.
Owners also remain financially responsible for exterior maintenance and repair of their townhouses. A townhouse is right for people who want some involvement when it comes to maintaining their homes but do not want the responsibility of owning and maintaining a large lot.
What Is A Starter Home?
A starter home is a condominium, townhome or single-family home that a first-time buyer can afford but may outgrow. Typically small and modest, starter homes serve the basic needs of many homeowners and are generally on the lower end of the price range in their local real estate market. They can be older homes, fixer-uppers or brand-new, entry-level houses.
A starter home probably doesn’t feature every amenity you dream of having someday, but it’s a good-enough home for the foreseeable future.
Some buyers opt for starter homes with the goal to move up to bigger, more expensive or better-located homes later. Others end up owning their “starter homes” for the rest of their lives.
What Is A Forever Home?
A forever home is one that will meet your needs for many years. Forever homes come in all sizes and styles. There’s no standard for what a forever home looks like or how much it costs because everyone has a unique vision of how and where they’ll live in the decades to come. A forever home could be a fixer-upper that a buyer plans to renovate into a dream home in their favourite neighbourhood or a rambling house where a couple who’s planning a family can raise their future children.
Forever homes aren’t necessarily luxurious, but they usually provide room to grow in a neighbourhood where you want to sink roots.
Pros Of Buying A Townhome As A First-time Homebuyer
- Great locations and easy access to urban living
- More affordable prices
- Lower renovation costs
- Lower utility bills and insurance costs
- Low maintenance living and shared amenities
- A strong sense of community
- Safer living environment
- More freedom, plus equity
Condos and townhomes have many benefits for first-time homebuyers, including great locations and more affordable pricing. Condos and townhomes in urban nerve centres are in demand with home shoppers because of, The proximity of work and fun as well as amazing views and amenities in the buildings. For home shoppers looking to buy their first home in a hot real estate market, condos and townhomes can help them save money. San Francisco, condos cost on average $100,000 less than single-family homes.
There are ongoing financial advantages associated with these housing options, too. Cost-conscious first-time homebuyers can save money while living in a condo or townhome when comparing the costs living in a single-family home. A combination of shared renovation and maintenance cost with lower utility bills make life in a condo or townhome easy and affordable for buyers who do not want – or financially can’t – shoulder the full burden of managing the upkeep associated with a single-family home.
With condos and townhomes, a homeowner’s association, or HOA, is financially responsible for repairs and upkeep. HOA fees may additionally cover city services, lawn care, pest control, and insurance. The simplicity and ease of this maintenance model can be great for first-time buyers and retirees. Along with peace of mind when it comes to emergency repairs and ongoing maintenance, buying a condo or townhome alleviates the burden of yard work and landscaping. You also won’t have to worry about snow removal or cleaning the pool.
The purchase of a new townhome or a condo could mean access to extra amenities. Frequently these communities will have a swimming pool, spa, fitness centre, covered parking, common areas, and gated security. For many younger buyers, these features would be unattainable when buying a single-family home. Retired empty nesters may also love being able to enjoy the maintenance-free pool with their grandchildren.
There is also a sense of community present in condo communities that is not always present in other communities. These communities have intangible benefits in addition to the money they save homebuyers. Townhomes foster a close-knit sense of belonging and safety thanks to shared amenities — and the idea that your neighbours are your friends who have your back when you go on vacation.
Everyone likes privacy, but most want to feel like they are close to help, action (the buzz of downtowns), and work. Condos often provide this feeling. Buying a condo or townhome as your first home allows you to live in your ideal location while saving money and becoming part of a secure, caring community.
Owning a condo is very similar to renting an apartment, except that the owner has the freedom to modify their unit as much as they like, as long as it’s within the written standards set forth by the community. Unlike renting, however, the buyer builds equity with their investment. This equity comes in handy when it’s time to purchase a larger home in the future. Therefore, it makes a great stopgap solution for the first-time homebuyer who is still preparing for the added costs and responsibilities of a single-family home.
Cons Of Buying A Townhome As A First-time Homebuyer
- Home shoppers often need higher down payments
- VA and FHA loans are not generally available to home shoppers interested in townhomes
- Units do not appreciate as quickly and lose value when markets shift
- Must account for homeowner associations and fees
- Additional maintenance fees
- Shared walls
Just like any house, condos and townhomes are not always the best home plans for all homebuyers. “Many people don’t realize that financing is more difficult when you purchase a condo, and the buyer typically needs a larger down payment.
While condos and townhomes cost less overall than a traditional single-family home, home shoppers typically need higher down payments to get loans these smaller homes. Generally, they cannot apply VA or FHA loans to these types of homes. Suppose you are thinking about buying a condo or townhome as your first home. In that case, there are still assistance programs available to first-time homebuyers, but be ready to navigate a more complex financing process and save for the higher down payment.
First-time homebuyers should pay attention to the difference in appreciation rates between townhomes and single-family homes, too. Townhomes and condo units do not appreciate as fast as single-family homes and can lose value faster when the housing market value shift downward. Take some time to understand your real estate market before investing in a new condo or townhome, especially if you plan on selling the house in a few years.
Owning a condo or townhome can cut maintenance and utility bill costs, but first-time homebuyers must account for condo and townhome association fees when calculating their monthly bills. In addition to monthly HOA dues, which go toward maintaining the building, grounds, and amenities, residents sometimes have to pay special assessment fees for unexpected costs, like roof repair, when deciding on what you can afford in a condo or townhome, factor in HOA dues and give yourself some wiggle-room in your budget for special assessment fees.
