What You Need to Know About Buying a Condo

Have you ever considered buying a condo? Many people think that condos are a style of home, but they can actually vary significantly in style. Instead, condos refer to the type of ownership, not its architecture. They’re often a good choice for first-time homebuyers, retirees, vacationers, and investors seeking rental income.

What is a condominium?

A condominium (condo) is a housing development where the homeowners own the inside of their home—but the exterior, land, and common areas are shared among all of the homeowners and managed by an association. As an owner, you have voting rights towards decisions made within the collective development.

Condos can range from high-rise buildings, to townhouse units, to even detached units.

Condos allow you to experience homeownership without some of the maintenance responsibilities that you’d have with a single-family dwelling, often at an affordable cost. To expand, a single-family home is a free-standing house where you own and maintain both the structure and anything on the land that it sits on.

Advantages of condos

Lower cost

One of the main advantages to purchasing a condo is that it’s often less expensive than buying a single-family home. However, sometimes the condo fees are very high, which offsets the sales price being lower. It also allows for more long-term cost stability than renting, especially with a fixed-rate mortgage.

In popular, urban areas with a higher-cost of living, condos offer a more affordable solution where single-family dwellings may be out of financial reach. They’re also a great option for vacation homes where house inventory is low and expensive.

Amenities

While living in a condo may have an added condo or homeowners association , that fee may come with some added benefits. Many condos offer features such as a pool, a fitness center, a movie screening room, rentable clubhouses, etc. Despite the fee, these amenities are offered at a fraction of the cost than you would traditionally pay.

Low maintenance

Single-family houses come with the added responsibility of maintaining the exterior of the home, including the lawn, fences, sidewalks, etc. However, another great advantage of condo-living is the association manages any external upkeep. You don’t have to worry about moving grass or power-washing siding, as there are workers on-hand for these types of issues. Does the property need a new roof? Instead of individually paying for this repair out-of-pocket, a major expense like this would be shared among all the owners, and is often budgeted for in the condo fee.

Security

If living alone seems a little daunting, condos may be a good option for you. Sometimes condos offer gated or locked entry, or even a security guard. You’ll also be in close proximity to your neighbors, so if you ever had an emergency, there would most likely be someone nearby to help out.

Master insurance policy

Another advantage of condominiums is they’re required to have a master insurance policy. This is a blanket policy that covers the entire development from things like liability, damage, and flood (if you’re in a flood zone). So if something were to happen, the master policy would kick in, making any deductibles a lot less painful than if you were to pay it yourself.

As a result, you’re typically only required to obtain an HO-6 policy, which covers the interior of your condo and the personal property inside.

Disadvantages of condos

Lack of privacy

You might enjoy having someone nearby in the case of an emergency, but you might not like it all day, every day. Most condos have at least one shared wall, so you may hear your neighbors above you, below you, or beside you. If you’re looking for total privacy or quiet, a condo may not be your first choice.

HOA

As mentioned previously, condos usually come with an added HOA fee. This fee covers the cost of your common areas, amenities, maintenance, and facility repairs. HOA fees vary significantly, based on what’s included, location, and the quality of the property. Also keep in mind that, unlike renting, you will also have to pay property taxes (which is the case for any type of home that you own).

Rules/Regulations

One reason a lot of people move towards owning versus renting is that they’re seeking flexibility. However, owning a condo may not offer as much of it as you might hope. Similar to renting, condos have rules set forth by management, such as parking, noise levels, door paint colors, pet policies, and more.

Financing options for condos

If you think condo-living may be the right choice for you, you may be wondering how buying one differs from a single-family house. Well, because of the unique, collective nature of condo developments, getting a mortgage on a condo has stricter standards for qualifying. VA, FHA, and Conventional loans all have various financing requirements. Unlike other home loans, the condo also has to qualify in order for your mortgage to be approved. And unfortunately, you have no control over that process.

Many local lenders will know which condo associations are approved by FHA, VA, Fannie Mae, and Freddie Mac. Atlantic Bay, for example, has a dedicated Condo Approval Department that can streamline the approval process with these entities.

The following are just some of the various condo requirements stipulated by Conventional, FHA, and VA.

• More than 50% of the condo’s units must be owner-occupied, meaning the person who owns the unit must consider it their primary residence (i.e. not a rental or second home).

• No single person or entity can own more than 10% of the units (depending on the total number of units).

• No more than 15% of owners can be delinquent on monthly HOA dues.

• No more than 25% of the condo project can be commercial space.

• Sufficient master insurance policy is always needed, even if the project is approved.

If you think condo-living could be for you, an Atlantic Bay mortgage banker can help you navigate the process every step of the way.