When it's time to buy a first home, many buyers confront the question: single-family house or a unit in a multifamily townhouse or condominium? Prospective home buyers have to consider many factors, including:
• Location and lifestyle • Maintenance costs • Rules of ownership • Lending and price • Monthly fees.
Here is a look at how to decide whether to buy a house, townhouse or condo as a first home.
Does location match lifestyle?
Location is often the deciding factor. For young professionals who want to be close to the action, a short walk to restaurants, shops and a train station is a higher priority than having more space and a private yard.
Seth Siegler and his wife, Maggie, closed on their first home in October 2013 in a neighborhood called Bankers Hill in San Diego. Their home, a two-story townhouse/condo, is in a small complex of six units. "We chose this house mostly based on its location. It's less than 15 minutes to almost anywhere we normally go, including the beach, restaurants and more," he said.
What are the maintenance costs?
First-time buyers might not have the confidence, skills or experience to take on a fully detached home with all of the upkeep. "Those with many other responsibilities may not have time for home maintenance," said Jordan Clarke, a real estate agent in Carlsbad, Calif. "Condos are also a convenient option for people who travel a lot."
Clarke said a condo or townhouse could be a good fit for first-time home buyers because association fees cover maintenance and repairs. Owners of single-family homes have to set aside money for those purposes.
Condos and townhomes are also preferable, Clarke said, for those who don't want as much responsibility as homeowners because they won't have to hire landscapers and other contractors for exterior maintenance.
Can you abide by the rules?
Owning a condo or townhome is not for everyone. Among the reasons:
• Owners associations can tell residents where to park, ban them from barbecuing on balconies and otherwise impose restrictions.
• Neighbors are close, and they can be annoying.
• "You are significantly more tied in value to your neighbors when it comes to condos and townhomes," Clarke said.
Exterior renovations (and their budgets) have to be approved by the owners, Clarke said. And when other owners don't pay their bills, you could be required to fork over more than your fair share and hope you'll be reimbursed later.
How nosy will the lender be?
Many condos or attached townhomes are smaller, and often cost less than houses.
They also usually have higher interest rates than single-family houses, said Jeremy David Schachter, mortgage adviser for Pinnacle Capital Mortgage Corp. in Phoenix. And lenders scrutinize the financial health of the owners association.
When the buyer makes a down payment of less than 20 percent, Schachter said, the lender often subjects the owners association to a "full review," with questions about the association's finances. A down payment of 20 percent or more triggers a limited review.
Are association fees worth it?
Owners of condos and townhouses have little control over annual fee increases, said Candy Miles-Crocker, associate broker for Long & Foster Real Estate in Washington, D.C.
Another downside is an unforeseen special assessment. "If the condo building needs to do any major repairs that cannot be covered by the reserve fund, they will charge each owner a special assessment" on top of regular monthly fees.
Fees versus bigger house
Miles-Crocker said she counsels her buyers that the money they pay for condo fees is not tax deductible and could be put toward a mortgage. "Oftentimes because of the condo fee, buyers can afford more house if they go the single-family route," she said.
Although condos sometimes have a special assessment to make major repairs, single-family homes can experience the same type of repairs and the owner is hit with a huge bill. "The difference being that the single-family homeowner is not paying a monthly condo fee on top of the large repair bill," she said.