Curve

Pros and cons of different types of homes

Peter Warden
Peter WardenThe Mortgage Reports Contributor

In this article:

If you’re concerned about investing in property or getting a mortgage, some types of homes are better than others. In general, though, they break down into three categories:

  1. Single-family homes (including manufactured houses, modular homes and PUDs)
  2. Condominiums, co-ops or townhomes
  3. Multi-unit housing (duplexes, triplexes and fourplexes)

Different types of homes are easier to buy and appreciate at different rates. Here’s what you need to know.

Verify your new rate (Oct 21st, 2018)

Homes and more homes

How many different types of homes are there in the United States? Well, in one sense, every home is unique — even if some are similar. But it makes sense to break them down into seven categories:

  1. Single family residence
  2. Condo/co-op
  3. Townhome
  4. Zero lot line
  5. Planned unit development (PUD) home
  6. Manufactured
  7. Modular/pre-fab
  8. Multi-unit

Each category has characteristics that make them more or less attractive to a purchaser, depending on that person’s needs. So read on to discover pros and cons for each. Doing so will help you make sure you’re not missing out on your ideal place.

You’ll also find that mortgage lenders have different policies and requirements for different types of homes.

Related: Types of homes and how they affect your mortgage

Single family residence

This is the sort of home a little kid is likely to paint if you ask her for a picture of a house. That’s no surprise. In 2000, more than 60 percent of all homes in the U.S. were detached residences, each intended for a single family. In other words, of all the different types of homes, this is by far the most popular.

Pros

  • One of these is the American dream — with or without a picket fence
  • Plot sizes vary but are generally larger — That can mean more space, increased ability to expand, and more privacy
  • The square footage is often greater
  • Your ownership is usually “freehold/fee simple,” meaning it’s all yours to do with what you will forever (subject to your mortgage and the law)

Maybe the biggest benefit of a single family residence is the freedom it often gives you to adapt your home to your changing needs.

Cons

  • Your single family residence is yours. There’s nobody to turn to for help with repairs and maintenance (though you can often borrow from your mortgage lender)
  • These are frequently found in suburban or rural environments and not everyone wants those lifestyles
  • Some come with compulsory membership of a homeowners’ association (HOA). Although HOAs are generally good for community cohesion and coherence, some find their rules and insistence on conformity intrusive
  • Occasionally, HOAs get into financial trouble and you may bear part of the cost of getting yours back into the black. You pay an annual fee, even during good times

Related: Best home improvement loan: how to find it and pay less for it

Condos and co-ops

A condo (less of a mouthful than the full name, “condominium”) is a residential unit that you do own within a larger property that you don’t. In other words, you are typically the legal owner of your unit, but someone else owns the common areas in your building, the structure itself and any surrounding land.

You need to read your purchase documents closely to be sure you know what you own and have responsibility for and what belongs to the company.

With a co-op, you don’t own your unit at all. In fact, you and the other residents between you typically own the company that owns the larger property. What you actually own and control are shares in the company, and a board runs the whole show.

Related: Condo or house (which should I buy)?

The condo and co-op have more to do with ownership rights than the unit. Although these units are most commonly apartment-style properties, they can be different types of dwellings, including detached residences.

Pros

  • Someone else is going to clean, repair and maintain the common areas, including the grounds
  • Many condos and co-ops provide extra amenities, including pools, gyms and 24-hour security/door staff
  • They typically have lower prices than an equivalent single-family residence, though there are exceptions
  • They’re often located where land is at a premium, so you may find yourself with a sea view or in a prime downtown location where a single-family residence would be prohibitively expensive
  • Many condo developments and co-ops have a real sense of community and may help you make friends quickly

However, some of those pros have flip-side cons.

