Are you in the market for a residential home? Before you invest there's much to learn. Let's begin with the different types of residences.

What is a Residential Home?

A residential home has key features that distinguish it from commercial or other property types. Residences are dwellings for people to find shelter, comfort, and safety. It may be a single-family home, an apartment, a condominium, a mobile home, or a duplex for multi-families.

Condos, townhomes, and apartments typically have lower maintenance commitments while single and multi-family homes are independent with their own indoor and outdoor living spaces. Mobile homes are moveable but can be made permanent on a foundation.

No matter what type of home you choose all are tangible assets, have tax benefits, and build equity that can turn into generational wealth.

Things to Know Before Buying a Residential Property

Credit Score

Getting a mortgage loan approval weighs heavily on your credit score. A good credit score begins around 670 depending on the credit scoring model. Request a free copy of your credit report from AnnualCreditReport.com. This service reports scores from all three major reporting companies (Equifax, Experian, and TransUnion.) Ensure the report is accurate and if your credit score needs work, explore ways to get it up as quickly as possible.

Find a Home That Fits Your Budget

It's important to choose a home that fits your budget. If you exceed your means you'll make sacrifices in the future. Remember that as a homeowner you can't call the landlord when something breaks. Build an emergency fund into your budget for emergency repairs. Generally, your total housing expenditures shouldn't exceed 30% of your total income. Don't forget to include taxes, insurance, and HOA fees if applicable.

The cost of property taxes varies widely according to location. The best way to determine a ballpark figure is to check the current rates and historical data. Remember that property taxes rise as a home increases in value. Make an educated estimate about how high your property taxes may increase as the years go by. Determine if an increase in wages or salary for you in the future will cover it.

Don't forget to factor in homeowners insurance. This also varies by location. Do your research to get an idea of the expected cost. You'll need to add flood insurance if the home you want is in a flood zone.

Some communities charge homeowners HOA fees to cover the cost of pools, parks, or other amenities. Calculate the HOA fee with your projected home budget.

Consider the Cost of a Mortgage Loan

In addition to the interest rate for a mortgage loan, plan for other costs including the fees for application, appraisal, underwriting, and mortgage points. Review the terms and conditions of all loan estimates and look for hidden costs such as prepayment penalties and balloon payments.

Determine a Down Payment 

In most cases, you'll need a down payment at the time of closing. That amount will depend on the price of the home you're purchasing and the type of mortgage loan you have. For a standard mortgage, plan on putting down 20% of the price. However, you may qualify for certain programs that require a much lower down payment possibly as low as 3-5%. These programs include FHA loans, VA loans, and loans for first-time homebuyers.

Take advantage of one of these programs if you can, but keep in mind you must have Private Mortgage Insurance (PMI) until you reach a ratio of 78% for your loan-to-value (LTV) amount.

Why You Should Buy a Residential Home

As you can see, buying a home takes much forethought and planning. Homeowners agree that the process is well worth it. When you establish yourself in a neighborhood for the long term, you gain stability for your family. You'll form long-lasting relationships; your children will attend the same schools year after year.

If the home you buy is used as your primary legal residence (meaning you don't rent it out), you can qualify for a homestead tax exemption. You must do your research to discover the tax exemptions and deductions the county you live in offers. You won't be informed automatically. You can also deduct the interest you pay (currently up to $10,000) each year as an itemized deduction on your federal tax return.

The best reason to buy a residential home is appreciation. The rent you pay year after year is money you'll never see again. Rents also rise as time goes on, but if you have a fixed-rate mortgage, the payment doesn't. When you own a home you build equity over time that becomes an automatic savings plan. 

Written by Taylor McKnight, Author for Quality Structures