So what’s the skinny on buying a condo? Are there any different procedures, any extra considerations to make? Most definitely! There are many reasons, and pros and cons to buying a condo. If you, or someone you know, is looking to make a condo their new home, read on to find out all that comes along with it.
Why buy a condo?
There are many reasons someone might choose to buy a condo over the typical single-family residence. To explain the difference, a private residence is privately owned, whereas with a condo, or condominium, common areas are jointly owned by the other condominium residents.
In markets that are extremely expensive and popular, such as downtown areas, condos tend to be a popular choice, as they are often cheaper than buying a single-family residence. In this way, condos offer many an opportunity to enter and live in a locale they might not otherwise be able to afford. It’s a viable alternative to renting an apartment, as when you actually own a condo, you can build equity and often take advantage of tax deductions on the mortgage interest.
Condos tend to be popular among the retired, as a condo community will often provide services specifically catered to them.
Because condos share a common area that is owned by all residents in the building, there is a governing board that oversees how the condominium operates. Before purchasing a condo, it’s a good idea to learn as much as you can about how the complex is managed, and any hot issues. Also, there are rules and guidelines set forth in most condominiums, make sure you look into them and are willing to abide.
Pros of Buying a Condo
As stated earlier, many condominiums are built in popular areas and downtowns, so if you want to be in the heart of a city, or within walking distance to many different amenities, a condo might be a good option.
Many condominiums will offer security features such as a buzzer or guard service. Living amongst a group of neighbors also provides a sense of security when you leave for vacation.
If you’re not the kind to work out in the yard, or you’re not a know-it-all handyman, welcome to the wonderful world of condos where you don’t really have to worry about these chores. Many condominiums hire professional landscapers to maintain the exterior, and if something on the interior breaks they will have someone come fix it. Be careful here though, if you break it yourself through negligence, they may require you to cover the damages.
So, since you are the co-owner of all those lovely common areas, what’s actually in them? Often they will include tennis courts, swimming pools, a gym and other amenities you might not be able to afford on your own.
Cons of Buying a Condo
No Land Ownership
Unfortunately when you buy a condo, you don’t own the land beneath it, but share an interest in it with the other condominium residents.
It costs money to upkeep those lovely common areas, so as a condominium resident you will be required to pay a monthly fee that goes towards the maintenance and repair of the common areas. So if there’s a swimming pool, be sure to hop in every once in a while! There may also be an additional fee tacked on for any larger repairs and renovations.
Since you’ll be living in a community, with a community board or association that helps to govern it, you might find that the average homeowner doesn’t have the same experience as a property manager, leaving the association weak or inefficient.
There are also rules you’ll have to follow called the Covenants, Conditions and Restrictions. Typically these include restrictions on noise levels, renovations, pet ownership, and can go as far as how you landscape your porch/doorstep.
The bad news here is that condominiums tend to be very sensitive to market conditions, so although it’s hard to believe the market could get any worse right now, if it does, they are usually the first to suffer and the last to recover.
Getting a loan to buy your condo is no joke, and can often be tricky as there are specific rules that might make the process difficult. These rules also vary depending on whether you get FHA or Conventional financing, and then vary from lender to lender.
FHA Loans for Condos
First off, to obtain FHA financing for your condo, it must be listed on HUD’s FHA approved condominium list. The FHA has a list of criteria that a condominium project must meet before it can be approved to allow residents to use FHA financing to purchase or refinance a condo. Examples of this criteria include a limit on the total floor space of a condominium building to be used for commercial or nonresidential use; currently the max allowed is 35% of total floor space. Also, 50% of a condo’s units may be owned by a single investor or entity, so long as at least 50% of the total units in the project are owned or under contract for purchase by owner-occupants. No more than 15% of a development's units can be more than 60 days delinquent on condo association dues.
As you can see, these little rules may prove difficult to find a condominium project that allows for FHA financing. Start working off HUD’s list so you don’t waste your time! If FHA financing isn’t going to work, it’s time to seek conventional financing.
Conventional Loans for Condos
When it comes to conventional financing it will vary from lender to lender as it will depend on their investor guidelines. Some general criteria can apply however, for example, a lender will find it difficult to finance a loan on a condo in a building that has complex and costly lawsuits against it. The complex must also maintain appropriate insurance such as hazard, liability and flood insurance. They will also look at the percentage of homeowners delinquent on condo association dues.
Purchasing a condo, much like purchasing a home, is a big investment, and there are many considerations to make in terms of lifestyle and financing. If by the sounds of it, a condo may be your best bet as a first time home buyer, go for it, but make sure to research and find out as much as you can about the condo unit you are looking to purchase.
Please feel free to share with friends and family, especially those looking to purchase a condo as there is a lot of thought that must go into it!