Cons

  • You’re going to pay your share of all those cleaning, repair and maintenance costs — and for those amenities
  • You need to ensure your building’s management is adequately funded or you could be hit by massive and unexpected bills
  • You’re going to be living cheek by jowl with a lot of other people, not all of whom you’ll necessarily like
  • Noisy, messy and inconsiderate neighbors can be an especially troubling issue in some buildings
  • Condos and co-ops can be harder to finance, which can make them harder to sell

Condos and co-ops are often a lifestyle choice for those who don’t want to spend time on home maintenance and yard work. That means they often appeal to retirees, the ultra-busy, those who travel a lot and the young. Their locations and extra amenities can make them especially attractive.

But the inevitable close proximity to neighbors means they’re not for everyone.

Townhome

A townhome may also be called a row house, a townhouse or a terraced house. They’re often two or more stories high, but their defining characteristic is that they share at least one wall with a neighboring property. That’s not a yard wall; it’s one that holds up the house.

Related: Townhomes, condos and more (how property type affects your mortgage)

Most townhomes share walls with two neighbors. However, one at the end of a row will share only one.

“Townhome” is an architectural term that describes how the building is constructed. It doesn’t define the ownership model. So townhomes may be owned outright (freehold/fee simple) or be part of a condo or (less often) a co-op development.

Pros

  • Like condos and co-ops, these are often built where land is at a premium. So they may be close to downtown, provide waterfront views and access, adjoin a golf course or be handy for some other desirable amenity
  • When part of a condo or co-op, they may also come with extra on-site amenities, such as communal pools, gyms or clubhouses
  • They often provide you with your own backyard, though this may be smaller and perhaps less private than typically found with a single family residence
  • Many townhomes are either condos/co-ops or part of a development within an HOA. If so, you may be spared direct responsibility for some or all maintenance, repairs and yard work

You’ll likely get more space and privacy than you would with an apartment-style condo while still enjoying many of the advantages they offer.

Cons

  • You’ll be sharing a “party wall” (a real estate term for shared wall) with at least one neighbor and usually two. You’d better hope they’re not unreasonably noisy
  • Unless it has a gate to an alley at the rear, your only access to your backyard may be through the house
  • If you’re signing up with an HOA or condo/co-op, you need to be comfortable with their fees and confident in their financial health
  • A townhome isn’t always a cheap option. You can pay well over $10 million for one in Manhattan

You’re not as insulated from troublesome neighbors as you would be in a single-family residence.

Zero-lot-line homes

Zero-lot-line homes are a flavor of single-family residence. They’re also related to townhomes, though more distantly. Often, they’re in condo/co-op developments or are within HOAs. So they can share characteristics with all those.

Zero-lot-line refers to the fact that the homes typically share a wall with the home next door. There’s usually near-zero space between the two residence. Structurally, these are usually similar to townhomes.

These dwellings are more common in high-density areas. There is little-to-no yard space, which can be good or bad, depending on your love of the outdoors or hatred of yard work.

This variety of possible configurations makes it difficult to come up with common pros and cons. Depending on your choice of zero-lot-line home, including its ownership model, almost all the pros and cons listed under the different types of homes above could apply.

Planned Unit Development (PUD) homes

As the name implies, PUD homes are ones built as part of a planned development. Often, such a development will include a blend of different types of homes, and sometimes some business premises. So you may well find single-family residences, apartment-style condos, townhomes and zero-lot-line homes all within the same PUD.

Typically, you’ll also find plenty of high-end amenities. Depending on the development, these might include communal pools, tennis courts, parks, hiking trails and 24-hour security. Indeed, gated communities are often PUDs.

Pros

  • Plenty of attractive amenities
  • Communal facilities and spaces maintained by the HOA or condo management
  • Larger PUDS often have restaurants, bars, and shopping and medical facilities on site
  • Selection of home types

This is a lifestyle choice that can deliver convenience and amazing amenities with a real community “feel.”

