When it comes to real estate transactions, the type of property you’re buying significantly influences financing options, as does whether you intend to occupy the property as your principal residence or rent it out. Whether you’re eyeing a single-family home, a townhouse, a condo, or a multifamily unit, understanding these nuances is crucial. Let’s explore how each property type plays a role:
1. Single-Family Homes
- Definition: Single-family homes are standalone dwellings designed for one family.
- Financing:
- These homes are typically straightforward to finance.
- Conventional loans, FHA loans, and VA loans are commonly used for single-family homes.
- Single family homes can be financed as investment homes, with a premium on interest rate and terms.
- Occupancy:
- You can live in the entire home.
- No shared walls or common areas.
- If purchased as an investment property, you can rent it out.
2. Townhouses (or Townhomes)
- Definition: Townhouses are attached or semi-detached homes with shared walls.
- Financing:
- Like single-family homes, townhouses can be financed with conventional loans.
- However, some lenders consider them riskier due to shared walls.
- Interest rates or fees may be slightly higher.
- Occupancy:
- You own the land directly beneath the dwelling.
- Homeowners’ associations (HOAs) exist, and you pay dues.
- If purchased as an investment property, you can rent it out.
- Lenders may require that the complex has a certain percentage of owner occupants.
3. Condominiums (Condos)
- Definition: Condos are units within larger buildings or complexes.
- Financing:
- Condos don’t come with land ownership; you only own the interior space.
- Financing options include conventional loans, FHA loans, and VA loans.
- Lenders categorize condos based on building height (garden, mid-rise, high-rise).
- Interest rates may be affected by the building type.
- Occupancy:
- You share common areas maintained by the HOA.
- Interior space ownership only.
- If purchased as an investment property, you can rent it out.
- Lenders may require that the complex has a certain percentage of owner occupants.
4. Multifamily Units
- Definition: Multifamily units include duplexes, triplexes, fourplexes and apartment buildings.
- Financing:
- Duplexes and triplexes (up to four units) can be financed similarly to single-family homes.
- Larger multifamily properties (five units or more) require commercial loans.
- Conventional loans have higher loan limits than single-family homes.
- Interest rates or fees may be slightly higher.
- Occupancy:
- You can live in one unit and rent out the others, financing the property as your principal residence.
- Investment potential due to rental income.
- If purchased as an investment property, you can rent out all the units.
5. Planned Unit Developments (PUDs)
- Definition: PUDs are communities with houses, parks, and amenities.
- Financing:
- PUDs allow developers to bypass some zoning restrictions.
- Buyers own their lots and structures.
- Financing resembles traditional single-family homes.
- Occupancy:
- You get rights to common areas.
- HOAs manage shared spaces.
Remember that each property type has its unique financing requirements and occupancy rules. When considering purchasing any property, it is important to identify the type of property, in addition to what your intended use of the property is, i.e. principal residence, vacation/second home, or investment/rental property. All these factors impact the loan terms, down payment requirements, and interest rates and fees. Be sure to be completely transparent with your lender when applying for a loan.
