Our Approach to Buying a House

I've only purchased two homes and am definitely not an expert buyer. However, I believe our conservative approach has enabled us to pay a reasonable price, get some appreciation, and not lose too much during the housing crash. Here were the key elements to our approach:

Consider an appreciating neighborhood. Within every city, county or region, there are appreciating, stable and depreciating neighborhoods. In some cases, different types of neighborhoods exist close to each other, e.g. an appreciating neighborhood next to a stable or depreciating neighborhood.

After relocating for my first job, I rented for 2 1/2 years before purchasing a home. I eventually bought in a city neighborhood that was highly desirable among young professionals and had been for several decades. After living there for 16 years, we sold the home for about 2 1/2 times the price that I paid.

For our second home, we chose to live in the suburbs, in a highly rated school district. While we didn't have children at the time, we were planning to adopt and wanted the opportunity for a great public school education. Homes in the school district tended to appreciate more than ones in other school districts. Although affected by the housing crash, I think our home value decline was mitigated somewhat by the strength of the school system.

Consider prices at the lower end for that neighborhood. To me, it's better to buy the lowest priced house in a neighborhood versus the highest priced house. I believe the appreciation potential is better for a house at the lower end, as it will be pulled up by the other houses in the neighborhood. Also, I believe the lower priced house will have higher potential for faster resale.

In both cases, we purchased a house the was at or close to the lowest price in the neighborhood. Our current home is the smallest house in our neighborhood.

Take out a 30 year fixed mortgage, with a large down payment. In my younger days, I preferred a 15 year fixed mortgage, with a minimum down payment of 20%. However, for our latest purchase, we decided that a 30 year fixed mortgage, with no pre-payment was a better option, since it gave us more financial flexibility. In addition, we put 40% down, which kept our monthly payment much lower.

By choosing to make a larger down payment, we consciously focused on homes priced 20-30% less than what we could afford with a smaller down payment.

Even though our home value has probably declined about 20%, we are happy with our choice because of the neighborhood and the quality of the schools. We have lived in our current home for almost seven years and, for now, plan to stay for at least another ten. In the long term, as the housing market recovers, I expect a faster recovery for our neighborhood, which should allow us to recoup our losses.

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This is not financial or real estate advice. Please consult a professional advisor.

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