December 13, 2016 – Top three pros and cons of buying in the city versus the country, by Anthony Powell, Vice President of Operations AAFMAA Mortgage Services. While many military families usually purchase a home in the suburban to rural areas of the country, it’s important to be aware of the differences, costs, and risks of purchasing a home in a city versus the country.
Every military family wants to purchase a beautiful home on a wooded lot with easy access to baseball diamonds for children, walking and biking paths, and wonderful loblolly pine tree-cleaned air — think North Carolina and Virginia. Of course, few military families recognize the distinct risks between purchasing a condo in a city or a single family dwelling in the country. Anthony Powell, Vice President of Operations of AMS, discusses some risks (pros and cons) to look for when purchasing a dream home.
City home purchases provide military families with lots of comparables in which to compare prices, a diverse and ready housing stock (at a certain price) and many unique and wonderful shops from which to purchase morning coffee. Buying a single family home is the safest form of residential purchase (condos and townhomes are riskier). Therefore, while the risk of over-paying in a city may be mitigated by having a vibrant frequency of home purchases (and prices), the actual residential home becomes riskier (for condo buyers).
With condos, the biggest risk (other than a problematic neighbor) is investor concentration. Anthony Powell states, “I’ve experienced clients seeking to refinance a condo which has 45% investor concentration be completely denied simply on the investor concentration basis alone.” Investor concentration measures the percentage of homeowners in the condo development that don’t consider the condo a primary residence. Over the last three decades that percentage (maximum investor concentration) moves around quite a bit, depending on government sponsored enterprise guidelines, and can vary between 45% and 80%.
Check with the homeowners association (HOA) and/or condo management to obtain written verification regarding percentage investor concentration. The HOA/management must supply these forms to individuals seeking financing to provide to the mortgage lender or broker. The downside of high investor concentration results in no financing availability to future buyers and property values plummet (think big decreases in value). The fact that home purchasers must make an all-cash offer and/or the financing liquidity of the condo development imploded, usually turns off most home purchasers.
Turning to the country home purchase. Military families need to be aware that 100% financing is often times available at extremely competitive rates. However, comparables may be limited (home sales within one to three miles of the subject property). Therefore, home prices fluctuate quite a bit more. And, with many more opportunities for 100% financing (particularly USDA homes) comes the added risk of foreclosure. While single family homes are the ideal property type, military families must be aware that price and location are extremely important. One of the other benefits of country properties revolves around HOA fees, which are typically substantially lower than city HOA fees.
There is a lot to think about when purchasing a home: location, location, location, price, accessibility, clean air and water, crime, investor concentration (condos), fixed versus adjustable rate financing? Hire a state-licensed and qualified mortgage loan officer to handle these important issues. Unlicensed loan officers have virtually no requirements. With so much uncertainty, military families need to protect the single biggest investment usually made — hire a state-licensed mortgage loan officer.
AAFMAA Mortgage Services. 844-4-AAFMAA (844-394-4526). Equal Housing Opportunity Lender. http://www.aafmaa.com/mortgage. Physical location 639 Executive Place, Suite 203, Fayetteville North Carolina 28305. NMLS license number 1423968. Anthony Powell, NMLS ID 78385.