Cons

  • None of this comes cheaply: watch out for high HOA/condo fees
  • You’ll be paying for the upkeep of amenities, even if you don’t use them
  • Your mortgage lender will want to know you’re buying within a PUD
  • Individualists may feel that HOA rules and communal costs are oppressive

Make sure you’re going to enjoy this lifestyle and that you’re prepared to pay for it.

Manufactured homes

Manufactured homes are part of a larger group that includes mobile homes and trailers. However, they’re different from those because they can count as real estate and therefore may be mortgageable.

To qualify as real estate, each must be anchored to its site with approved foundations and have been built since 1976. It must also come with red tags from the U.S. Department of Housing and Urban Development (HUD), which certify that it meets certain safety and construction standards.

Related: Mortgages for manufactured homes

Pros

  • A manufactured home is typically the least expensive way to put a roof that you own over your head
  • Many modern parks are tidy, well maintained and generally delightful
  • Today’s manufactured homes can be spacious and comfortable

These can be an especially attractive choice if you’re downsizing in retirement. However, they can suit people at all stages of life. Manufactured houses can be placed on land you own or land you lease from someone else.

Cons

  • There can be a stigma associated with this type of housing (“Trailer park” is not a compliment)
  • Most homes appreciate in value, but manufactured ones generally depreciate over time
  • You need to choose your home and location carefully. Some park owners can be exploitative

Don’t let the salesperson pressure you into signing up for the park’s own finance package. Insist you check out your options first. Shop around for the best mortgage deal.

Modular/prefabricated homes

Many still get confused between manufactured and modular/prefabricated homes. But they are entirely different.

True, they’re both fabricated in factories and then delivered to the site. But a manufactured home arrives completed.

A modular home is delivered in pieces (modules) and then constructed by a home builder. Those modules can be used to make anything from a tiny house to a mansion or apartment block. Each module is custom made in a specialist factory to meet the specifications and plans drawn up by an architect.

Pros

  • For mortgage lenders and other professionals, a modular home is exactly the same as a traditionally constructed single-family residence
  • Modular homes typically cost 10-20 percent less than the traditionally-constructed equivalent
  • Creating modules in a factory can actually improve the quality of the build and finish
  • Modular homes are often more energy-efficient than others
  • They can take a lot of guesswork out of building your own home. You can even order a modular home on Amazon

Modular homes are the future. Get used to them!

Cons

  • Although professionals (home inspectors, real estate agents, mortgage lenders …) generally recognize modular homes as the equal of traditional ones, some home buyers may be wary
  • Your site must be prepared properly and be able to provide access to a large crane
  • You may need to work with your lender to finance construction stages, as these are different from those of traditional “stick” builders
  • Any accidents during transportation of the modules can cause delays

The trouble with the future is that it can take some a while to catch up.

Multi-unit homes

Multi-unit homes come with two-to-four units on one property. They may share walls or be completely detached.

Pros

  • Multi-unit housing can be a great option for multi-generational families who want to live together, but not right on top of each other
  • You can live in one unit and get rental income for the others
  • Most lenders allow you to finance them as primary homes as long as you live in one unit
  • Many programs (like FHA) allow you to finance a higher amount with a multi-unit property

Cons

  • Multi-unit homes don’t generally appreciate as fast as single-family housing
  • Fees for financing two-to-four unit homes are higher
  • Qualifying for a home loan may be more difficult, depending on the lender and program
  • You may not like your neighbors or being a landlord

Related: Buy a duplex, tri-plex or four-plex and let your tenants pay your mortgage

Different types of homes

Don’t worry too much about choosing your next home. Chances are, it will choose you.

Your financial circumstances, lifestyle choices and personal needs will likely dictate whether you select a single-family residence, a condo/co-op, a townhome, or a zero-lot-line, PUD, manufactured or modular home.

It’s once you’ve chosen from the different types of homes that the fun of finding the perfect one for you begins.

Verify your new rate (Oct 21st, 2018)

 

Certain links on this post are provided via an affiliate, meaning The Mortgage Reports makes money if you decide to buy via the link.