Buying a condo — short for condominium — can be the perfect way to become a homeowner without the hefty price tag of larger properties. Condos may also be ideal for those who don’t have the time to maintain single-family homes or want a smaller place in general.
If you’re wondering how to buy a condo, weigh the benefits and downsides of your decision. Let’s take a closer look at what exactly is a condo, how you purchase one, and how to know it’s the best fit for your lifestyle.
What is a condo?
A condo is a single unit that’s housed within a property with multiple units. When you’re buying a condo, you’ll be the owner of one unit and will share common amenities with other condo owners within the same building or structure. These include gyms, pools, parks, playgrounds, and other types of outdoor or public areas.
Similar structures, such as apartments, on the other hand, are owned by the same entity and rented out to tenants. There may be similar amenities like you would find at a condo, but there is no homeowners association and you do not own the property.
How condo ownership works
While the condo owner is responsible for their individual unit, the shared areas are typically managed by a condominium association. Sometimes referred to as a homeowners association (HOA), it consists of a supervisory board overseeing duties such as maintenance in shared areas and communicating with residents.
Condo owners usually pay a fee each month (or within an agreed-upon time period) on top of property taxes, insurance, and their mortgage to cover expenses determined by the association. Depending on the property, condo owners may also have to occasionally pay for the maintenance of the building’s exterior. These costs may be included in the monthly fee or assessed as an additional charge for new amenities or unexpected repairs agreed upon by the condominium board. Some may impose additional fees to cover shared expenses, such as unexpected building repairs or new amenities approved by the condo board.
If you’re wondering how to buy a condo, the process is different from purchasing standalone structures, such as single-family homes. Lenders are usually more cautious when approving loans for condos because of additional requirements imposed by mortgage agencies, such as Fannie Mae and the Federal Housing Administration (FHA).
For instance, the Department of Housing and Urban Development (HUD) will only qualify FHA loan applicants who purchase condos from a list of approved condominium projects. Conventional mortgage lenders have a similar list provided by Fannie Mae.
In addition, lenders may impose more stringent loan-to-value (LTV) ratios for those who want to purchase a condo. The LTV ratio compares the mortgage amount to the property’s appraised value. For instance, if the property is worth $250,000 and you put a down payment of $25,000, your loan-to-value ratio is 90% because your mortgage amount is 90% of the appraised value.
Should I buy a condo? Pros and cons of condo ownership
Purchasing a property is a major financial decision and shouldn’t be taken lightly. Here are some things to know before buying a condo, in addition to the more stringent mortgage requirements.
|Low maintenance responsibilities||Less freedom and control|
|Generally more affordable||Less privacy|
|Proximity to amenities||Limited storage|
|More socializing opportunities||HOA fees and requirements|
- Low maintenance responsibilities: Condo owners are solely responsible for their own units, and therefore spend less time maintaining their properties. Other areas such as community spaces, walkways, parking spaces, landscaping, and the building exterior are handled by condominium associations.
- Generally more affordable: Purchasing a condo tends to be less expensive compared to other types of properties, such as single-family homes. This affordability makes it a smart choice for those on a limited budget or who are first-time homeowners.
- Proximity to amenities: Condos typically come with shared amenities, such as a pool, covered parking, gym, a grilling area, and more. Condos tend to be located in suburban areas, so you may have access to schools and family-friendly activities close by.
- More socializing opportunities: Though not always the case, there may be condominium associations that organize social events, such as seasonal parties or child-centered meetups. If you’re an outgoing person, you may enjoy the opportunity to meet your neighbors within close proximity.
- Less freedom and control: Since you share amenities with your neighbors, you may not have as much say when it comes to taking care of the exterior of the building and maintaining and improving upon common areas and landscaping.
- Less privacy: Since you are living in close proximity to your neighbors, you may have less privacy than if you were living in a single-family home. Plus, if you live close to neighbors who are loud or inconsiderate, you’re unfortunately stuck with them.
