While most first-time home buyers picture a detached single family home when they think of their dream-home, there are actually a few other options available to first-time home buyers. As you search for your home, your REALTOR® should be able to filter for any of the following options, so it helps to know what kind of home you’re looking for.
Detached single-family – As the name implies, this is a single family home on its own lot that isn’t attached to another structure. According to the National Association of REALTORS®, detached single family homes made up 83% of all first-time home buyer purchases in 2015. While this may offer more privacy and a sense of pride, other options might be worth considering from a financial standpoint.
Home with rental unit* – Some single family homes have a separate structure, or a separate living area such as a garage apartment, that can be rented out to offset your monthly PITI payment.
Multi-family* – For the purposes of this book, this refers to a four-plex, triplex, or duplex. The idea is simple – buy the whole thing with one of the financing options previously noted, live in one unit, and rent out the others. If you play your cards right, it’s actually possible to live in your unit for free, or even make money each month! At the very least, every penny you collect in rent directly offsets your monthly PITI payment.
*Many first-time home buyers don’t realize that any property with four or less living units (i.e. a four-plex, triplex, duplex, or home with a rental unit) is still considered residential property for the purposes of mortgage lending. As long as you intend to live in one of the units, you can get a residential mortgage for the purchase – even if you intend to rent out the other units to offset your monthly PITI payment! Small, residential multi-family properties make up about 7% of annual home sales, and can be a great way to save money and build equity.
Townhouses – A townhouse can be an attached or detached structure that is part of a community that typically involves a homeowner’s association (HOA). You own the structure and the land that it sits on, but you share certain “common elements”, such as a pool, clubhouse, or recreational facilities, with other members of the HOA and pay a monthly fee for their maintenance. Townhouses make up about 7% of annual home sales in the U.S.
Condos – A condo can also be an attached or detached structure. The arrangement is similar to a town house, except you only own the interior of your condo – the HOA owns the exterior, the land, and all of the common elements, and you pay a monthly fee to the HOA for the maintenance, upkeep, and insurance on all of the exterior components and common elements. Condos make up only about 1% of annual home sales in the U.S.
Be sure to factor in the HOA or Condo Association fees in addition to your monthly PITI payment – especially if you’re considering a condo or townhouse!
New construction – You can also finance the purchase of a home that is under construction. In some cases, you’ll be able to choose certain finishes, paint colors, and other details. Or the home may already be completed and you’re just fortunate enough to be the first owner. New construction homes make up about 16% of all home sales each year. Talk to your lender and REALTOR® for specifics if you’re considering new construction.
Rob Reed is a REALTOR in St Petersburg, FL that specializes in working with first time home buyers.