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I'm 29, and I live in Chicago NW suburbs. I pay a lot for rent, so I am planning to buy my first house.

I have no prior experience on this. What are some tips and strategies to buy a home? More specifically, I would like to know opinions about the following:

  • Condo vs townhouse: There are couple of options in a high-rise (135K, 2BR, 1 Bathroom, HOA $375, but includes Gas/Heat/Water + common things) as well as a townhouse (179K, 2BR-2 Bathroom, $270 HOA which includes only common things).
  • Price range: I'm looking for 100K-200K. Which price range might be a better investment for later (highest return)?

  • Better Sell/investment: What would be things that buyers would look at most? e.g. 2 bathroom vs 1bathroom is much preferred, 2nd floor vs 1st floor, attached garage, anything.

  • mortgage terms: Better to get 15yr (3.75%) or 30yr mortgare (4.xx%) with current US economy? Payments won't be a problem. Just think from investment perspective and less I would lose.

Or anything else. Just share your experience please.

The Redfin agent I'm working with suggested a 2BR 2Bath townhouse for 179K, also rentable. But it is first floor. I'm a bit hesitant as I think 2nd floor would be best.

It's a good season to buy so I don't want to lose time, also waste money paying rent!

  • Just some food for thought (including the linked article about ownership being a bad investment) jlcollinsnh.com/2012/02/23/… – topshot Jan 25 at 15:27
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    "I pay a lot of rent" is not a good reason to buy a house. You could end up paying even more in maintenance, mortgage interest and property tax. – Money Ann Feb 1 at 14:52
  • yeah that's true. Assuming all goes smoothly! – Tina J Feb 1 at 17:07
  • What are pros of buying a 2005 house vs 1975?! – Tina J Feb 1 at 17:08
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Condo vs townhouse: There are couple of options in a high-rise (135K, 2BR, 1 Bathroom, HOA $375, but includes Gas/Heat/Water + common things) as well as a townhouse (179K, 2BR-2 Bathroom, $270 HOA which includes only common things).

This is a matter of preference. For some only a single family home will do, others are okay with a condo. The benefit for a first time home owner is less maintenance risk/need. For a rental you are responsible for no maintenance. When you buy a town home or condo, you typically do not worry about outside items. True there may be a special assessment, but they are typically announced well in advance giving a person time to save.

Price range: I'm looking for 100K-200K. Which price range might be a better investment for later (highest return)?

Its very difficult to tell, and this question is very broad. Are you buying in a neighborhood that will experience gentrification or is on the slide downward? Those are typically the key to good investment properties. One thing to keep in mind is that it is expensive to sell real estate. In order to break even on a 100K property, you will need about 15% increase in sales price. With the 200K property, probably like a 9% increase to also break even.

Better Sell/investment: What would be things that buyers would look at most? e.g. 2 bathroom vs 1 bathroom is much preferred, 2nd floor vs 1st floor, attached garage, anything.

Location is everything. 2 bathrooms are nice, as well as other amenities, but location, location, location.

mortgage terms: Better to get 15yr (3.75%) or 30yr mortgare (4.xx%) with current US economy? Payments won't be a problem. Just think from investment perspective and less I would lose.

Either way the economy today will not be the economy 5 years from now. For me, the 15 year is almost always better. You build equity quickly and pay a lower interest rate. The new tax law greatly diminished the interest rate deduction so that is not a factor for many people.

This sounds like a starter home for you notching another vote in the 15 year. Lets say you want to move in 7 years. With the 15 year, about 65% of the original loan balance will be gone. On the 30 year, only about 21%. With closing costs, and the 30 year, there will likely be little to apply towards the purchase of your next home from the proceeds of the sale of the starter home.

Lets say it is not a starter home. Do you think you will increase your income in the next 10 years? Probably very likely. With a bit of extra payments a 15 year can often be paid off a little early say 10 years or so. Then you would have the additional financial security of having a paid for home. It is an amazing position to be in.

Others will tell you to invest the difference in payment between the 30 year and 15 year, but I do not think that is suitable for most people. Think of the 15 year mortgage as a nice diversification investment.

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    Thanks Pete! Very great comments. Yeah Location is most important too for me! – Tina J Jan 25 at 17:18
  • I might add to this that the HOA can play a large role in selling, should you decide to leave and not rent the place out. It's basically rent that never ends. Locking down $375 a month for HOA better come with some excellent amenities to justify that cost. If that doesn't matter to you, consider the selling appeal of whoever you may unload this property on in the future. Also, it might be a good idea to recon a little yourself and find out how the HOA treats the occupants. My HOA is an absolute horror and I don't think I would have bought my house if I knew it came with constant harassment – Kai Qing Feb 1 at 23:17
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A condo represents convenience because it is close to the city, likely close to retail, likely close to transit, and possibly close to work. And so a car might not be necessary. The condo fee can be expensive. The condo fee might include property taxes and could possibly include utilities.

A condo can be easily rented and is good for those that might be transferred. A large condo building can be a concrete building or a steel-frame building. A small condo building could be a lumber-frame building.

A house on its own lot is likely further out from the city and probably requires car ownership and significant commuting. A house is not as secure as a condo building but the neighborhood might be safer and calmer.

  • Great opinions. I think I would go for a condo as sell/rent would be easier! They ask $100 more of most townhouses HOA. Given Water/Gas/Heat/Cooling is also included, I think it might even worth it more! Those utilities can go up to $200 I guess. – Tina J Jan 25 at 17:20
  • I took "townhouse" to be a small condo building and just included them with larger condos buildings. Then I went on and discussed the traditional suburban "house". – S Spring Jan 25 at 20:14

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