- Limited storage: You may not have any outdoor storage.
- HOA fees and requirements: In addition to property taxes and mortgage payments, condo owners also pay HOA fees, which may go up over time. HOAs may also impose restrictive rules, such as regulations on renting out your unit and the number of pets you can own.
Overall, someone best suited to condo life doesn’t want to spend a lot of time maintaining the exterior of their property, is looking for a more affordable home option, and prefers plenty of amenities nearby.
How to buy a condo: First-time condominium buying tips
Buying a condo is different from buying a single-family home. Consider this guide on what to look for when buying a condo to make the process easier to navigate.
Find an agent experienced in condo buying
Buying a condo is a major financial decision, so be sure to make an informed choice. Choosing a real estate agent who’s a good fit and can provide helpful tips for buying a condo will make the process smoother.
Choose an agent who has ample experience helping clients purchase a condo because they’ll understand the nuances involved with buying these types of properties. Speak with several real estate agents so you can make the right choice.
Research the property management company
Even if you like the physical property and the amenities in a condo, the property management company or HOA will affect your living situation. A property management company that isn’t well-managed will mean your building or amenities could be at risk of neglect. You may find you’re paying HOA dues only to have the value of your condo fall due to poor management.
As you’re touring properties, take note of the condo’s management company and do some research. It’s smart to ask questions, such as who handles requests from residents and what is their reputation. If the company manages other properties, see whether those buildings and amenities are well maintained.
Review the condo association’s financials
Finding out how an HOA budgets the money received from residents is crucial so you can see how the board allocates funds to various projects. If the money is poorly managed, you could end up having to pay more later. For instance, if there isn’t enough money in reserves to finance a building repair, special assessment fees may be imposed later, affecting your budget.
All residents should be able to view the financials to see if the HOA is operating properly, so request them to review how money has been handled in the past. Consider whether the association overestimated or underestimated costs for the year and what happens if there are excess funds.
Read over the condo’s rules, fees, and regulations
Understanding the rules and regulations you’ll need to follow are important because you don’t want to be at risk of any violations. If you feel the rules are too restrictive, you may not like living there. Checking on the association fees is also a good idea, because you can factor those costs into your housing budget. Ask how much the fees are and, if possible, see how much they’ve gone up each year.
Visually inspect the premises and speak with residents
When you’re buying a condo, be sure the exterior premises are in good shape. Also consider getting a home inspection to find potential problems in the condo interior.
Speak with current residents to gain insight into how well they like living there and whether there are issues with amenities and the buildings in general.
Checklist: What to look for when buying a condo
Here’s a condo-buying checklist to help make the homebuying process as stress-free as possible:
|Review the rules surrounding home renovations: Make sure you understand what you can and can’t do to your unit, in case you want to make changes after moving in.|
|Review the rules surrounding home rentals: Will you, the condo owner, be allowed to rent out the unit? If so, are short-term rentals allowed?|
|Check for the amount and frequency of special assessments: Look at the HOA’s budget to see how often they’ve requested special assessments, as that will give you an idea of how much more you could pay after moving in.|
|Check the rules regarding permitted pets: Make sure your dog, cat, or other pet is allowed in your condo. If so, review other regulations, such as your dog needing to be on a leash in common areas.|
|Review your unit’s parking allotment: Is a parking space included in your condo deed? If so, how many spaces can you have?|
|Review the HOA’s financials with your mortgage lender: Once you get a mortgage preapproval, having a professional look over the HOA’s financial documents can give you more insight as to whether the property has been well managed by the association.|
|Research the property management company: If the condo you want to buy is managed by a company with a negative reputation, it might be wise to stay away.|
Since financing rules for condos may be stricter than for single-family homes, reach out to lenders to see what types of properties are eligible for financing. A Finance of America Mortgage Advisor can answer your questions on condo financing and help you find the right mortgage.