What type of home should I buy?

Understanding the different types of residential properties, their classifications, and the various financial implications is crucial when looking to purchase a home, especially for those with non-traditional income sources or foreign nationals. This comprehensive guide provides insights into property types, tax differences, mortgage options, and which type may be best for you.

Different types of residential properties

Different property types tend to suit different types of customers, based on their lifestyle, family size, income, and long-term goals. Here are some typical scenarios:

Single-family homes: Ideal for larger families seeking space, privacy, and a neighborhood environment. For example, a family with several children who value a backyard for play, wish to maintain a private lifestyle and prefer to avoid shared walls would find a single-family home most appealing.

Multi-family homes: Perfect for investors or home buyers seeking potential rental income. For instance, a duplex could be a suitable choice for a young couple who live in one unit and rent out the other for additional income.

Condominiums: Attractive to single professionals or retirees seeking a low-maintenance lifestyle in a community environment, often with amenities like fitness centers or swimming pools. For instance, a busy urban professional might find the convenience of a condo in the city center, with no yard to maintain, very appealing.

Townhouses: Suitable for those who want the feel of a single-family home but with less maintenance, like a young family or a professional couple who desire more space than a typical condo but still want some shared amenities.

Co-ops: Ideal for individuals who are open to a higher level of involvement in their living community. For example, a senior might appreciate the sense of community and decision-making influence that comes with a co-op.

Manufactured homes: An excellent option for budget-conscious homebuyers who prioritize affordability over potential property value appreciation, such as retirees on a fixed income or a young couple purchasing their first home.

When selecting a property, customers should consider factors like their lifestyle preferences, family needs, budget, preferred location, long-term plans (e.g., selling the property in the future or renting it out), and their tolerance for responsibilities such as maintenance and repairs.

How properties are classified

Residential properties are typically classified based on three key aspects: structure, ownership, and use. Here's how each of these factors plays a role:

Structure: This refers to the physical form of the property. A standalone house is classified differently than a condominium or a duplex. The structure of a property can impact its insurance cost and requirements. For example, a single-family home owner would typically be responsible for insuring both the structure and its contents, whereas a condo owner might only need to insure the contents of their unit, as the building itself is typically insured by the homeowner's association.

Ownership: This refers to the legal status of the property. For instance, a co-op owner owns shares in a corporation, rather than the property itself. This classification can impact financing options. For example, not all lenders offer loans for co-ops, which can make financing these properties more challenging.

Use: This refers to how the property is utilized. For example, a property could be used as a primary residence, a rental property, or a vacation home. Financing and insurance can vary depending on this classification. Rental properties, for example, can be harder to finance and may require more comprehensive liability insurance coverage due to the potential risks associated with having tenants.

Tax differences based on property classifications

The classification of a property can greatly impact the taxes owed by the owner. To illustrate these differences, consider the following table (Investopedia):

In addition to property taxes, owners may also be eligible for various tax deductions such as mortgage interest, depending on how the property is used. For instance, if a portion of a single-family home is used for rental purposes, specific expenses can be deducted from rental income for tax purposes.

Understanding residential property types, their classifications, tax implications, and the best-suited mortgage loans is vital when making property decisions. With the right knowledge and an expert lending partner like Milo, you can find the perfect fit for your unique situation.

Ready to find your ideal property? Reach out to our Milo loan consultants for personalized advice and tailored mortgage loan solutions designed for non-traditional income earners, crypto asset holders, and foreign nationals.

The opinions expressed in the Blog are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.