How to decide where to buy a house

How to choose the right neighborhood

The streets you drive down every day, the lawns and front doors you see when you look outside, the schools, parks, and grocery stores you rely on. In many ways, your neighborhood is just as personal as your home. It has to fit your budget, of course, but it should also support your lifestyle. Choosing the right neighborhood is one of the most important (and challenging) parts of the house hunt. Even if you have a general area in mind, it can be tough to narrow down exactly where you’d like to buy a home. Costs, amenities, and local community guidelines can fluctuate from neighborhood to neighborhood, impacting everything from daily life to property value. That’s why every real estate agent eats, sleeps, and breathes the mantra: location, location, location. It’s the one thing you can’t change about a house, so you need to make sure you give it careful consideration before you begin your search. Here are some tips to help you get started.

Research the housing market

For most homebuyers, cost is a major factor in their location decision. Some neighborhoods have underlying expenses that can drastically increase the cost of a particular property and impact your overall homebuying budget (more on this below.) That’s why we recommend starting your house hunt by getting pre-approved—this will give you a sense of how much money a lender might be willing to let you borrow. From there, you can start to see what houses are in your price range and understand how fees between properties realistically impact the overall cost of your mortgage.

Once you’ve narrowed your price range, look at housing market trends and property values in neighborhoods you’re considering. If you’re planning to buy where you currently live, you’re probably familiar with many of the surrounding neighborhoods. This is a big advantage, but you should still plan to do your due diligence with research and in-person visits. If you’re planning to move further afield, keep things like cost of living and job market in mind as these factors can differ drastically from state-to-state.

To get a good idea of whether or not a neighborhood is in your budget, focus on the Median List Price and the Market Action Index. A Market Action Index less than 30 indicates that it’s a buyer’s market, so you may have some room to negotiate an offer below list price in this area. A Market Action Index above 30 means it’s a competitive market, so you may have to make offers at or above listing price to win a house in this neighborhood. In this market, you might need to set your initial house hunting budget a little lower than your maximum budget.

Consider your monthly budget

Each home comes with a set of unique costs like insurance, HOA fees, and property taxes. These monthly expenses can fluctuate from house to house and make a particular neighborhood more or less affordable in the long run. Let’s start with property tax rates. Property taxes are collected to pay for local services, usually related to education (schools and libraries), public safety (fire departments), maintenance (waste collection, road work), and amenities (parks and trails.) As such, property taxes are determined locally and can be quite high in certain neighborhoods, significantly adding to your monthly payment. Calculate the current property tax rates to see how it will impact your monthly mortgage payment and decide if that amount is commensurate with the value the neighborhood offers—for example, a family with young children might decide it’s worthwhile to pay higher property taxes in exchange for access to prestigious local schools.

Also keep in mind that property tax rates can change over time, so this cost could potentially rise.Take a look at how much tax rates have increased in the last five years to get an idea of what you might pay in the future. Comparing tax trends in different neighborhoods may reveal which places help your budget go farther. For example, a $300,000 home in a neighborhood with a 3.5 percent tax rate might have the same monthly payment as a $350,000 home in an area with a 3 percent tax rate.

Monthly homeowners association (HOA) fees can also affect the affordability of a neighborhood. These fees are required in certain condo communities and single-family home neighborhoods to maintain and improve properties in the association. This additional expense, often several hundred dollars a month, can be significant over time. Look to see if HOAs are common in the areas you’re considering (HOA fees are typically noted in the property listing). If you want to avoid HOA fees, that may help you narrow down your neighborhood pool. If you’re willing to take on this expense, consider adding these fees to your monthly budget and adjusting your price range accordingly. Our online affordability calculator makes it easy to plug and play with these types of numbers.

Look for a lifestyle fit

What kind of community suits you best? It’s important to find a neighborhood that will support your daily life—think hobbies, habits, routines, and priorities. For example, will you feel more at home in a lively area for singles or a quiet town that’s family-friendly? Then, consider the atmosphere of the neighborhood. Do you prefer an older historic district or a newer development? Do you want to see green lawns and white picket fences, or are you interested in condos and townhomes?

Then there are some civic and logistical factors to consider, like school quality, safety, public transportation, commute times, and local amenities. When it comes to these features, take some time to think about what you want to prioritize in your neighborhood search. What are your “must-haves” vs your “nice-to-haves”? Being able to confidently answer that question will help you rank the best locations.

Your real estate agent will be a great asset for learning about local amenities and HOA costs/benefits, but you still need to do your own research. Make time to talk to local residents and friends in the area if possible. Drive through at different times of day to check out the flow of traffic and noise levels. Keep an eye out for empty buildings, upcoming construction that might impact day-to-day life, and any impending development that might impact property values in the future or determine how your investment appreciates over time. Use online resources to look into crime rates and school district information. Even if you aren’t looking for neighborhoods with prestigious schools, keep in mind that homes in these areas can be a good investment as future buyers may have children.

Watch out for red flags

Remember that you're not just buying a house, you're investing in a neighborhood. As you explore different areas, look out for things that may affect the property value of your home if and when you eventually decide to sell. Is there a new highway or commercial development in the works? That kind of work may boost home prices in the area long-term, but you might not want to deal with the hassle that these projects cause in the interim—increased traffic, loud construction noise, and commuting delays.

You should also pay attention to signs that a neighborhood might not be the best investment. Are there an overwhelming number of foreclosures in the area? Have property values rapidly decreased in recent years? These issues can indicate that a house here might not have the highest return. At Better Mortgage, you can get a basic pre-approval in as little as 3 minutes, with no effect on your credit score. You can also customize your pre-approval letter with a specific amount, and make your offers more competitive by getting an underwriter-reviewed Verified Pre-Approval Letter.

Need help deciding where to buy a house?

Finding the right neighborhood is just as important as finding the right house. Vetting different areas requires attention to detail—since most homebuyers are (understandably) preoccupied with looking at houses, they tend to need all the help they can get. A local real estate professional can be an invaluable asset in this process. They’ll be a second set of eyes, and provide insight that you might otherwise miss. Better Mortgage can help you save time and energy with our affiliate Better Real Estate whose agents have been thoroughly vetted. And while there is no obligation to use BRE agents, BRE agents have a strong track record of success in their area. Plus, by working with a Better Real Estate Agent and funding with Better Mortgage, you can save up to $2,000 on your closing costs.* Get pre-approved with Better Mortgage and start your search today.

*See Better Real Estate discount fine print.