Where to Live?

Now that you've figured out what you can afford and how much you're going to have to budget for those monthly mortgage payments, you ask yourself, “Where should I live?”

Obviously, you want to find the right home, but before you do, you need to find the right neighborhood – the one that fits your needs.

Choosing a neighborhood

Before looking for the home that fits your taste and budget, it's important to get the facts on neighborhoods. In the end, you're not just buying a house, you're also buying into a larger community. What happens outside your door has great impact on the value of your home. That makes a difference especially in terms of resale value, should you ever choose to sell the house.

In addition to the financial impact that a neighborhood has on home values, there's an emotional component, too. That's why it's important to make a good choice for value and resale as well as a good choice for where you feel comfortable, whether it's a cozy cottage on a suburban cul-de-sac or a classy condo in a downtown high-rise.

How do you know whether a neighborhood is right for you? First, consider your lifestyle and interests. Where do you work, how do you get there and how much time are you willing to spend on your commute? One thing to keep in mind: Psychology experts who have studied happiness argue that you're more likely to be happy if you buy a smaller house with a shorter commute than a bigger house with a longer commute.

When it's time to relax, do you like to walk the dog, browse the shops or hit the clubs and cafes? Are there good services, amenities and schools? When you start to prioritize your preferences, you'll likely find your choices can quickly shrink to just a few neighborhoods that fit the bill.

When you've narrowed down your choices, then it's time to see how the neighborhoods stack up. Walk around and ask the people you meet about local parks and traffic patterns. Get online and research real estate data about the neighborhoods you're interested in. See the median home value for neighborhoods, median list and sale prices and much more.

Of course, few neighborhoods will meet all your criteria — and even fewer at prices most of us can afford — so don't be surprised if you have to make some compromises. (Everybody does.)

Predicting the future

Here's a situation you don't want to see: When Marcie bought her first home several years ago, she loved the fact that most of her neighbors had lived there for decades. They all knew each other, they'd watched each others' kids grow up and many even worked at the same company on the other side of town.

At least, that is, until the company closed, property values plummeted and for-sale signs began to sprout like mushrooms. Like many people, Marcie had bought her home for both its livability and its potential for long-term appreciation; now neither looked too promising.

Clearly, most home buyers purchase a home because they believe they'll enjoy living in it, but smart home buyers also buy for the future; i.e., as an investment that will appreciate over time and produce a profit when it's time to sell. And while it's hard to think about selling your home when you haven't even bought it yet, remember that the average American moves up to seven times in his or her lifetime. You probably will, too.

So, think about it: When you're ready to move on or move up, and potential buyers come to look at your home, would you rather they drove past junk cars and boarded-up storefronts or well-kept homes and vibrant businesses? Predicting the future of anything is tricky, but when it comes to neighborhoods, there are definitely clues.

Signs of the times

Many "macro-economic" factors can influence whether home values go up or down. Among the things to consider:

• Constant construction. A new urban-village-style mall a few blocks away can increase your home's worth by tens of thousands of dollars; a six-lane highway through the former pasture next door, not so much. Check with the local planning commission, or just ask around.
• Business decisions. If a factory shuts down, a whole town can be at risk, along with the local housing market.
• Too many for-sale signs. Are people selling because of a change in lifestyle (a new job, kids in college, changing interests) or because the neighborhood has taken a turn for the worse? There's no harm in asking.
• Too many rentals. Even the neatest, nicest renters rarely treat their living quarters as if they owned them, and absentee landlords are often no better. And make no mistake: Neighborhood deterioration is a contagious condition.

In the end, neighborhoods are always changing, and house values change right along with them. So when you're house shopping, look for one that you'll consider a comfortable home today and a smart investment tomorrow.

Buyer location checklist

• Area amenities. Are there nearby parks and open spaces or chic shops and trendy restaurants? How about libraries, grocery stores, and fitness centers (or a community center with all of the above)? The best way to find out is to get out of the car, walk around, and ask the locals what they like and don't like about the area.
• Local schools. Even if you don't have children, this may be the single-most important marker of a good neighborhood. That's because many homeowners do have kids, which means they're concerned about low crime, safe streets, good schools and the other amenities that help good neighborhoods stay that way. Find out about test scores, class sizes, and school ratings and reviews on Zillow. This information is furnished by schools rating site GreatSchools.org and is included on any home you see on Zillow – whether it's for sale or not.
• Community services. Go to city hall and inquire about taxes, traffic, and major construction projects. Reading the local paper is also a good way to get a sense of the community and its current affairs.
• Local transportation. If you're going to be car-free, check out the local transit system. See how close the stops are to the neighborhood or whether you'll need to drive to a transit parking lot. Check how often the transit system runs throughout the day and into the night.
• Commute times. – If you'll use a car, determine whether you will you be driving residential streets or busy arterials. Drive around at all times of the day and not just on the weekend while you're looking at houses. Drive your route during rush hour. Few things in life are more frustrating than finding out that a 15-mile commute to work takes an hour, each way, five days a week. Drive it a few times and for a true test, nothing beats 5 p.m. commute home on a rainy or snowy Friday evening.
• Proximity to frequented locations. Get a map of the city and put a dot on the places you will frequent: Work, shopping, schools, etc. You may be able to purchase a home outside of the city or farther away for less, but gas prices are not going to be getting any cheaper. Maybe that more expensive house closer-in could be a better deal after all.
• Economic stability. Generally speaking, a healthy mix of residential neighborhoods (property taxes) and businesses (sales and payroll taxes) sets the stage for vibrant, well-funded communities. Conversely, boarded-up storefronts, a major employer with an uncertain future, and/or forests of for-sale signs are all warning signs of a community in decline. Cities with colleges and government services are most likely to remain stable.
• Crime rates. Love the house, like the local amenities, but would you feel safe walking around at night? The federal government and most state and local governments keep statistics on the full range of illicit activities. If you're in the area, stop by the police station; if not, there are plenty of resources online.