Most of the cons of buying a condo or townhome as a first-time homebuyer stem from a financial system that can have more layers than what’s associated with buying a single-family home. There can also be some issues with sharing walls with neighbours. Thankfully, most new townhomes are built, so owners don’t have to worry about overhearing their neighbours.
Home shopping as a first-time homebuyer can seem difficult, but deciding if you want to live in a new townhome can make your home search easier by narrowing down the available housing market options. As you shop for your first home, keep your needs and lifestyle in mind before deciding to invest in a townhome, condo or a single-family home.
If you are looking to buy your first new home, let us know if you would buy a condo or townhome, and why or why not, in the comments below.
Benefits Of A Starter Home
Strong Demand for Starter Homes: Whatever type of home a buyer chooses as a starter home, that home is generally priced at an entry-level price point. The good thing about buying an entry-level home as a starter home is the fact the demand for entry-level homes tends to remain constant. There is almost always upward pressure on prices for entry-level homes because that’s the biggest market for newer home buyers. People might not necessarily need to buy a spacious two-story with five bedrooms, but almost everybody at some point in life needs an entry-level home.
A starter home will probably better protect your investment and most likely appreciate much faster than a move-up home. For buyers who are a little bit cautious, this benefit offers added assurance that the buyer is making the right decision. Most people recall the market crash of 2008 and the resulting downfall of the real estate market, which caused home values to plummet in some areas by more than 50%. When home sales rebounded in 2012, it was the starter homes that emerged first from underwater status.
It’s not just your mortgage payment that will be lower because the sales price is less. Your property taxes, if based on the sales price, will be more manageable. But other expenses that you might not consider such as gas and electricity will be less as well. It costs much less to heat or air condition a two-bedroom home than it does to pay for adequate climate control of a home twice that size.
Tips For Buying A Starter Home
Don’t Get Carried Away
Start by affirming that you want to live below your means, and you won’t end up spending more than you can afford. First-time homebuyers purchase most starter homes on an emotional level. It’s easy to fall in love with a home. However, when you’re spending your first tens of thousands or hundreds of thousands of dollars, you want to do it based on logic and common sense. Don’t get carried away by amenities you see in more expensive homes — those things are probably not as expensive to put in as you might think.
Line up Your Financing
Use a pre-approval letter from a recognized mortgage lender in your town. You might be tempted to go online to find a good rate, but the truth is any lender in your town can offer competitive rates, and those people are local. You would be wise to try to keep money in your local community and to support your local businesses. Not to mention, when your agent presents your offer, you will have an edge with the seller and the listing agent, if they know your lending institution or loan officer, because it will assure them you can perform. Internet lenders, not so much.
Be Willing to Bend
You might not find the perfect home, but if you do, you will know it immediately when you see it. There will be no doubt in your mind. If a home fits all of your parameters, but you do not want to buy it, there is something wrong; something is off-kilter. However, some buyers do not find that “perfect” home, particularly during times of limited inventory. In that event, be willing to give up one of your priorities such as a garage, for example. You can always build a garage. Add a deck. Beautify your landscaping.
Of course, remember the adage “location, location, location”. It’s repeated three times by real estate agents because it’s the three most important things you need to know. You can do everything else wrong, but if you buy in the right location and are patient, you’ll make out OK.
What Will Your Future Self Want?
Most people purchasing a starter home aren’t giving too much thought to their lives five or ten years down the road. But not peeking into the future can result in a costly mistake. Consider your plans for having children, for example. You and your spouse may not be gearing up to become parents in the next couple of years, but that may be a consideration down the road. If you don’t consider that possibility now, you could end up purchasing a starter home that won’t meet the needs of a growing family or that is unsuitable for small kids.
Or let’s say you are single and looking to purchase your first home. Buying in the centre of a city where there’s plenty of nightlife may be ideal when you are dating, but when you settle down, you may want a quieter locale. While it’s hard to peer into the future while living in the present, thinking about your longer-range plans and trying to incorporate them into your buying decision can ensure that you make a choice that works for today and tomorrow.
Has The Property Been Maintained?
Home improvement television shows make it look easy to do a variety of renovations, but the reality couldn’t be farther from the truth. Just because you are purchasing a starter home doesn’t mean you should choose one that’s a fixer-upper, with a lot of needed upgrades and renovations.
First-time buyers are better off purchasing a home that has been properly maintained and doesn’t require a lot of repairs or upkeep. Just routine maintenance for a home is costly, not to mention repairs and remodelling. If major repairs or replacements are needed, it might be best to move onto better-maintained properties.
Do You Have An Exit Strategy?
Starter homes aren’t meant to be owned forever, which means you want to purchase a home that has the potential to make you money when you do decide to sell.
That means you will want to have an exit strategy for the property you are purchasing, whether that means choosing a home that will be easy to rent in the future or one in a good neighbourhood or school district that can easily be sold. The last thing you want is to be stuck with the property when you are ready to move on.
Homeownership can be empowering, but it’s also a daunting process, especially for first-time buyers. Mistakes are all around on the path to homeownership, but many can be avoided. Start by choosing a starter home well within your means that meets your current and future wants and needs, but also have an exit strategy in place.